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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: andiron who wrote (63653)	6/14/2006 11:18:04 AM
From: stockfiend	Read Replies (1) \| Respond to of 110194

"Money" disappears when an asset price falls because an asset is not money itself. Rather, an asset is only a store of value, the measure of which is determined by the market an asset trades in. When the value of all assets rise, people believe they are richer, ie have more money, because in their mind they mark their asset to market, assuming they can sell their asset at any time, at the prevailing market price, and exchange their appreciated asset for more money than they started with. In reality, the total supply of money hasn't increased - in fact, the supply of money available to buy more assets has actually decreased. The illusion of wealth disappears once everyone decides to sell their assets and exchange them back for money. Since there's less money available to buy assets (it's all tied up in assets after all), buyers must sell other assets to buy the assets sold by other sellers. Since the total supply of money never changed, it’s impossible for everyone to exchange their appreciated assets back for more money than they started with. In other words, it's a zero-sum game.