<As for the "wealth effect," that's one of those touchy-feelie things like consumer confidence, irrational exuberance, and animal spirits that I tend to discount.
......
And if they don't have to fill out a form to show to a lender, then they do the same process mentally. Rich people borrow more money than poor people because they can pay it back, and they know they can pay it back. But if it makes you feel better to call it the wealth effect, go ahead. I know what you mean.>
Yes, that's true CB. But rich people who spend their savings, mistakenly thinking that the spending is just future profits on the great companies they own shares in, get a big fright when they suddenly realize that they are NOT rich because their share prices were based on speculative mania, not discounted future cash flow and profits of their companies. They have spent their savings in one big, foolish, gush.
When they own Globalstar and buy a couple of executive jets, houses, boats, research facilities [to do some philanthropic investment] and stuff, based on the expected future earnings, they get a big fright when it goes bust.
They cancel their spending and start reading the job advertisements. That means those people who were selling jets, houses, boats and research facilities, also get a cash flow interruption and head for the unemployment lines and start reading the same job advertisements as our wealth-effect hero.
Fortunately, our hero didn't have all his nest eggs in Globalstar's basket. But philanthropic investing has been cancelled.
Mq |
