What would happen without the FED?

I dissagree...you don't want to discourage investment as thats where the new entrepenurial jobs come from!

 

I am not talking regulation.....I am talking of the actual manipulation of the markets through saving insolvent corporations and banks and things like that!

 

And I'm telling you, you need to dig further with your thinking. You are arguing over the wrapping paper on a present that is defunct.

 

I dissagree!

 

Think about it bacardi. Do you honestly think a guy who needs widgets, and a guy who makes widgets, can't possible trade without a stock market representing them both? The stock market actually doesn't participate in the trading what-so-ever. It only serves for the trading of ownership, which more companies have been destroyed by than created. It is a pool full of sharks that feed off young entrepreneurs dumb enough to try and "get their feet wet".

 

Now you think for a moment.......without markets where would companies that need to expand get the capital necessary to expand? Its fine for a corner store to expand I guess as we are talking chump change....but what about an airline? Aircraft cost millions of dollars each. How about a copper mine......those large haulers are over 1 million dollars each plus you need to reach the deposit first before you make a dime and that can take 6 months or longer! So you need start up capital.

Markets do serve a purpose....as for the speculators? They seve a purpose too as they keep the markets liquid!

 

You just said Govt needs to keep its nose out, and now you're defending a Govt tax policy that effectively taxes productive earnings more than twice the rate as speculative investment income.

Make up your mind.

 

That wasn't manipulation of the stock markets.

 

read my other post ....I meant things like bailouts and saving insolvent banks along with guaranteeing mortgages through freddie and fanny etc!

 

That isn't manipulation of stock markets.

So why isn't a tax policy that effectively taxes productive earning and more than twice the rate as speculative investment Govt policy manipulation?

 

If the potential is lucrative, no stock market is needed to find an investor or bank house that would loan for interest. The stock market serves more of a purpose for those who run cons of fake start ups looking for naive investors and Wall Street staples who make money off of chopping up real companies.

 

If you consider that equity markets are vast repositories of accumulated capital, and that much of that accumulated capital never leaves, equity markets, while good at accumulating capital, seem particularly poor at redistributing it to the wider economy.

It is not uncommon for equity markets to accumulate so much of a nations capital that all other economic activity is stifled. The market can continue to grow well after the underlying economy has entered decline. It is also not uncommon for market speculation to create equity bubbles that, when they burst wreak economic havoc on the wider economy. Besides, equity exchanges also have designated market makers who are required to buy shares when no one else will to keep the market liquid.

It seems an awfully steep price to pay for the comparatively insignificant financing of new share issues and supposedly maintaining liquidity.

Also, equity markets are not a favorite place for established companies go to gain capital financing. It is more of a last resort as new share issues tend to reduce the value of existing shares while raising capital from other sources, like selling bonds, or borrowing from banks or other lenders, does not.

 

incorrect...no bank will ever loan 100% of the money....a venture capital firm might but then again many venture capital firms also get the funds from the markets!

 

uhmmm...bubbles are not created by markets, they are created by monetary policies of central banks. If you have sound money and a balanced budget you can eliminate bubbles! From what I read even the tulip frenzy in Holland was caused by the central bank....I forget the entire story but the central bank did something at that time!

 

According to who?

 

According to the gold bubble in 1980, silver price bubble in 1980, the tech stock bubble in 2000, the real estate bubble in 2006 just to name a few recent ones.

 

So therefore gold is in a bubble now?

 

No, wrong. Equity bubbles are not created except by markets. All it takes for a bubble to form in the markets is an inflow of money that causes prices to rise precipitously. This attracts even more money as everyone rushes to buy in which pushes prices ever higher. When prices stop rising everyone rushes to sell in a market suddenly bereft of buyers, which causes prices to collapse. This phenomenon has nothing to do with government deficits or the soundness of a nations currency, it is simple market economics, and a little mass psychology.

You have been confused by a simplistic and logical, but entirely wrong argument that the excess flows of money that create equity bubbles are entirely created by local fiscal and monetary policy. If you had any understanding of the history of money, its accumulation and its movement, you would see the how flawed this argument is.

We can explore the veracity of our positions by considering an event that occurred in 1997. In the years leading up to 1997 Thailand had what was considered a very sound fiscal and monetary policy. Foreign currency reserves were high to insure a sound currency for international trade needs and the government was operating with a fiscal surplus and had little debt.

Due to pressure from the IMF and the WTO Thailand opened its real estate market to international investment. Vast sums of money flooded into Thailand, the value of the Thai Bhat increased enormously as overseas investors sought local currency so they could invest in the rapidly increasing price of Thai real estate. Thai exports declined as the value of the Bhat rose. Manufacturing exports began to falter and then collapsed and brought incomes down with them.

The real estate market, and the value of the Bhat went into free fall as international investors moved to flee the market. The Thai government, desperate to keep up the value of the Bhat so food imports could be paid for and the population not starve, took on huge loans from the IMF which essentially paid off fleeing investors in hard currency but left Thailand with a huge debt, a collapsed economy, and "austerity measures" that drastically reduced government social spending at a time when it was most needed. This crises in Thailand spread across Asia and the world, eventually reaching as far as Russia and Brazil, causing vast social and economic calamity. The dot.com bubble in the US was not unrelated to this.

It was 12 years before Thailand recovered the economic losses caused by this inflow of money into its real estate market.

 

Bubbles always self-correct, assuming the government allows it to happen, which would imply that the market acts rationally in the long run.

What's more, the stock and housing bubbles you referenced were, arguably, a direct result of myopic fiscal and monetary policy, which is a failure of government intervention, not "irrational" markets.

 

The position I don't get from the anti-Fed bunch on their theory is what they thing the effect of overall money policy is on a specific market. Each bubble was a specific market, not a global bubble in all market prices which would be matched by high inflation.

I think their logic is that if we only had really high interest rate, that bubble would not have happened.

But the rest of the economy would have been in a recession too. It's using a shotgun to get a mosquito.

 

right now gold is simply reacting to the loss in confidence in paper money around the globe. Eventually when the lunchbox Joe's jump on the bandwagon and you see the long lineups at coinshops it will be in a bubble. In case you didn't know....right now americans are still net sellers of gold...this to me is highly bullish for gold, add to that the fact that gold stocks are still selling at rediculously low multiples tells me there is still incredible pessimism towards gold....had it been in a bubble the multilples on gold stocks would be astronomical as it was during the tech bubble.

When you see both high multiples for gold mining shares "AND" long lineups at coin shops then I would say "YES" we are in a gold bubble!

 

We have liftoff!

See bacardi is "smart" and understands gold, but lunchbox Joe's don't (if they did they would have bought a whole bunch a long time ago).

Ah the gold bugs and their "secret knowledge" meme.

 

Whatever that means. So markets are irrational in the short run but in the long run are rational?

Wow, I'd like to have an economist parse this bit of psycho-economic pop culture.

By the way, as Keynes pointed out, in the long run, we're all dead, so short run irrationality isn't something to dismiss with market evangelism.

 

why thank you......when I buy my ferrari I will give you a ride

 

name me one bubble that has ever formed with high interest rates at hand?