The economics of God Mode

[Machine_Elf]

@OldOlds

Again, this comes up in thread after thread. If you’re wealthy enough you borrow against your assets and don’t EVER actually spend them. Or pay back your loans because you’re borrowing more money to cover future expenses as well as what you’ve already borrowed. That is, you pay the loan back with a new loan

And this works when your wealth is generating 40 billion a year, and you only need one billion to live on.

(Well, you do pay them back when you die)

OK, so Musk borrows truckloads of cash from…someone. Where did that money come from?

I’m trying hard to understand what people mean when when they speak of money being “out of the economy” or going "back into the economy.

Suppose a pharmaceutical company patents an amazing new drug, and the FDA approves it. The announcement results in their stock price jumping 10% overnight (because everyone now anticipates massive profits from the company in the years ahead, thanks to this miracle drug). Someone who owned a million dollars’ worth of stock in this company has just seen their net worth increase by $100,000. Is that money that’s been taken out of the economy? If so, how?

[OldOlds]

@Machine_Elf

I’m trying hard to understand what people mean when when they speak of money being “out of the economy” or going "back into the economy.

I never said that, so I can’t answer.

I was just responding to:

@Machine_Elf

He’d have to sell shares of stock to do this.

And I think someone thought that selling a lot of his shares would tank the share price, which would be true, so I was pointing out that he doesn’t need to sell his shares at all to have money to spend.

And the someone is a bank or other financial institution. He puts his shares up as collateral, and the rate is going to depend on how they see him as a risk. I have no idea what billionaires get for rates, but I bet they’re pretty low

[Unintentionally_Blank]

@Machine_Elf

Suppose a pharmaceutical company patents an amazing new drug, and the FDA approves it. The announcement results in their stock price jumping 10% overnight (because everyone now anticipates massive profits from the company in the years ahead, thanks to this miracle drug). Someone who owned a million dollars’ worth of stock in this company has just seen their net worth increase by $100,000. Is that money that’s been taken out of the economy? If so, how?

No, and I now put a couple things together that make more sense now.

You have a share of stock worth $1.00

Your company does something amazing and now it costs someone ELSE $1.10 to BUY it.

Your stock is now worth $1.10, but only if you sell, because it’s what someone has to spend to buy a share of stock.

I’m assuming (possibly incorrectly) that since there’s SO MANY STOCKS, that there’s never an issue of you wanting to buy FruitComputer Stock, because there’s always someone wanting to sell FruitComputer Stock.

(There’s dividends and splits and calls and shorts and lots of people have spent lots of time figuring out how to make money by moving money.)

[Exapno_Mapcase]

@Machine_Elf

Someone who owned a million dollars’ worth of stock in this company has just seen their net worth increase by $100,000. Is that money that’s been taken out of the economy? If so, how?

That’s money that has been created out of thin air, or will be if the stock is sold then. That’s why people like Musk’s net worth is constantly increasing.

@Unintentionally_Blank

I’m assuming (possibly incorrectly) that since there’s SO MANY STOCKS, that there’s never an issue of you wanting to buy FruitComputer Stock, because there’s always someone wanting to sell FruitComputer Stock.

This was the function of the New York Stock Exchange and similar institutions. If you’ve ever seen film of a horde of men (always men in the old days) screaming their lungs out at seemingly nobody, you’ve seen market specialists. They were responsible for matching buyers and sellers. To ensure that each trade had both sides, they maintained a position in those stocks to dip into so that the trade always worked. (Except in extreme conditions.) They were technically neutral, who were compensated by getting a small piece of every trade, somewhat like the vigorish in betting markets. Computers do this today, but the NYSE still has designated market makers that keep stocks properly flowing.