

The new ideological divide - senthil_rajasek
http://www.marketwatch.com/story/the-new-ideological-divide-2010-06-30

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jtbigwoo
This OP suffers from the same delusion as a lot of financial professionals.

The "Investment capital" that he talks about mostly goes to buy and sell
stocks and bonds. These are not real capital investments, but wagers on future
prices. I bought $5000 of Google stock last year. To say that the $5000 did
anything to help Google is foolish. I bought someone's bet and now he has
$5000 more while I have $5000 less. He may have invested it in something
useful (buying goods or services) but more likely he used it to make another
wager. No true value was created, though the brokers and money managers (like
the OP) take their cut. On the other hand, if I had purchased government
bonds, the bond money would have been injected much more broadly into the
economy via capital spending or entitlements. Don't pretend that money that
doesn't go to government bonds would go to building bridges.

Should or national savings rate be higher? Yes. Should we move toward a
balanced budget? Yes. Should we try to fix these things while on the edge of a
double-dip recession? Most certainly not.

~~~
hga
" _I bought $5000 of Google stock last year._ "

And obviously the people from who you bought it burned that 5K in a
bonfire....

An illiquid financial system helps no one (well, no one good).

~~~
jtbigwoo
I'm not saying that $5000 didn't go anywhere... About one percent of it was
eaten by fees and the rest probably went to make another wager. It almost
certainly did not go into anything resembling capital investment as the OP
suggests.

I'm not attacking the market system, merely pointing out that the post-IPO
"capital" market for a stock does not produce any capital investment but is
rather a means for trading wagers on the performance of the underlying
company.

Real capital investment is mostly financed by bonds (including government
bonds, which the OP appears to dislike.)

------
hga
" _Economies do not grow because consumers spend; consumers spend because
economies grow....

Investment capital comes from savings, and when governments borrow, savings
are diverted from private investment. While it is possible for governments to
invest as well, it is much more likely that the money will be spent on
entitlements or "invested" in projects that may be politically advantageous
but economically useless.

Any money spent by governments is not available to the private sector to
invest...._"

And he didn't even mention how following the "Stimulators" for two decades has
ruined Japan.

~~~
jtbigwoo
Japan's high savings rate meant that banks had huge amounts of money to lend.
The banks threw lending standards out the window because they had so much cash
to lend. When the central bank raised interest rates, the bottom fell out.

Here's the important part, though. Because of the cozy relationships between
banks and big industrial firms, the banks reacted by making _more_ bad loans
to prop up failing firms. Plus, the government raised consumption taxes which
fell disproportionately on the lower classes. The tied-up capital combined
with the rising taxes on the people who spend the highest percentage of their
income hurt a lot more than government spending on infrastructure.

Here's my worry about the U.S.:

1\. The home buying incentives/modifications are just an excuse to keep trying
to re-inflate the housing market much like the Japanese banks kept lending
money.

2\. Proposed cuts to social security and medicare will hurt the economy by
affecting those who spend the highest percentage of their income.

------
telemachos
Sidenote: where can I find the person who came up with the "docking bar" idea
for websites (that hideous JavaScript thing at the bottom of your viewport).

I need to hurt that person.

~~~
hga
It's there, at least visually, even if you have Javascript turned off with
NoScript (Firefox).

And, yeah, it's very annoying.

