Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (17072)	2/10/2004 1:46:19 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

Let's examine your statement and most will suddenly understand why Stephen Roach of Morgan Stanley now describes the American economy as being based on "asset inflation." "Ask yourself this, if Americans had little or no savings since 1986 or so as you state, what is it that so many are concerned about them having lost trillions in the stock market correction? Could it be that there is a flaw in the way savings is calculated in that it doesn't count unrealized gains?" - Grace Zaccardi You claim a loss of trillions in savings because of the collapse of the bubble. Just imagine if the bubble had been 1,000 times bigger - why you'd be claiming a loss of quadrillions!! Stocks or tulip investments ultimately only have the value of their income stream. This is what Roach means by an "asset inflation" based economy. The actual income of the economy doesn't increase greatly, only the asset prices do. Oh yes, pro-forma nonsense may misrepresent actual earnings but that's an illusion, just like the imagined wealth represented by the stocks or the tulips.

To: GraceZ who wrote (17072)	2/10/2004 3:19:09 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 306849

This is bit is a little abstract, but money is a social construction - about as abstract as it gets. The Austrian school says that Capital at any point in time is fixed, regardless of how many paper certificates you divide it into. Pretty obvious really. Milton Friedman's school of Monetarism says you can print more money to brighten up an economy with too much debt. Here, you'll see why many economist snidely refer to Monetarists as just Keynesian's with funny name. Now Friedman well knows that increasing the money supply doesn't actually increase Capital. But the extra money makes people think they have more Capital, so it tends to trick them into spending - so Monetarism is simply a disguised form of Keynesian stimulation. By making someone think their house is worth twice as much Capital, you can trick them into borrowing half the value of their house and spending it. If the price of their house had remained the same you would be very unlikely to get them to spend half their house to help pump up incomes. But if you double the money supply, the price of their house doubles - so they mistakenly think they have twice as much capital, when it's actually still just one house.