Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Ilaine who wrote (6044)	7/19/2001 2:46:33 PM
From: Don Lloyd	Read Replies (1) of 74559

CB - ...We have been talking about whether there was real wealth that was destroyed when the market crash, and concluded that there was not. The buyer pays the seller, so the money goes from the buyer to the seller, it's not destroyed. Even if the seller sells at a loss, he paid the one he bought from, so that money wasn't destroyed, either.... However, the distribution of money is also important, not just the total quantity. The aggregated subjective valuation of money in terms of goods exchange rate is the the key result, and the quantity of money is just one of the factors that determines it. From the POV of an individual, a rich portfolio of stocks partially reduces the demand for money and is inflationary in and of itself, everything else being equal. The really illiquid nature of the portfolio is largely ignored. When the reversal comes the demand for money returns with a vengeance and the increased exchange value of money produces results that are just as deflationary as if the quantity of money itself were decreased. Regards, Don

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