Economist Charles Biderman makes the point:
The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion. The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock.
We cannot identify the source of the new money that pushed stock prices up so far so fast. For the most part, the money did not from the traditional players that provided money in the past.
As far as we know, it is not illegal for the Federal Reserve or the U.S. Treasury to buy S&P 500 futures. Moreover, several officials have suggested the government should support stock prices.
This article includes one of the most fundamental misunderstandings of how the way that the stock market works. Whoever wrote it needs to go to a fundamentals of money markets school.
You do not need much money to buy lots stocks, and the price of stocks is not dependent on the availability of money. I can buy $200,000 or more of stocks while paying only $50,000 for them. It is called leverage.
Stocks are desirable at this time, and leverage is commonly used.
“Options” also move the market substantially with little or no investment taking place.
The statement “We cannot identify the source of the new money that pushed stock prices up so far so fast” makes the whole article nonsense, since there isn’t really a source of new money needed to move the market.
I started with $100,000 last year, and now have $175,000 in the same investment account this year, and added no ‘new money’ in the process… the stock market creates it’s own money, just like banks do 75% of the creation of new money in the USA (not the Federal Reserve as ignorant tea-partiers and libertarians tend to believe)
The Federal Reserve is not the Government.
Surely there must be some wierd news out there to blog instead of this hairball speculation.
your government is using the blood of it’s middle class to print the trillions of dollars they are dumping on the market
fuck your government
Sparkyone –
There you are, one of the clueless jackasses that thinks that ‘printed money’ represents that value of the dollar.
Educate yourself… printed money only represents about 12% of the economic worth of America… printing more money makes little to no difference in the big scheme of things right now. We could double the amount of printed money and it would still amount to less than 20% of economic value. Also, if the USA was ‘printing money’ it would not need to borrow money internationally and from it’s own banks, and inflation would be huge.
The USA is a country deeply in debt. If it were not for that debt, then it would have to print money… which it isn’t doing so the debt goes up.
An insult like yours (“fuck your government”) can only be laughed at when it obviously comes from an utterly ignorant source… yes we are laughing at you and your insult.
The Federal Reserve is a privately owned bank that has not had a proper public audit virtually since its inception. As a privately owned bank, there is nothing to stop them from buying stocks, bonds, and securities of any kind they wish. And, without a proper audit, there is now way to know what they are up to.
Global markets are up. Money is flowing into the US markets from foreign investors. Never trust an economist who doesn’t have real world experience with forex or commodities.
Only an idiot does not know that all governments esp ours, manipulate the markets. One need only look at the BDI and actual container traffic in ports like long beach and Oregon to know the DJIA the USDX and other benchmark favorites are completely disconnected from reality.
Long ago it was found that rational “logic has nothing to do with the markets. Markets in the short term today, are almost entirely driven by perception and “emotion” –and the manipulation of said emotions by (mainly) our government.
Expect a huge “surprising” drop in exonimic stats after the x-ams rush is over. -and don’t forget many commercial real estate resets are about to hit..
“Fiscal policy” is the key.
-s
blah blah
Sounds like a bubble that may burst at any moment and if it does…Oops!
So much for the US govt. supporting small business. Which I’m sure DIDN’T get any of this help or bailing out. My nephew runs a struggling building contracting biz. And now he’s getting audited by the IRS. Because maybe he can’t prove every single one of his deductions. It could be an honest error, since he’s trying to raise a four month old. But it’s all nitpicky, penny-ante stuff, compared to what those major banking institutions got away with. And weren’t bothered by the IRS or SEC, with audits. They’re too busy checking up on all the small businessmen, who are 99% honest. And can hardly make any headway, with all the damn govt. tax paperwork.
Awake,
Thinking libertarians don’t really know how the money is created, is well, wrong. It’s called Fractional Reserve Banking. Yes, the smaller banks lend out the money, thus creating some of it. But who loans it to the government, thus creating deficits? The Fed. And who acts as a “lender of last resort” when the smaller banks make risky loans? The Fed.
BTW . . . bragging on the current stock market shows just how clueless you are. Do you realize the current level of the DOW is around 8500 in 1999 dollars? That is what your FRB has done for your investment. I’m happy for you on your investment.
#1, If your bought $200,000 in stock on margin, only putting in $50,000 of your own money, you still had to borrow the remaining $150,000 from some third party. You didn’t just “buy $200,000 or more of stocks while paying only $50,000 for them” thanks to the leverage genie. So yes, the money existed in full somewhere.
“I started with $100,000 last year, and now have $175,000 in the same investment account this year, and added no ‘new money’ in the process… the stock market creates it’s own money”
The value of your account has only increased because the amount that others are willing to pay for the assets it contains, if you were to sell them, has also increased. In order to realize this potential value, somebody would need to actually add real money to the market by purchasing them from you. Nothing is being created form thin air here.
Your position of banks creating money, because of fractional reserve lending, is absolutely correct.
What, they allow 400% margin these days?