Thursday, February 4, 2021

The Stock Market Distortion

Everybody is currently laughing their heads off over the morons that went short on stocks in amounts that are driving them towards bankruptcy. There will be no bailout, governments have learned that companies too incompetent to survive must die like the dinosaurs they are. The vacancy they leave behind will be quickly filled with young and vibrant companies. And it takes a part of the distortion out of stock markets.

But these basically dead hedge funds and possibly banks are not the real problem. The problem lies in our perception of the stock market, or rather, the image we get indoctrinated with every day by the unholy alliance of media, billionaires, and governments. It takes a closer look to see where they are cheating our perception into believing the opposite of what is true.

What is happening on a stock market in simple and old fashioned terms? On a market, you have buyers looking for something, and sellers offering something. Someone wants a mug. Find a shop that sells mugs, and buy one. The market has played insofar as you accepted the price of the mug and the vendor accepted your money. Deal done.

On the stock market, the mug is a share in a company. Some want to sell a share and others want to buy some. If seller and buyer can agree on a price, then the deal is done. The price is marked down and the company has now a calculated new value based on the price paid. If the price was higher than the one paid before, then the value goes up; if the price is lower, the value goes down. All these values are added into a statistic that gives the various market indexes. If enough companies get a higher value, the index goes up, otherwise down. These indexes are purely theoretical and nothing to do with real life.

Media, brokers, fund managers, and bankers always sell us the view that a high index number is something good and that it means the economy does well. What has the sale of a share done for the economy? How many jobs have been created with the price paid for it? The answer is sobering, absolutely nothing has happened to the economy. When you buy a mug for two dollars on Monday and one for three dollars on Tuesday, then prices have gone up but no new jobs have been created.

The majority of sellers of stocks put the money aside for future transactions to earn money. That money is lost to the economy as it will sit around doing nothing until it is used to buy stocks. Which in turn does nothing for the economy. What does the high index figure tell us about the economy? Nothing except that more and more money is bound up in shares not doing anything for the economy.

The aim must be to get the money back into the economy. When the index falls, money is set free. In a crash, a lot of money is set free. That at least would be the nice theory. It doesn't happen that way. The last sellers have squirreled their money away for future transactions. The panic sellers lose a lot of money, basically the money that sits in the last sellers bank account. It means that the crash doesn't free up any money for the economy; psychologically it makes it even worse, as people believe the lie about the high index figures.

This might change if we look at the GameStop fun and games driving hedge funds out of business. It's possible that the money they suck out of the dead wood called hedge fund will find it's way into the economy. These people are not the addicted brokers and hedge fund managers who spend day and night counting their money. They just might spend money on amenities and keep only what they invested first as a gaming platform. We all saw the article about the guy who invested in gifts for sick children in hospitals. That is economy boosting.

I showed in my casino article how the billionaires, the banks, and the hedge funds manipulate the market and always have. My heart bleeds for them when now they are crying for regulation. Let's make it retroactive to 1983 and skim off all their profits since then to make it fair. As that is not possible, then I'm afraid there is no new regulation necessary. You got a new player on the field. Deal with it of go broke. No one cares. Your incompetent bank, broker house, or hedge fund will be replaced by a competent one within 24 hours and no one will remember your name except your clients suing you.

There have been calls for taxing the stock market. There are countries that tax capital gains. It works fairly well, it is low key, and it can have very unpleasant ramifications for investors. The investor hands in the transaction slips for everything he sold in the fiscal year together with all the transaction slips for the acquisition of the same shares or options or whatever. The total bought is deducted from the total sold for all items together. If it is on the plus, then that plus is taxed; if it is in the minus, then it is put forward to the next tax year. It gets unpleasant when the taxman decides that you have so many transactions and make so much money that this is a job and taxes you accordingly plus all the social deductions that come with being a freelancer.

But even a low key tax solution needs additional government employees, and there are already too many doing nothing except wasting taxpayers' money. Maybe an even easier solution would be to introduce a transaction tax; every transaction is taxed with a single figure tax percentage to be paid by the seller's account. Stock markets invoice and deduct the tax automatically and pay monthly. You wouldn't need a lot additional employees in the tax office to control that on a monthly basis. If they don't pay, fine them with the ten time amount immediately and keep on doing that until they pay in full. 

Further reading
How Money Came to Dominate Our Lives
How Economy Works
Prophet of the Banking Crisis







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