[MrBill]

If the stock market or housing declines 'wiping out trillions of dollars of wealth' was there any money actually lost? Why? Why would it matter?

[NWMossBack]

$this->bbcode_second_pass_quote('', 'W')ealth: (Economics)
a. all things that have a monetary or exchange value.
b. anything that has utility and is capable of being appropriated or exchanged.

[MrBill]

No, I am fine with that one. Thanks.

[killJOY]

Perhaps "bear markets" are a symptom of destroyed wealth, not the cause?

Just a lay person's guess.

Depletion certainly destroys wealth. Burns it up.

[sjn]

$this->bbcode_second_pass_quote('killJOY', 'P')erhaps "bear markets" are a symptom of destroyed wealth, not the cause?

Just a lay person's guess.

Depletion certainly destroys wealth. Burns it up.

[sjn]

$this->bbcode_second_pass_quote('NWMossBack', '')$this->bbcode_second_pass_quote('', 'W')ealth: (Economics)
a. all things that have a monetary or exchange value.
b. anything that has utility and is capable of being appropriated or exchanged.

[joeltrout]

If people begin panic selling of assets then yes it does destroy wealth.

If people are able to hold on to assets and wade through the bear market then it slows wealth down for a period of time but does not destroy wealth.

The best scenario is for those able to hold onto assets and also increase their assets during a bear market because a bear market thus far has turned into a bull market.

Obviously, there are exceptions like a company you own stock in going bankrupt or if you do not have enough short term supplies to take care of yourself in times of slow growth or jobloss.

My belief is a bear market allows the long-term investor to build wealth more rapidly but scares the short-term investor to possibly overreact and lose more.

joeltrout

[patience]

I vote no. I see the bear market as the symptom, not the cause. Wealth is destroyed by many things, natural disasres, etc., but I see bad investments falling apart as being driven by events, often external to markets (freezing weather in Florida impacts the price of orange juice futures), which are the original cause, and the market reaction as the effect. Do market trends feed on themselves? Sure. Maybe that is why the perception of markets as a "cause"?

When debt service exceeds debt origination, (J6P can't make the payments on the McMansion, and can't get a refi) then he has hit the wall. Prices and markets respond accordingly.

[mkwin]

Of course bear markets destroy wealth. Equities and property alike have a valuation based on prevailing and expected economic conditions and are a form of wealth like a block of gold or stack of fiat notes. If these economic conditions change the valuation or unrealised monetary value of the asset is reduced. Hence, wealth is destroyed.

In normal circumstances the economic conditions will improve and asset values will gain rise but I am not so sure with peak oil 5-10 years away. I truly believe we are witnessing a high for world assets values, in real terms that we may not see until a full transition occurs, if indeed it does.

[BigTex]

George Ure over on urbansurvival.com said somethign to the effect that "price only matters if you are buying or selling."

I would add to that perhaps only that price matters if you have pledged an asset as collateral.

I own stock in a couple of companies that pay good dividends and I actually like to see the stock price go down because my dividends will buy more shares and I am certain that the value of the company has not gone down from a long term perspective.

Bear markets will destroy wealth if wealth is measured by liquidity and currency. If wealth is measured by ownership of income produdcing assets, a bear market should have no effect on wealth whatsoever (except to the extent that the bear market reflects lower projected income production from a given asset).

[sjn]

$this->bbcode_second_pass_quote('mkwin', 'O')f course bear markets destroy wealth. Equities and property alike have a valuation based on prevailing and expected economic conditions and are a form of wealth like a block of gold or stack of fiat notes. If these economic conditions change the valuation or unrealised monetary value of the asset is reduced. Hence, wealth is destroyed.

In normal circumstances the economic conditions will improve and asset values will gain rise but I am not so sure with peak oil 5-10 years away. I truly believe we are witnessing a high for world assets values, in real terms that we may not see until a full transition occurs, if indeed it does.

[mattduke]

I answered no. KillJoy is right. It's not the bust that destroys wealth, it is the boom.

I think what you are getting at with this question is that, simplified way, a bear market is simply a revaluation of relative desirability between existing economic goods by market participants. Since the total quantity of economic goods is unaffected (in a stylized way), some will gain and others will lose, but society as a whole will be no better or worse off.

But this is leaving out the first half of the boom-bust cycle. The impoverishment occurs during the boom phase when capital is misallocated. The impoverishment is merely revealed during the bust phase.

[yesplease]

Just like extreme bull markets may not reflect the actual prices of assets. I don't see how these conditions can destroy wealth, just transfer it between entities based on how well they know what the likely real value is... Buy low, sell high.

[sjn]

Anyway, as I've said in the 18% dollar supply growth thread, this "bear market" is going to be resisted tooth and claw so to speak. Those with phantom paper wealth and political influence will do everything they can to maintain their status, even though doing so will only make things worse. Hence the 18% M3... It couldn't be any other way.

[sjn]

$this->bbcode_second_pass_quote('mattduke', 'I') answered no. KillJoy is right. It's not the bust that destroys wealth, it is the boom.

I think what you are getting at with this question is that, simplified way, a bear market is simply a revaluation of relative desirability between existing economic goods by market participants. Since the total quantity of economic goods is unaffected (in a stylized way), some will gain and others will lose, but society as a whole will be no better or worse off.

But this is leaving out the first half of the boom-bust cycle. The impoverishment occurs during the boom phase when capital is misallocated. The impoverishment is merely revealed during the bust phase.

[MalcolmV]

Money is a measure of wealth, wealth consists of tangible things.

If the price of stocks goes down people say "I lost money in the markets" But stock price is not part of the money supply, so the most they lost is an opportunity to make money. Nor has the company they own changed so they didn't lose wealth.

Back in the '80's there was a housing crisis in Canada. One politician said; with our land, forests and unemployed labour, how can we not have enough houses? A LETSystem article said dollars are a measurement tool, like inches, how can you not have enough of them? Not being able to build a house because I don't have enough money is like saying I can't build this house because I ran out of inches.

In the Great Depression people starved because of a lack of money while there was ample food for sale. As Galbraithe said, there is no Chinese wall between the financial system and the real world.

This is coming very close to what I don't understand about economics.

Thank you for this topic MrBill. I hope you can shed some light on it.

[heroineworshipper]

Governments redistribute wealth from the poorest to the richest during recessions because it is the least painful solution for everyone. In that sense, wealth is lost, from the poorest.

[Pretorian]

Is wealth destructible at all? Hmm. When you burn a wad of cash , throw a 12.5kg piece of gold in the ocean, heat up your coffee with a bunch of diamonds , wipe your ass with bonds or stock sertificate , melt ancient gold and silver coins for thie metal content, do you destroy wealth ? the answer is NO
Can anyone give me a single example of wealth destruction?

[NWMossBack]

I don't understand the urge displayed here to redefine the term "wealth". But the discussion that spawned this poll is a bit over my head also: in that thread the meaning of the word "inflation" is being deconstructed.

Dollar Supply Inflation Rate Touches 18%

How is it possible that 61% (so far) think stocks or real estate do not have a "monetary or exchange value."? Never mind if you think it is a bubble, or is un-sustainable, or is frothy, or is abstract, or does not spring directly from Gaia's bosom. If you can buy it or sell it, it is a form of wealth by definition.

[Concerned]

$this->bbcode_second_pass_quote('MrBill', 'I')f the stock market or housing declines 'wiping out trillions of dollars of wealth' was there any money actually lost? Why? Why would it matter?