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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: accountclosed who wrote (37750)	11/29/1998 3:23:00 PM
From: Tommaso	Read Replies (2) \| Respond to of 132070

Well, yes, of course--people who have a lot of wealth in stocks, or feel that they do, may be likely to live on credit, and the willingness of banks to lend to them certainly expands the money supply. But in the end paper money represents a command over tangible goods and measurable services. It can be used to pay debts. Stocks can't be used to pay debts unless you sell the stock first, though companies do acquire other companies by exchanges of stock. You don't advertise your house for sale for 1,000 shares of IBM. Or if you did, you'ld pretty quickly find that someone had figured a way to arbitrage against you. Economics is like politics in that in large part it is indeed mass psychology. But it's mass psychology tied to a material basis, and money is the measurement of that basis. In a well-managed economy, the money supply is rigorously controlled. That wasn't always true. In the nineteenth century there were repeated episodes of the issuance of bank notes that were eithered honored at face value or at a discount, depending on how far away the issuing bank was and how sound it was believed to be. If we have the kind of catastrophe that looks imminent to me, we may end up with much more restrictive controls on common stocks than now exist. For example, I can imagine the congress making it illegal to conduct stock trading on the Internet, or requiring that all stocks be redeemable at some minimum monetary value, more like a bond. This would require companies issuing stock to hold cash balances against the value of the stock. (I am not declaring for or against any such thing, but would not be surprised if it happened. Most controls that now exist, requiring regular releases of information and setting margin requirments, did not exist prior to the 1929 catarophee.)