This article points to where all the money goes - but unfortunately no names or organizations: http://news.goldseek.com/TrendInvestor/1229359632.php Felix
You can also think the other way around. It only takes one or few persons to create wealth for alot of other people. This is dangerous in the sense that if people think wealth is stable, they can be in alot of trouble. Because people are able to take loan out on the amount of money a house has appreciated, it can create a bubble. let's say out of a street of 100 houses only 2-10 houses sell a year for avg. 900k. That means that if 8 houses get sold for 1 million, realtors will set the avg price of houses in that street for 1 million. That means over 90 houses got 100k richer. So then what if 90 people in that street take out 100k loans on the extra wealth that has just been created on their house and invest the money in the DOW, it will create a bubble. Because if the next year 8 houses sell for 900k average all the wealth has gone, so the money was not really there in the first place. The amount of winners will be less then the amount of losers. That's because the amount of losers not only is of people transferring their wealth into less amounts of money, but also comprised of people that had wealth, which they never transferred into physical money, so basically fake wealth. But on tv they usually will be shown as people who lost physical money, when it is also possible they lost unrealized fake wealth (until they sell their stocks ofcourse). The amount of winners is only the people that actually got handed physical money. Money is the only thing stable, yet money depreciates because of the printing of money, which is like a tax, while the disappearance of physical or electronic money, like through losing bills or binary numbers, is much less then the amount printed.
There are a lot of strange responses to this thread. It's really very simple: much of it simply disappeared. Something is worth what someone is willing to pay for it. As liquidity evaporates and there is less demand for it, the value falls. Perhaps the difficulty in comprehension lies in terminology. Wealth and value is usually measured in notional value, which has almost nothing to do with liquidation value. -M
So what do you think the Chinese can do with US money other than invest it back in US? The way I see it, it is the Chinese who are in trouble. The trade deficit of a world reserve currency acts as financing rather than wealth redistribution: http://www.fee.org/publications/the-freeman/article.asp?aid=6215
Often, valuation is used to describe wealth. Mark-to-market that is. They actually mean that valuations dropped that much. Do you know of a better system to describe wealth?
That's completely variable. You can look individual securities in a vacuum (use the book value, say), but were Google liquidating, you're likely not going to get a premium on those 700,000 Dell servers. Compound this with whatever events that would have to transpire to see a liquidation of Google (likely taking out a lot of other players first) ... This is what financial analysts try to figure out day in and day out, and they're usually wrong.
============================= Banks lend way more than they have on deposit / actual assets. If a bank has $1 million on its books, they CREATE 9 million to lend. Your demand, and the banks lending, expands the money supply by $9 million more than existed before. Which is why when there is lots of lending, asset prices pick up, and inflation gets created (inflation is expansion of money supply). Now, when people default, and/or banks retract credit, and banks write off losses, they take the $9 million out of the money supply, thus creating deflation. Thus the money simply does disappear, just as it was created from nothing, it goes back to nothing. How it's actuall worse the $9 mil that gets created, because one bank creates $9, on deposit at another bank, the $9 gets exapanded again. Watch for understanding: http://www.youtube.com/watch?v=cy-fD78zyvI -R
Thanks for the reply, Rick. I have watched that video before, and was glad to watch it again. I'm still a bit confused about how money gets created if the fractional reserve requirement is 10% of deposits. In the example in the video, the bank puts $1100 on deposit with the federal reserve and loans out $10,000. Ok, that makes sense, they just created money. But then, later, it says that the bank can only lend out 10% of what it has on deposit (fractional reserve) which is why they try to attract deposits. Easy enough But while lending out money that is on deposit under a fractional reserve system requires a modicum of sleight of hand (or faith in the statistical probability of the size and frequency of withdrawls), it is still not creating money. If you have $1M and you loan out $900k, you might be living dangerously, but you haven't created anything. On the other hand, if you have $1M and you loan $10M, which the video implies, then you've created money. So which is it? Do banks loan 90% of deposits (i.e. existing money), or 9 times deposits (i.e. bank-created money). There is a huge difference. And if it is 9x, then my thought experiment comes back into play. If you create $10M in loans base on $1M in deposits to build buildings, then foreclose on the buildings because the economy has collapsed, and liquidate the buildings for 20% of the loan amount (an indisputable disaster for the lender, right?), you're still $1M ahead in terms of cash. Of course, there's the small matter of the journal entry (jprad's term for it), but it was nothing to begin with, so why can't it go back to being nothing? It seems like if you can create money from nothing, it shouldn't matter if it comes back or not, as long as you can still service your depositors. I recognize that there is something wrong here, I just don't know what it is specifically, and I want to understand. Thanks.