Where is the money going?
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- lordmetroid
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Where is the money going?
So the Stock market is crashing, where is the money being funneled too. There has been a slight increase in Bonds but is this just noise or are smart money switching?
Re: Where is the money going?
Government bonds.
The government bond market dwarfs the stock market, so even if each dollar that left the stock market went straight into the bond market, it wouldn't necessarily create a corresponding rise in the bond market.
The government bond market dwarfs the stock market, so even if each dollar that left the stock market went straight into the bond market, it wouldn't necessarily create a corresponding rise in the bond market.
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Re: Where is the money going?
Especially if most of those dollars are going into short-term bonds or bills, which I suspect is the case.MediumTex wrote: Government bonds.
The government bond market dwarfs the stock market, so even if each dollar that left the stock market went straight into the bond market, it wouldn't necessarily create a corresponding rise in the bond market.
Re: Where is the money going?
debt payoff?Desert wrote: And of course some of the money is just ceasing to exist.
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Re: Where is the money going?
My Sep-IRA which is a static account, since no new money has gone into it for years, contains zero stock - only short and long term bonds and gold.
I am happy to report that it hit its all time peak value today and the gain doubled the stock losses in the other accounts.
This is the PP I came to know and love when I first started out.
I am happy to report that it hit its all time peak value today and the gain doubled the stock losses in the other accounts.
This is the PP I came to know and love when I first started out.
Re: Where is the money going?
David Tice says that "it went to money Heaven" when referring to such reductions in the value of an asset.Desert wrote:Yes, some of that, but I was thinking more of the money destruction that occurs when an asset falls in value.Bean wrote:debt payoff?Desert wrote: And of course some of the money is just ceasing to exist.
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Re: Where is the money going?
Gnashing like this?Desert wrote:I like that.MediumTex wrote:David Tice says that "it went to money Heaven" when referring to such reductions in the value of an asset.Desert wrote: Yes, some of that, but I was thinking more of the money destruction that occurs when an asset falls in value.
Of course when it's my assets that drop in value, I like to think of it as money that went to the outer darkness, where there is wailing and gnashing of teeth.
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- lordmetroid
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Re: Where is the money going?
Money isn't destroyed in the stock market, it simply changes hands.
- Pointedstick
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Re: Where is the money going?
If you buy a house for $500,000, but then the housing market falls and you have to sell it for $300,000, nobody else got your missing $200k. It just vanished. Poof!
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Re: Where is the money going?
I can hear Harry Browne saying "Money heaven?" in my mind's ear as I read this. I think he most have been reading an emailed question aloud, the same question as Lord Metroid's: (After the stock crash) where did the money go?MediumTex wrote: David Tice says that "it went to money Heaven" when referring to such reductions in the value of an asset.
I can't remember Harry's answer.
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Re: Where is the money going?
That's one way of looking at it but If you bought for $500,000 and then when the housing market failed you sold to somebody for $300,00 and they held onto it until the housing market recovered and they could sell it for the original $500,000, couldn't you also say they got your $200,000?Pointedstick wrote: If you buy a house for $500,000, but then the housing market falls and you have to sell it for $300,000, nobody else got your missing $200k. It just vanished. Poof!
- lordmetroid
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Re: Where is the money going?
No, you clearly say it yourself. The money doesn't disappear.
The money was given to someone else when you bought your stock or house or whatever, it was never destroyed. Then when you sell, you receive someone else's money.
Paying off credit is the only way currency can be destroyed.
The money was given to someone else when you bought your stock or house or whatever, it was never destroyed. Then when you sell, you receive someone else's money.
Paying off credit is the only way currency can be destroyed.
Re: Where is the money going?
I agree. Let's consider a little hypothetical adventure:lordmetroid wrote: No, you clearly say it yourself. The money doesn't disappear.
The money was given to someone else when you bought your stock or house or whatever, it was never destroyed. Then when you sell, you receive someone else's money.
Paying off credit is the only way currency can be destroyed.
Pointedstick has $500,000. I have a house. Lordmetroid has $300,000. Together we have $800,000 and a house.
PS buys my house. I get $500,000 (thanks, PS!). LM covets PS's house, but keeps his $300,000 for a time when houses aren't so expensive. Together, we have $800,000 and a house.
The housing market falls and PS is forced to sell. LM says, "I'll give you $300,000 for it." PS grumbles, but accepts the deal. Final score: LM, one house; PS, $300,000; me, $500,000. Together, we have $800,000 and a house. No money, or real estate, has been destroyed.
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I'm reminded of the classic puzzle of the three fellows who get a room for the night at a hotel. They are told its $30 for the night. They each pay $10. The owner realizes later on that he made a mistake -- the room costs only $25 -- so he gives the bellhop five dollar bills to take up to the room. The bellhop is a bit of a cad; he thinks up a scheme. "I'll tell these three fools that the room is $27 for the night and I'll keep a couple of bucks for myself. Nobody will be the wiser. My boss gets what he wants, they get a refund -- what's not to like?" The three travelers are delighted to each get a dollar back. They've paid $9 each. Add on the bellhop's $2 and that's only $29. Where did the other dollar go?
Re: Where is the money going?
That's a great puzzle, and it always takes me a bit to figure it out.
The trick is you have to subtract the bellhop's $2, and it adds up to $25, right?
$30-$5=$25. And 3x$9=27-$2=$25.
What's really happening is that the three guys give the motel owner $27 in total, and the bellhop takes $2 of it.
The trick is you have to subtract the bellhop's $2, and it adds up to $25, right?
$30-$5=$25. And 3x$9=27-$2=$25.
What's really happening is that the three guys give the motel owner $27 in total, and the bellhop takes $2 of it.
Last edited by jafs on Tue Jan 26, 2016 12:30 pm, edited 1 time in total.
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Re: Where is the money going?
Oh man, I was just thinking of this too!Pet Hog wrote: I'm reminded of the classic puzzle of the three fellows who get a room for the night at a hotel.
Re: Where is the money going?
Who's on first?
- buddtholomew
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Re: Where is the money going?
I don't think the example is correct. If PS exchanges 500K for your house, then your house is worth 500K for a total of 1.3M. PS ends up losing 200K, you have 500K and the house is 300K for a total of 1M. Maybe I'm mistaken but the difference is the 200K loss in home value.Desert wrote:Hmmm.... unless you turned around and bought a house with that $500,000 and it also fell to $300,000.Pet Hog wrote:I agree. Let's consider a little hypothetical adventure:lordmetroid wrote: No, you clearly say it yourself. The money doesn't disappear.
The money was given to someone else when you bought your stock or house or whatever, it was never destroyed. Then when you sell, you receive someone else's money.
Paying off credit is the only way currency can be destroyed.
Pointedstick has $500,000. I have a house. Lordmetroid has $300,000. Together we have $800,000 and a house.
PS buys my house. I get $500,000 (thanks, PS!). LM covets PS's house, but keeps his $300,000 for a time when houses aren't so expensive. Together, we have $800,000 and a house.
The housing market falls and PS is forced to sell. LM says, "I'll give you $300,000 for it." PS grumbles, but accepts the deal. Final score: LM, one house; PS, $300,000; me, $500,000. Together, we have $800,000 and a house. No money, or real estate, has been destroyed.
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But actually I think you're right and I was wrong. It depends where one draws the boundary (control volume, if you will). But I believe if one zooms out far enough, that's correct ... no money is destroyed.
Last edited by buddtholomew on Tue Jan 26, 2016 8:05 pm, edited 1 time in total.
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- lordmetroid
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Re: Where is the money going?
Value and money are two different things. Money is objective and value is subjective.
The value is determined by the preference of a person. Someone who dislikes the house or have no need for a house will value that house much lower than someone who wants the house.
The value is determined by the preference of a person. Someone who dislikes the house or have no need for a house will value that house much lower than someone who wants the house.
- buddtholomew
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Re: Where is the money going?
The house is marked to market.
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Re: Where is the money going?
Yes, it depends on if you count the value of the asset as "money." If you do, then a decline in asset value is money destruction. It's ambiguous, to be sure. There are definitely people whose planned spending or purchasing power is based on asset values.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
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