The Stock Market

Originally posted by kmax87
If you want a fundamental flaw in the system, then there it is. The accumulation of money due to being paid interest on some principal amount is at the root cause of the problem.

This is patently not true.

The reason why is that you forget that there is indeed real growth. We are able to produce more today than we were in the past. This is not a mirage, let alone some unattainable chimera. It is done year after year in nearly every country in the world. The idea that the existence of interest to be repaid on money issued in circulation leads to a necessary devaluation of money is then false.

An example might help here. Imagine what would happen if there was a fixed amount of money in circulation, no banks (so we have no money creation by them) and no interest to be repaid. What would happen is that real growth would mean that there would be more goods for the same amount of money. The value of each unit of money would then be higher, which means that prices per unit of good would fall. The logical conclusion is that there is a non-zero rate of growth of money, which ensures that the value of money stays constant. If deflation is undesirable* then the optimal policy is NOT keeping the money supply constant, but increase it at the rate of real growth. Actually, say that the optimal rate of inflation is between 1-2%*. The money supply would then need to grow MORE than the real economy and money devalue slowly.

This is the job of central banks and why they are so crucial to the well-being of economies. They need to keep the balance between deflation and high inflation levels, both of which slow real growth.

So the perpetual need to create money that repays such interest is not a problem in itself, granted that the interest rates are set at a level that manages the difficult balance I mention above.

* Assumptions I make for now, we can go into each if you want, but I don't want to get into tangents here.

Originally posted by Palynka
They need to keep the balance between deflation and high inflation levels, both of which slow real growth.

I would go as far to say that we should legislate around a zero inflation outcome such that if any growth is experienced it is indeed real. We are seeing who pays when we allow certain very large players to chase very high growth targets. Targets which are far and away above real growth.

The way this growth is achieved is usually at a great cost to competitors in the market, such that we take it for granted that companies will act in very predatory ways and that in the market itself, the need to defend yourself from being raided, or being constantly on the attack as a best form of defence has only produced one thing. That we are a slave to the market and that the market which was put there to serve the interests of consumers, in that it provided an arena, a clearing floor of exchange, has now for a very very long time simply existed as an end in itself.

When you zero in to all the frenetic activity on Wall St that has absolutely nothing to do with any real product, or providing a real service other than in an unintended way( this after all is central to Adam Smith's belief of the invisible hand of self interested actions having unintended but beneficial consequences) what eventually happens is that there is no factor of safety built into the operation of this type of arrangement. If people were more important than the relative difference between two positive numbers on some corporations balance sheet, then whatever regulation needs enacting to ensure that whatever happens, the cycles of boom which follow the bust to usher in the newest latest depression, will never happen again. Whether you call it control or the lack of it or whether you call it greed or simply playing the toughest game of survival in town, the fact of the matter is that there is a myriad of controls(responses if you don't like the word control) that are set into motion by the central banks and government fiscal policy to maintain some form of market equilibrium. Anyone who says this does not happen is simply wrong. The point is that it is the consensus of what that equilibrium should look like, and the adjustment to those controls that might be needed, such that competition in the marketplace may finally adapt from the winner takes all approach, to a more winning through innovation and efficiency.( And that's not efficiency through lowered cost by sacking the workforce either)

We need the market to be put back into its place of serving and being of service to people. We need money, the exchange commodity to be regulated in such a way that there would be no inherent advantage in attaining more of it. When we work out that many market practices such as the maintenance of food mountains to protect the price of staples, and the practice of speculation and futures markets which are more about lining pockets than maintaining supply of essentials or putting food on tables then what you work out is we need a fiscal revolution the scale of which will rival the American and French Revolutions for the way it will impact peoples lives and the way in which we live.

Originally posted by kmax87
If people were more important than the relative difference between two positive numbers on some corporations balance sheet, then whatever regulation needs enacting to ensure that whatever happens, the cycles of boom which follow the bust to usher in the newest latest depression, will never happen again.

This thought was expressed incompletely. It should have continued......

" If people were more important than the relative difference between two positive numbers on some corporations balance sheet, then whatever regulation needs enacting to ensure that whatever happens, the cycles of boom which follow the bust to usher in the newest latest depression, will never happen again, the time to regulate is now"

Originally posted by kmax87
I would go as far to say that we should legislate around a zero inflation outcome such that if any growth is experienced it is indeed real. We are seeing who pays when we allow certain very large players to chase very high growth targets. Targets which are far and away above real growth.

The way this growth is achieved is usually at a great cost to ...[text shortened]... and French Revolutions for the way it will impact peoples lives and the way in which we live.

This makes a good deal of sense to me.

But the reality of this system militates against anything that is not based on diverting public money into private hands and covering it up with rhetoric about the public interest being served.

Originally posted by Nemesio
Hrm. I had trouble following kmax's explanation, but I'm going to give it a few more read-throughs
before I ask questions.

I guess what I'm confused about is this:

I'm a company and I decide to go public, so people buy the stock. Let's say each share is worth 10
bucks (who assigns the initial value, the company?) and I sold 1000 shares (or whate ...[text shortened]... have a little more time this evening and formulate a few more
questions.

Nemesio

for the price of fees and stock paid to the underwriters, they sold you a bunch of paper, and kept the money you paid them.

later, they can write off this paper they sold you by declaring themselves bankrupt, and it becomes worthless. they reorganize, ald later issue new stock.

Originally posted by kmax87
I would go as far to say that we should legislate around a zero inflation outcome such that if any growth is experienced it is indeed real. We are seeing who pays when we allow certain very large players to chase very high growth targets. Targets which are far and away above real growth.

The way this growth is achieved is usually at a great cost to ...[text shortened]... and French Revolutions for the way it will impact peoples lives and the way in which we live.

That's very different from what you were saying above, which was about the interest to be paid on money in circulation. This was what I was commenting about.

I would go as far to say that we should legislate around a zero inflation outcome such that if any growth is experienced it is indeed real.

The problem is that this is easier said that done. Central banks do not have the information nor the power to be able to fix inflation exactly at zero. This means that the economy would go through regular periods of deflation, which historically have tended to stagnate the economy. This is one of the reasons why a positive but small inflation rate is often seen as preferable.

Real growth is still measured regularly and (I would say) is the main target of economic policy. The whole purpose of central banks controlling inflation is based on promoting long-run real growth, not nominal (which would be much larger with inflation).

Some players will have percentage growth of their incomes above the one of the economy (which is after all an aggregate one, an average if you will). But I would agree with you that more needs to be done to avoid size being an advantage in itself. I think we would find much common ground there. Market libertarianism is, for me, as utopic as communism. Both would perfectly function well if everybody behaved virtuously, but what system wouldn't? As it is, they have all the incentives for the least scrupulous to dominate them. And historically, I believe they have.