Off topic: That brings back memories. I got started in programming writing “code” for the HP12C to figure out the IRR for some really twisted mortgage loans. 
No; I’m saying that demand is unstable and the market is just a scorecard for that.
Your pebble example doesn’t work at all for the reasons I’ve given. But sure, if people are willing to trade more wealth for pebbles, then I stand to gain if I own pebbles. There’s no imaginary value here or collusion; you can’t bid up the price of pebbles without risking your own wealth.
The demand for pebbles simply changed, just as demand for anything can change as circumstances change.
First of all, way to dodge the actual point being put to you. You can take that last line away and it doesn’t affect the illustration of why your pebble hypothetical doesn’t work.
But secondly, yes: value is subjective.
In the specific example of shares, perhaps Enron has some personal value to me; maybe my parents worked for them, and so I actually want to have a 10% stake no matter what. The market price is largely irrelevant to me but there may be a threshold at which I start to take notice.
But generally with investments you are looking to buy something that you think has a good chance that other people will value more highly in the future.
If you read and think about post 25, you could conclude that the effect you lay out is a modest one, and that the bank and bond market could finance much investment equally well. More generally, you are presenting conjecture, not empirical observation. I have no objections to that: I’m just pointing out that armchair-only evidence tends to be weak, though still worth considering.
I’ll observe that purchases of SP500 stock should affect the IPO market pretty remotely, as the index covers only a small number of companies younger than 10 years and absolutely no start ups. As for secondary offerings, see the preceding paragraph: equity is thought to be an expensive form of finance.
The primary difference is that equity funding allows you much greater latitude. Just look at Amazon as an example. There is no way they could ever have done what they’ve done with a bank or creditors looking over their shoulder.
Compound interest is very overrated. When you deduce taxes and inflation from already low returns, you don’t have much to show at the end of the day. Saving is fine, but people should stop pretending that the magic of compound interests will make of any somewhat responsible individual a rich man.
ETA : In fact, this will be my contribution to this “econimic myths and fallacies” thread.
The stock market has at least something to do with intrinsic value - that is why people read balance sheets. There is not a direct correlation of course.
And a fake Picasso is like a fake set of books. Provenance is important, as are audits. That people fake both just indicates how important the perception of intrinsic value is.
And, as I said, the market value of a Picasso is solid because there are a lot of people who are willing to buy one at auction - just as the value of a share is set by people wishing to buy it at auction. That there are bubbles does not mean the entire market is always a bubble, which seems to be more or less what you are claiming.
I wanted to get into this, but I thought my post was long enough. I think the development of the PC and internet represents the triumph of the US system. Interestingly, volunteerism (eg Unix coding), big government (ARPANET) and deep capital markets (Intel) all played a big role.
The US has an equity-based form of capitalism, but that’s not the only way of doing things. Germany’s is dominated by banks. Japan and Korea are dominated by a few large firms who end up financing many of their suppliers. I’ll opine that it’s probably no coincidence that the US has a good environment for startups.
Nonetheless US economic growth isn’t decisively higher than that of other OECD countries. And arguably equity-dominance encourages short-termism. Finally, I’ll repeat that even in the US, stock market performance isn’t the primary driver of firm investment decisions, either within or across firms. In contrast, I understand that profits after taxes and dividends explain a lot.
And yet oddly enough, all of those countries have bourses. In fact they are the virtual stigmata of a capitalist system aren’t they?
And equity dominance by it’s nature actually encourages ‘long-termism.’ There is reason you associate with short-termism. Why do you think that is?
Google is your friend: *Term financial wealth Definition: Assets, or wealth, that is based on ownership of financial assets, such as stocks, bonds, money, and government securities. *
How does a dollar get created?
Net means assets minus liabilities. Every dollar in existence is an asset to somebody, and a liability on someone else. Take the dollar in your pocket. It’s an asset to you, but a liability on the Fed.
Or take a dollar in the bank. If the dollar is yours (it’s held in your account) it’s an asset to you, but a liability against the bank.
Every dollar is the same way. It’s an asset to you, and a liability on someone else.
Every dollar created by the Fed is a liability on the Fed. That’s why it purchases assets when it issues currency: to keep its books balanced. The asset it purchases from the private sector balances the debit from issuing currency.
The answer’s obvious, and I’m not sure what the point of it is. People borrow to buy things. During the life of a dollar it could go through any number of transactions. The dollar then disappears when it’s used to pay back the debt to the bank that lent it. (Or to any bank - since since money is fungible, it doesn’t really matter.)
Actually, the effect is neither modest nor immodest – it’s tautological: when you spend $X on stock, someone else ends up with $X extra cash. Eventually that cash leaves the shell game OP posits, for example to an IPO … or spent on hookers and blow.
And for the purpose of my explanation a bond IPO and stock IPO are equivalent.
(I’ve underlined a key phrase lest some Doper feel the need to explain the difference between stocks and bonds.)
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If you want to be technical as you always seem to say you do, when you buy a stock, part of that money goes to your broker and the exchange - not to mention the money they pay to all of their supporting vendors, which comes out of the fees you pay. The mansions in the Hamptons weren’t built from commissions on pebbles.
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Bullshit. Bonds are debt instruments and are underwritten. IPO is used exclusively to describe the initial public offering of stock. Look it up.
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You seem to be in need of such an explanation.
For the record, since no one is paying attention to you and since it seems you started this thread only to propagate the sort bullshit I’ve seen in the Zeitgeist video, such as the idea of ‘money as debt,’ I’m probably not going to waste a lot of time responding to you in the future.
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So to be clear here, you have no cogent response.
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You’ve answered this yourself, but I guess you didn’t realize that - fractional reserve lending. I then helped you out by explaining how central banks do it.
BTW, to answer my own question, the objective of monetary policy is keep the value of dollar constant or to keep the change in value at 0. So you were actually right but you seem to have had no idea how or why. LOL!!! 
You don’t even seem to grasp the concept of ‘net’ in this context - which I find especially amusing.
However to be completely accurate, the US central bank, the fed, has actually decided not to keep the net nominal value at 0 but to encourage a small degree of inflation. It has officially targeted a rate of between 1-2%. The rationale there is that targeting a 0% rate would create too great a risk of deflation which it regards as an even greater danger than inflation.
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No, net means delta - the difference between two states. I guess you’ve never done any advanced math either.
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dollars are media of exchange that are created ab nihilo and return to the void in the same way. The idea of money as debt is a complete fallacy. It’s nothing more than a chit, a bookmark, a place keeper.
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see 4.
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Except the fed creates and destroys dollars at will. Must be nice to have those kinds of liabilities. LOL!!!
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The point was that businesses borrow to invest in income producing activities, i.e., activities that creates goods and services that add value to the economy. This adds to the amount of economic activity and increases the need for money to support the transactions that activity generates.
I’m actually familiar with value investing, and discounted present values; and the Karl Marx reference was meant to be tongue-in-cheek: the quote’s actually from Adam Smith, not Karl Marx.
I just kind of thought it was funny some of the same people who were outraged when i suggested value comes from labor (and that that somehow made me a communist), are also upset at me for suggesting value is determined by the market.
With interest, in 15 years he’d have about $175,000. I don’t know if he’s claiming it took him less than 15 years, or how much the house he bought was. Of course at $360 a week income, a single medical emergency, a span of time without work, or any of a number of common setbacks will destroy much or all progress made toward that shiny new house. Likely it would take a lot more than 15 years.
I’m not sure what you’re arguing, or what your point is. At first you say demand is unstable, and the market is a scorecard for that. Which seems to imply the scorecard could be wrong, and there could be another, “objective” value that the market’s mis-measuring.
But then you say value is subjective. So how could the market mis-measure something that has no objective value in the first place?
And if you think a share of Enron - which the market values at $0 - could nevertheless have some monetary value, why do you object to my pebble example?
If I changed it from a market for pebbles - which you, apparently think are worthless - to a market for shares of Enron - which you apparently think are valuable - would you be ok with that?
You need to go and look at the Fed’s balance sheet. It doesn’t create money “out of nothing” - at least not in a strictly technical sense. It creates money by buying things. Specifically, assets. Assets it purchases on the open market (or at least what it calls the open market) from the private sector. So Fed purchases create no new net wealth.
Anyway, I’m happy to talk about this stuff. That’s why I opened the thread. But I have to warn you if you continue rely on personal attacks instead of reason or argument, you probably shouldn’t expect me to respond in the future. A spirited debate is one thing. Nastiness is something else.
It’s not so much you saying value is determined by the market but the way you’re forcing value on something and claiming it was done by the market.
You can’t say “and then someone bought a pebble for a million dollars” and claim that market forces were responsible.
The only semblance of a point yo’ve correctly mentioned is that bubbles occur and in the height of irrationality, the market sometimes overvalues things. However in citing that exception, you’re claiming it as the rule. Yes, sometimes value is created and destroyed arbitrarily. Many have conceded that. However that does not mean the concept of stocks, money, or whatever other financial institution you want to tear down is completely devoid of meaning and merit.
I’m afraid I just don’t have any patience for people who hold themselves out as experts on a topic when it’s so painfully obvious to me they have no idea what they’re talking about. And anyone following this thread knows it’s obvious not just to me but to everyone here. I just happen to be an active investor with an MBA in finance so maybe I’m a little less patient than others and less diplomatic.
As for the fed not creating money from nothing, you’re just cracking up with that line. Where do you think the money comes from to buy the securities they buy through the FOMC? Hint.
Another popular myth with teabaggers and whack-a-doodles: The fed is monetizing the debt - WRONG!
To zero in on the most apropos bit: “…open market operations are conducted simply by electronically increasing or decreasing (crediting or debiting) the amount of base money that a bank has in its reserve account at the central bank.” In other words, LinusK, yes, the fed literally does create money out of nothing.