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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (6044)	7/19/2001 2:46:33 PM
From: Don Lloyd	Read Replies (1) \| Respond to 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

To: Ilaine who wrote (6044)	7/19/2001 8:14:28 PM
From: Mark Adams	Read Replies (3) \| Respond to of 74559

I am intrigued by Richebacher's claim that "It is estimated that the stock market crash involved a wealth destruction of about $85 billion in total. Capital losses in the first wave of the crash in late October and early November 1929 amounted to about $25 billion." 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. I think this kind of statement rises from the fact that the total pool of stock is valued at the price the last trade took place. So while the last buyer paid $200/share for Ariba to the last seller prior to it's swoon to $5, and that money was not destroyed- the paper wealth of all the other Ariba shareholders appeared to rise and fall. Hence the 'destruction of trillions of dollars of wealth since 3/2000'. My personal thinking regarding the more recent example we've witnessed; because of the speed of the huge run up in share prices during 1q00, the appreciation had not been totally absorbed (and spent) mentally by the <bag>holders. Thus the impact of the reversal did not hurt as much as it might have if the price appreciation had taken place at a slower pace. Don's point on the potential revaluation of share prices in relation to money or real goods is well made. A risk going forward should the boomers decide to change their portfolio allocations en mass. BWDIK?

To: Ilaine who wrote (6044)	7/20/2001 6:21:06 PM
From: Mike M2	Read Replies (2) \| Respond to of 74559

CB, your attempt to discredit the claim of "easy money" is intellectually dishonest read two sentences further in the same paragraph . Quote " But this weakness in money growth, as already mentioned, had its cause by no means in lacking credit expansion but in the fact that credit creation occurred overwhelmingly through the securities and money markets, essentially involving no money creation." End Quote You also take his comment of no statistics available out of context or did not read carefully because he clearly explains that there are no statistics available about consumer installment loans and later mentions Quote " Further considerable lending took place through institutions outside of the banking system, chiefly savings banks and building and loan associations. With respect to the $85 billions in wealth destroyed of course it was paper but the wealth effect tends to boost consumption and reduce savings furthermore in times of booming market people tend to sacrifice liquid positions to participate in the boom in financial assets the result is cash balances relative to securities are low so that the system has accumulated illiquidity ( sell to whom? Mr. Tough Love ain't buying -g-) Mike ho ho ho