NationStates Jolt Archive

So, with watching the Stock Market and the fact that the automakers have now turned in a plan to Congress to prove that they deserve a bail out. I have two questions that I hope someone can answer for me, in laymen terms.

1. Where is Government getting all this money? Who has trillions of dollars on hand? Does government even deal in real money anymore?

2. Why does it seem like the stock market reacts more to what people are saying, and what makes the news?

Thanks for your help.

I dont think they deal in real money anymore...Its more credit and theoretical money on loan from places like China...

And, think its because the majority of the stock market is based on speculation, and what they THINK the market is GOING to do...rather than what its actually doing so..if OPEC makes a claim they Might make a change sometime in the future...the price skyrockets because people with stock in oil think that the price is going to go up...

The Economic Recession thats making big news is fortunately producing the opposite effect...

So, what if people start producing happy news, even if it fake, will that affect the stock market?

So, what if people start producing happy news, even if it fake, will that affect the stock market?

If it was from credible people, and noone bothered to dispute it...

Yeah, id say yes...I think thats what happened with the Internet Bubble...the Media reported alot more success than was actually being had...

If it was from credible people, and noone bothered to dispute it...

Yeah, id say yes...I think thats what happened with the Internet Bubble...the Media reported alot more success than was actually being had...

*starts contacting news stations telling them to report positive news about the economy*

If it was from credible people, and noone bothered to dispute it...

Yeah, id say yes...I think thats what happened with the Internet Bubble...the Media reported alot more success than was actually being had...

I tend to agree. A lot of people got scared out of spending but that's exactly what the market needed -- people to spend.

*starts contacting news stations telling them to report positive news about the economy*

Its not that simple. The stock market going up wont fix the economy all together. It wont fix the housing market or employment.

Its not that simple. The stock market going up wont fix the economy all together. It wont fix the housing market or employment.

I agree...In the previous stock market thread...I contended that the stock market failing is actually a good thing for the majority of americans...Employed ones anyway...

Housing and Fuel prices have both benefited considerably as a result...Gas is down to something like a $1.70 around here...

I agree...In the previous stock market thread...I contended that the stock market failing is actually a good thing for the majority of americans...Employed ones anyway...



Hardly. Stocks falling causese corperations to make cuts. And the first things to go tend to be employees.

Hardly. Stocks falling causese corperations to make cuts. And the first things to go tend to be employees.

Thats the case with alot...but, Down here most businesses arent tied up in the stock market...Our businesses arent making cuts...people still gamble, buy food and clothes...so, its actually getting better around here...

because of the aforementioned price drops...

Thats the case with alot...but, Down here most businesses arent tied up in the stock market...Our businesses arent making cuts...people still gamble, buy food and clothes...so, its actually getting better around here...

because of the aforementioned price drops...

Yeah, but see, your local anomaly isnt whats happening everywhere else. Quite the opposite in fact.

1. Where is Government getting all this money? Who has trillions of dollars on hand? Does government even deal in real money anymore?

Taxes, and borrowing money such as the sale of government bonds.

2. Why does it seem like the stock market reacts more to what people are saying, and what makes the news?

I would say that the media reacts to what the stock market does and what credible people are saying rather than the stock market reacting to what the media says. Do the stock market reacts to what people and organisations and companies are saying because it gives some insight into what is happening and what may happen to the various companies that they own and so they will either want to sell or buy these companies based on what is said and how they perceive the value or the potential value in a firm.

I agree...In the previous stock market thread...I contended that the stock market failing is actually a good thing for the majority of americans...Employed ones anyway...

Housing and Fuel prices have both benefited considerably as a result...Gas is down to something like a $1.70 around here...

The stock market falling isn't why fuel prices have gone down but rather other factors have cause both to go down.

*starts contacting news stations telling them to report positive news about the economy*

That was sort of the trouble in the first place, people had more faith in the stock market than was warranted.
There was someone, I think it was John Maynard Keynes but can't really remember, who had a very good analogy of why the stock market can do silly things. Imagine a newspaper beauty contest that has pictures of one-hundred faces and asks readers to write in the six they believe are the most beautiful. The winner will be the person who most consistently agrees with the plurality of contestants: that is, if the six I choose receive the most votes over all, I would do better than the guy who chose two that were in the top six but chose four that were less popular. (Yes, it's a fairly dumb contest.)

What will a smart contestant do? He could choose the six he genuinely believes are the most beautiful, but beauty is so subjective it is unlikely his views will correspond with everyone else. He could then choose the six he believes everyone else believes are the most beautiful; this seems to make more sense. But the contestant is humble enough to realize plenty of other people must be thinking the same thing. Therefore, he will not choose the six he believes are the most beautiful, nor will he choose the six he thinks everyone else thinks are the most beautiful, but the six he thinks everyone thinks everyone else thinks are the most beautiful. With at least two layers of second-guessing the thousands entering the contest, it shouldn't be surprising that the winning six are not the most beautiful by anyone's standard.

The stock market works similarly. Investors don't only invest in companies they think have a good shot, or even in companies they think other investors believe to have a good shot. They invest in companies they believe other investors to believe the rest of the world believes to have a good shot. It's easy for things to get out of hand.

EDIT: It was Keynes (http://en.wikipedia.org/wiki/Keynesian_beauty_contest), and he put it much better and more concisely than I did:
“It is not a case of choosing those [faces] which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees.”

The stock market falling isn't why fuel prices have gone down but rather other factors have cause both to go down.

I think its more along the lines of the Stock Holders in Commodities like oil started losing money out their ass, so they started selling their stock...and therefore the price went down...

Yeah, but see, your local anomaly isnt whats happening everywhere else. Quite the opposite in fact.

Not everywhere...but other states with similar populations and Socio-Economic Status i would think are doing similarly...

Haven't had a lot lay offs where I live over than in the state government, but we got four to six military bases including one of the largest naval bases in the world, nomerious miltary contractors and one of the largest ports on the east coast to fuel the economy.

All that miltary and defense contract spending has insured that there hasn't been much of an impact around here. Areas with lots of federal spending such as miltary related tend to not be as impacted during times of economic slowdowns. That being said, the stock market tends to as much on operate on hopes and fears as it does on economic reality. Stocks tend to go up and down depending on what investors belive will happen. I also have to agree that the stock market going won't fix the housing market which is rather gluted at the moment both with new homes and old homes up for sale. There is also the matter of the credit crisis which has an even bigger impact on the market as it limits captial for investing in businesses and affects the ability to buy homes.

Haven't had a lot lay offs where I live over than in the state government, but we got four to six military bases including one of the largest naval bases in the world, nomerious miltary contractors and one of the largest ports on the east coast to fuel the economy.


largely the same here too, with an Airforce and a Naval base, and the largest Naval Shipbuilding contractor, Ingalls...

I think its more along the lines of the Stock Holders in Commodities like oil started losing money out their ass, so they started selling their stock...and therefore the price went down...

That and also due to the decline in the economy and thus a decline in production leading to a slow down in demand for oil has also lead to a decline in the price of oil.

That and also due to the decline in the economy and thus a decline in production leading to a slow down in demand for oil has also lead to a decline in the price of oil.

Exactly, which, is tied largely to the Stock Market....

Exactly, which, is tied largely to the Stock Market....

Which is what I said but th crash in the stock market wouldn't have caused that but other factors would have caused both.

Which is what I said but th crash in the stock market wouldn't have caused that but other factors would have caused both.

True, but it doesnt change the fact that the decline in the stock market is good for Gas prices...if indirectly...

True, but it doesnt change the fact that the decline in the stock market is good for Gas prices...if indirectly...

Well that depends on whether you are a buyer and a seller :p

So, with watching the Stock Market and the fact that the automakers have now turned in a plan to Congress to prove that they deserve a bail out. I have two questions that I hope someone can answer for me, in laymen terms.

1. Where is Government getting all this money? Who has trillions of dollars on hand? Does government even deal in real money anymore?

2. Why does it seem like the stock market reacts more to what people are saying, and what makes the news?

Thanks for your help.

You see, Wilgrove.. The government has magical wizards, yes the D&D variety, who wiggle their fingers and say, "POOF! YOU HAVE MONEY!"

I never said that money actually appears, but the government is spending it anyway.

The U.S. Government likes to live in a fantasy world, so why not throw wizards into the mix?

You see, Wilgrove.. The government has magical wizards, yes the D&D variety, who wiggle their fingers and say, "POOF! YOU HAVE MONEY!"

I never said that money actually appears, but the government is spending it anyway.

The U.S. Government likes to live in a fantasy world, so why not throw wizards into the mix?

D&D wizards dont usually wiggle their fingers to cast spells...:p

D&D wizards dont usually wiggle their fingers to cast spells...:p

It finally makes sense...W needed a 7 to attain economic prosperity...


....and he only rolled a 2... :( lol

D&D wizards dont usually wiggle their fingers to cast spells...:p

Well, these ones do... Finger wiggling adds to the showmanship. :D

Well, these ones do... Finger wiggling adds to the showmanship. :D

Real wizards need no showmanship.

Their lack of being real wizards, however, would explain the money not actually appearing.

D&D wizards dont usually wiggle their fingers to cast spells...:p

Isn't it weird how any thread, no matter the topic, can quite inconspicuously devolve into something about Dungeons and Dragons?

Real wizards need no showmanship.

Their lack of being real wizards, however, would explain the money not actually appearing.

I'll leave the D&D expertness to you man, I played the darn game one time in middle school.

News flash! We haven't had real money since the Federal Reserve came into existence in 1913. We tried to pretend we were on a gold standard for quite a while after that, but the government gave up even that pretense. Now we are on a fiat money system, and the consequences are debt and inflation. The recession we're in is due to the system we use for our finances. The proposed solution is more of the problem that got us here. No one should get a bailout.

Hardly. Stocks falling causese corperations to make cuts. And the first things to go tend to be employees.

not directly, no. Most companies don't have large amounts of their own stock tied up in short term liquid assets, so the price of their stock doesn't really affect their bottom line all that much. What more often happens is the thing that's CAUSING the lower stock price actually affects the bottom line in a way that leads to cuts.

But if a stock were to artificially fall it wouldn't affect the individual companies that much, usually what affects the companies, and what causes the fall (in the long term) are one and the same.

The government borrows the money. Which is pretty easy for it right now because it is the only credit worthy thing left. At some point, however, it is possible that the government's demand for money will outstrip the supply of money available to borrow and when that happens the government collapses.

Stock markets don't really react to the news flow. Big headline risks can effect them; for example if pakistan nuked india, but on the whole the day to day news cycle isn't that important. The only reason it seems to be that way is because people re-interpret the news in light of market action, looking for correlations that aren't really there.

not directly, no. Most companies don't have large amounts of their own stock tied up in short term liquid assets, so the price of their stock doesn't really affect their bottom line all that much. What more often happens is the thing that's CAUSING the lower stock price actually affects the bottom line in a way that leads to cuts.

But if a stock were to artificially fall it wouldn't affect the individual companies that much, usually what affects the companies, and what causes the fall (in the long term) are one and the same.

Fair enough. I will be the first to admit I know next to jack shit on economics.

Fair enough. I will be the first to admit I know next to jack shit on economics.

think of stocks very simply as a share of a company. Now, in a perfect system, with instantanious flow of data and perfect information, each stock would be a perfect representation. If a company issued a million shares than each share would be worth exactly 1 one millionth of the value of the company.

Of course we don't ACTUALLY have any of that, so stock market functions as a sort of "best guess", a totally free market system, where it's presumed that a stock is worth what people are willing to buy and sell it for.

Which is not of course actually true, and panics, fears, and rumors can trigger sellofs, thus lowering prices, even when the company is sound. In then end, a share of stock doesn't actually affect the value of a company inasmuch as it corresponds to what people THINK about the company.

Fair enough. I will be the first to admit I know next to jack shit on economics.

My father is an economist and, while it irritates him to no end, I don't WANT to know shit about economics... It's woefully boring stuff.

In some topics, ignorance is bliss.

think of stocks very simply as a share of a company. Now, in a perfect system, with instantanious flow of data and perfect information, each stock would be a perfect representation. If a company issued a million shares than each share would be worth exactly 1 one millionth of the value of the company.

Of course we don't ACTUALLY have any of that, so stock market functions as a sort of "best guess", a totally free market system, where it's presumed that a stock is worth what people are willing to buy and sell it for.

Which is not of course actually true, and panics, fears, and rumors can trigger sellofs, thus lowering prices, even when the company is sound. In then end, a share of stock doesn't actually affect the value of a company inasmuch as it corresponds to what people THINK about the company.


See, at least I dont pretend to know about what I dont and then argue with you.;)

But if a stock were to artificially fall it wouldn't affect the individual companies that much, usually what affects the companies, and what causes the fall (in the long term) are one and the same.

Artificially driving down a stock price can effect the companies credit rating which can then lead to real problems.

Not every company is vulnerable that way though.

My father is an economist and, while it irritates him to no end, I don't WANT to know shit about economics... It's woefully boring stuff.

In some topics, ignorance is bliss.


I understand how to file my taxes and I understand the basis of various economic theories. Beyond that, I dont know much.

I understand how to file my taxes and I understand the basis of various economic theories. Beyond that, I dont know much.

Well, knowing how to file your taxes is always a good thing... Paying H&R Block to do it is a waste of money and going to prison is far worse.

So, what if people start producing happy news, even if it fake, will that affect the stock market?

It's funny... it's this kind of thinking that's started every economic depression...

My father is an economist and, while it irritates him to no end, I don't WANT to know shit about economics... It's woefully boring stuff.

In some topics, ignorance is bliss.

Aren't you a History major?

How someone can have an interest in history without at least a passing interest in economics is confusing to me, considering how interrelated the two subjects can be.

Aren't you a History major?

How someone can have an interest in history without at least a passing interest in economics is confusing to me, considering how interrelated the two subjects can be.

I'll recieve my M.A. in History in May, yes... Military History is my primary focus area and while there is an economic component to war, I don't examine that as much as I examine tactics, weaponry, and troop formations. There's a difference between having a basic knowledge of economics (which I do have... Anyone who lives with my father for more than two years cannot leave without it) and going into as much detial as my father.

Speaking of which, what part of Wisconsin are you from? I got my B.A. in the Milwaukee area.

So, with watching the Stock Market and the fact that the automakers have now turned in a plan to Congress to prove that they deserve a bail out. I have two questions that I hope someone can answer for me, in laymen terms.

1. Where is Government getting all this money? Who has trillions of dollars on hand? Does government even deal in real money anymore?

a. Normally from bonds(so largely the Chinese and Mideast). Also the low interest rate allows the fed reserve to print more money which they can then loan to automakers with government approval. b. its not really on hand so much a they start funding electronically. c. Sort of. I think they have been trying to go as electronic as possible since Clinton.
2. Why does it seem like the stock market reacts more to what people are saying, and what makes the news?

Thanks for your help.[/QUOTE]
Because the stock market is composed of investors. good news about a company makes certain investors buy stocks inflating the price. This is very true with your middle class investors. further compounding the issue you have day traders and hedge funds that will buy in then sell very quickly to ride the wave generated by the middle class investor.

Aren't you a History major?

How someone can have an interest in history without at least a passing interest in economics is confusing to me, considering how interrelated the two subjects can be.

and how interrelated Poli sci and history are. and military affairs and history are. In Liberal arts type degrees you will find a lot of interrelations. it doesn't mean a major in subject A has studied every interrelated field in detail enough to really converse on it.

My father is an economist and, while it irritates him to no end, I don't WANT to know shit about economics... It's woefully boring stuff.

In some topics, ignorance is bliss.

Really? There are a lot of interesting areas of economics and not boring at all. But then that is just me

Really? There are a lot of interesting areas of economics and not boring at all. But then that is just me

read Freakonomics and economics majors sounds like the rock stars of our age.

1) Financial reserves, selling stuff (buildings, war toys, etc...), taxes, borrowed money. In fact they are using your money.

2) It reacts to promises, bad or good ones. But the one that is bringing the news must have some street credit else no one would believe him or her.

read Freakonomics and economics majors sounds like the rock stars of our age.

I have read it.

I have read it.

well you get my point that the book covers very interesting uses of economics. Though the author is not always correct.

well you get my point that the book covers very interesting uses of economics. Though the author is not always correct.

Yes I do but it isn't just those areas that are interesting but a whole range of areas, but as I say it is probably just me and was part of the reason why I did an economics course at uni.

I would be interested in hearing in what parts he isn't correct.

Yes I do but it isn't just those areas that are interesting but a whole range of areas, but as I say it is probably just me and was part of the reason why I did an economics course at uni.

I would be interested in hearing in what parts he isn't correct.

The abortion crime connection thing he ended up being disproved on. My sociology teacher went on a hour long rant on why he was wrong on the matter. Mostly because lower income groups still cant afford abortions.

Really? There are a lot of interesting areas of economics and not boring at all. But then that is just me

It may just be because I grew up around it... My mother is an accountant, so she's big into economic stuff as well. I got A's in all the econ courses I ever took, so it had positive effects too. It also made me very good at managing my budget, so I guess that's a plus.

I suppose sometimes it's irritating being the stereotypical miserly Jew.

It may just be because I grew up around it... My mother is an accountant, so she's big into economic stuff as well. I got A's in all the econ courses I ever took, so it had positive effects too. It also made me very good at managing my budget, so I guess that's a plus.

I suppose sometimes it's irritating being the stereotypical miserly Jew.

Ah I see, yeah will that can happen if you are always surronded by it while growing up.

The abortion crime connection thing he ended up being disproved on. My sociology teacher went on a hour long rant on why he was wrong on the matter. Mostly because lower income groups still cant afford abortions.

Did he? Didn't really see anything on it, though it did always sound a bit far fetched to me if somewhat plausible. So what did your teacher say was the real reason why the crime rate went down?

Did he? Didn't really see anything on it, though it did always sound a bit far fetched to me if somewhat plausible. So what did your teacher say was the real reason why the crime rate went down?

The baby boomers got too old for random crime.

Really? There are a lot of interesting areas of economics and not boring at all.

Bah, filthy elitest lies;)

Did he? Didn't really see anything on it, though it did always sound a bit far fetched to me if somewhat plausible. So what did your teacher say was the real reason why the crime rate went down?

Several factors. longer prison sentences, the end of the crack bubble(crack us went down mid nineties after a decade and a half of steep rises), and more police put on the streets.

The idea behind share price movements is that investors are changing their ideas about what reasonable projections for future returns of the company, as well as capital gains are. Most news don't really affect these projections, and so don't have much of an effect.

Some news have a big impact though, either for particular firms, industries or the economy as a whole. Those can cause valuations to change, investors to buy or sell, which in turn can affect opinions on capital gains. But yeah, most news doesn't really concern traders all that much. Hell, professional traders stare at numbers move all day, they would barely notice the day's news unless bloomberg basically pops out of the screen and slaps them in the face.

It's interesting when you think about it because the whole world is acting like this recession is the end of the world. However here's an interesting thought:

Before the internet and high speed communication around the world was perfected and although we did trade other countries, stock market recessions --> crashes --> depressions were always very localized and never affected other countries much. In history class we were learning about how Australia was affected in the 1930's and despite the fact that England and America also took part in the depression, other countries such as China and France were not mentioned as having any problems or even affected at all even though we traded with them quite a bit. Depressions in one country never affected others much due to the long distances and the time it took for information to get around the world.

It is only now that every country's stock-market and government finances are so incestrally, interbred and intertwined that the whole world is now shaking in it's boots.
Because life is faster and information can circle the globe faster that you can breath, it measn that everyone is taking part and is thus affected. Every country is relying on each other in a big Escher staircase. Half the money is virtual and it is because of the loss and devalued virtual money or I.O.U's in this case that REAL money becomes affected. Everyone is saying that we've survived stock market crashes before and we can survive this one is like riding on a car that hasn't been serviced in 20 years. IT may get better but there is a chance that it won't this is the first GLOBAL recession.

It's interesting when you think about it because the whole world is acting like this recession is the end of the world. However here's an interesting thought:

Before the internet and high speed communication around the world was perfected and although we did trade other countries, stock market recessions --> crashes --> depressions were always very localized and never affected other countries much. In history class we were learning about how Australia was affected in the 1930's and despite the fact that England and America also took part in the depression, other countries such as China and France were not mentioned as having any problems or even affected at all even though we traded with them quite a bit. Depressions in one country never affected others much due to the long distances and the time it took for information to get around the world.


1st China was really too poor and too agricultural.
as for france

The depression reached France later than it did some other nations, France remaining prosperous through 1931. Then, in 1932, a drop in tourists, a fall in exports of perfumes, wine, food and other items, and falling prices for what exports it could sell, hurt the French economy.

Figures from Democracies in Crisis, pp. 36-39, 1989, by Kim Quaile Hill, who drew from various sources such as the League of Nations, yearbooks of labor statistics and other reputable sources.

Although arriving late, the economic decline in France hit bottom in 1932, with unemployment at 15 percent and industrial production off 25 percent from its 1929 level. [note] A new French government was elected in 1932, led by André Tardieu, whose campaign issue was the threat of Communism. His government was a coalition of conservatives and rightists defending against demands from leftists for spending on the unemployed and other benefits for the poor. Tardieu's government was determined to maintain low taxation, a balanced budget and no inflation. It sought economic recovery in the expansion of France's trade with its colonies and in public belt tightening. France refused to join Britain, the U.S. and Germany in going off of the gold standard. This kept its currency overvalued, hurting French exports. Some people in France expected that their currency would eventually be devalued, and they hurt France's economy by converting their money and sending it abroad.

Democracies in Crisis, by Kim Quaile Hill, p. 37.

After its short slide to its bottom in 1932, France's economy remained stagnant. In 1935 unemployment and industrial production were still at 1932 levels. [note] Meanwhile, defending its conservative economic policies, the government appealed to patriotism. Class warfare promoted by Marxists, it warned, was a crime against the country, and socialism, it announced, brings misery, anarchy and ruin.
from
http://www.fsmitha.com/h2/ch15wd.html
please do not talk about history again.

So, with watching the Stock Market and the fact that the automakers have now turned in a plan to Congress to prove that they deserve a bail out. I have two questions that I hope someone can answer for me, in laymen terms.

1. Where is Government getting all this money? Who has trillions of dollars on hand? Does government even deal in real money anymore?

2. Why does it seem like the stock market reacts more to what people are saying, and what makes the news?

Thanks for your help.

Well, Question 1 is obvious (or should be), they're digging the debt-hole deeper.

Question 2...

Okay, first, you have to understand what the stock market is.

It's gambling, but unlike Casino gambling, they make it pretty by allowing the gamblers to research their own odds, 'count the cards' and do most of those tricks that get Sports-bookies and Casinos in hot water...

Nevertheless, it's gambling. Gamblers may know how to calculate the odds, but Gamblers are Emotion Driven creatures. The "Fundamental" of the Stock Market, is that it's not about how healthy you really are, it's how healthy everyone Thinks you Are.

The basic mechanics are similar to sports-betting, but unlike Sports-betting, you really Can reach a point of "Information Overload" in Stocks-Trading, and unlike Sports Betting, there's no "Final game", it's more or less gambling on the changing of the odds with the Financials.

This is, among other things, why mathematical "Game Theory" is used for the automated trading your 401(k) managers and Institutional Investors use.

Bah, filthy elitest lies;)

:tongue:

Several factors. longer prison sentences, the end of the crack bubble(crack us went down mid nineties after a decade and a half of steep rises), and more police put on the streets.

Interesting just a question and it doesn't matter if you do, I would just like to read more up on this. Do you have any links or places I coud look to do so?

Interesting just a question and it doesn't matter if you do, I would just like to read more up on this. Do you have any links or places I coud look to do so?

some of it is mentioned in freakonomics by Steven Levitt. or at least later editions. Seems even he bought into it. I can go look up his sources later as well. just got class and other such fun things coming up.

some of it is mentioned in freakonomics by Steven Levitt. or at least later editions. Seems even he bought into it. I can go look up his sources later as well. just got class and other such fun things coming up.

Heh well enjoy it. Yeah maybe I should go over that chapter again or get a more recent copy if he has revised it. My copy says First edition and was printed in 2005.

mine is labeled revised and expanded edition. 2006.
I thunk a large part of the revision was from all the flak he took over the abortion = lower crime thing. He still didn't completely toss the argument just made it less central in the fall of crime rates.

mine is labeled revised and expanded edition. 2006.
I thunk a large part of the revision was from all the flak he took over the abortion = lower crime thing. He still didn't completely toss the argument just made it less central in the fall of crime rates.

Yeah cheers mate I will read a newer copy.