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Some of ANOTHER
(THOUGHTS!) on the value of paper, circa 1997:
In essence, it is
of the same value as the currencies, "the thoughts of nations, blowing
in the wind".
How can one know
value in currency, when paper does not lie still? It moves at night, where
noone can see, and this we hold to prove our worth? Real things know not this
paper value, for they hold tight in the earth. In this time, we do stand firm
with value and watch as "thoughts of others change in the wind"!
All persons hold
wealth as never before, but search in vain for "this measure", one
that "blows not in the wind of thought".
Hold your worth
firm on the ground as no storm will move a true value with weight, a weight
for the winds of this season, gold!
How long do
persons continue to make these paper claims to "bonds",
"stocks" and "currencies" that are produced in numbers as
the leaves on the trees? These seasons of spring and summer of twenty years
time, have offered a harvest to gather wealth that lasts for centuries. When
the economy of the dollar, becomes as your "Autumn" and arrives
suddenly, they will pause from this foolishness. In that time, the savings
for the future of their children will be as these dried "leaves"of
winter, blowing in the wind!
Jump ahead to October 11, 2008:
AP: All that money you've lost — where did it go? By
ERIC CARVIN, Associated Press Writer Sat Oct 11, 12:41 PM ET
<--Link
Full text of the article:
NEW YORK -
Trillions in stock market value — gone. Trillions in retirement savings
— gone. A huge chunk of the money you paid for your house, the money
you're saving for college, the money your boss needs to make payroll —
gone, gone, gone.
Whether you're a stock broker or Joe Six-pack, if you have a 401(k), a mutual
fund or a college savings plan, tumbling stock markets and sagging home
prices mean you've lost a whole lot of the money that was right there on your
account statements just a few months ago.
But if you no longer have that money, who does? The fat cats on Wall Street?
Some oil baron in Saudi Arabia? The government of China?
Or is it just — gone?
If you're looking to track down your missing money — figure out who has
it now, maybe ask to have it back — you might be disappointed to learn
that is was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion that you
lose a pile of money whenever the stock market tanks is a
"fallacy." He says the price of a stock has never been the same
thing as money — it's simply the "best guess" of what the
stock is worth.
"It's in people's minds," Shiller explains. "We're just
recording a measure of what people think the stock market is worth. What the
people who are willing to trade today — who are very, very few people
— are actually trading at. So we're just extrapolating that and
thinking, well, maybe that's what everyone thinks it's worth."
Shiller uses the example of an appraiser who values a house at $350,000, a
week after saying it was worth $400,000.
"In a sense, $50,000 just disappeared when he said that," he said.
"But it's all in the mind."
Though something, of course, is disappearing as markets and real estate
values tumble. Even if a share of stock you own isn't a wad of bills in your
wallet, even if the value of your home isn't something you can redeem at
will, surely you can lose potential money — that is, the money that
would be yours to spend if you sold your house or emptied out your mutual
funds right now.
And if you're a few months away from retirement, or hoping to sell your house
and buy a smaller one to help pay for your kid's college tuition, this
"potential money" is something you're counting on to get by. For
people who need cash and need it now, this is as real as money gets, whether
or not it meets the technical definition of the word.
Still, you run into trouble when you think of that potential money as being
the same thing as the cash in your purse or your checking account.
"That's a big mistake," says Dale Jorgenson, an economics professor
at Harvard.
There's a key distinction here: While the money in your pocket is unlikely to
just vanish into thin air, the money you could have had, if only you'd sold
your house or drained your stock-heavy mutual funds a year ago, most
certainly can.
"You can't enjoy the benefits of your 401(k) if it's disappeared,"
Jorgenson explains. "If you had it all in financial stocks and they've
all gone down by 80 percent — sorry! That is a permanent loss because
those folks aren't coming back. We're gonna have a huge shrinkage in the
financial sector."
There was a time when nobody had to wonder what happened to the money they
used to have. Until paper money was developed in China around the ninth
century, money was something solid that had actual value — like a gold
coin that was worth whatever that amount of gold was worth, according to
Douglas Mudd, curator of the American Numismatic Association's Money Museum in
Denver.
Back then, if the money you once had was suddenly gone, there was a simple
reason — you spent it, someone stole it, you dropped it in a field
somewhere, or maybe a tornado or some other disaster struck wherever you last
put it down.
But these days, a lot of things that have monetary value can't be held in
your hand.
If you choose, you can pour most of your money into stocks and track their
value in real time on a computer screen, confident that you'll get good money
for them when you decide to sell. And you won't be alone — staring at
millions of computer screens are other investors who share your confidence
that the value of their portfolios will hold up.
But that collective confidence, Jorgenson says, is gone. And when confidence
is drained out of a financial system, a lot of investors will decide to sell
at any price, and a big chunk of that money you thought your investments were
worth simply goes away.
If you once thought your investment portfolio was as good as a suitcase full
of twenties, you might suddenly suspect that it's not.
In the process, of course, you're losing wealth. But does that mean someone
else must be gaining it? Does the world have some fixed amount of wealth that
shifts between people, nations and institutions with the ebb and flow of the
economy?
Jorgenson says no — the amount of wealth in the world "simply
decreases in a situation like this." And he cautions against assuming
that your investment losses mean a gain for someone else — like wealthy
stock speculators who try to make money by betting that the market will drop.
"Those folks in general have been losing their shirts at a prodigious
rate," he said. "They took a big risk and now they're suffering
from the consequences."
"Of course, they had a great life, as long as it lasted."
Just how often do we see this kind of an explanation being made to the
public? The answer is not very often. I made a comment about this the other
day:
FOFOA said...
Ender,
This is what I think is hard for people to understand. Let's think about a
stock market crash of 3000 on the Dow. That would be a massive bloodbath. But
do any stocks disappear? No. All stocks that have been issued by companies
still remain. If there were 100 Trillion shares before the crash, there are
100 Trillion shares after the crash.
So do dollars disappear? Nope. There are still the same amount of dollars in
the world as there were before the crash. If there were $60 Trillion dollars
before the crash (counting all currencies), then there are still $60 Trillion
dollars after the crash!
So what just happened? There was such a bloodbath. So many people went broke.
Suicides, chaos... But what actually happened? There are still the exact same
number of dollars and the exact same number of stocks in existence.
What actually happened is difficult to understand. Money wasn't lost. If you
lost something, it wasn't money. This is the key to everything IMO.
FOFOA
ps. This imaginary scenario is a real possibility right now.
October 5, 2008 12:50 PM
Ender said...
Perceived value is an interesting thing. It depends on another.
Functional value does not.
October 5, 2008 1:02 PM
It is interesting that over the years the public has been conditioned to be
scared of this:
Back then, if the
money you once had was suddenly gone, there was a simple reason — you
spent it, someone stole it, you dropped it in a field somewhere, or maybe a
tornado or some other disaster struck wherever you last put it down.
And then "they" gave us a more "secure" place to
"put" our "money". And the icing on the cake? They called
it a "security". How about this one... a "Mortgage
Backed Security". And all the while, even to this day, they talk trash
about gold, especially about the crackpots that actually hold physical gold
in the security of their homes.
As Another said long ago, "My thoughts are as free as the wind",
"Secrets are for fools", "All paper will burn", and
"Time will prove all things."
Those are powerful words, especially if you consider, as I do, that Another
might have been an actual European Central Banker, not unlike those meeting
this weekend to plan out the future of paper.
FOFOA
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