How does propping up the stock market help?

Discussion in 'Economics' started by maxitronixy, Jan 6, 2010.

  1. #11     Jan 7, 2010
  2. Which is why I think it's so important for finance and money to be taught throughout the education system to everybody. There is not nearly enough emphasis on this.
     
    #12     Jan 7, 2010
  3. How would that sell big screens, harleys and bassboats?
     
    #13     Jan 7, 2010
  4. pitz

    pitz

    Equity is the basis for all debt. You cannot have credit expansion, without equity expansion.

    So, by propping up equity, businesses can sell shares, and use the proceeds to fund new employment opportunities and economic activity.

    Think of it from a shareholders' perspective. If shares are trading at 4X P/E -- the shareholder will be mighty p*ssed if management dilutes their position by selling more stock to fund a project.

    If shares are trading at a 30X P/E -- dilution isn't a big problem, because the company is extracting real cash from the market.

    Propping up and monetizing the stock market, and *not* the credit markets, would be, IMHO, a much more efficient and productive way of implementing quantitative easing. The Fed should have taken the trillions of $$ spent, and bought index futures and stock index positions, instead of wasting it on the black hole of trying to monetize mortgage debt.

    This would also avoid the huge problem inherent with Fed MBS purchases and artificially low interest rates, and that is, they're still building houses! (making the situation worse!)
     
    #14     Jan 7, 2010
  5. The government should be forcing debt for equity conversions.
     
    #15     Jan 7, 2010
  6. pitz

    pitz

    The bankruptcy courts would have done that with the banks just fine, had they been left alone.
     
    #16     Jan 7, 2010