Newbies

Re: Stock Depreciation and Deflation

Scott Jefferies — Fri, 05 Dec 2008 20:24:01 GMT

Zlatko:

I don't know the answer, but there is a book that explains what effect the stock market has on capital.

Stock Market, Credit, and Capital Formation, The
Fritz Machlup

http://mises.org/books/Machlup-Stock.pdf

thank you, that sounds like exactly what im looking for.

Re: Stock Depreciation and Deflation

Zlatko — Fri, 05 Dec 2008 14:03:32 GMT

I don't know the answer, but there is a book that explains what effect the stock market has on capital.

Stock Market, Credit, and Capital Formation, The
Fritz Machlup

http://mises.org/books/Machlup-Stock.pdf

Re: Stock Depreciation and Deflation

Forsmant — Fri, 05 Dec 2008 01:55:27 GMT

The money supply and prices do not directly correlate. There are many other factors that determine price. Generally monetary deflation will lead to price deflation.

The Monetary base is not decreasing, the fed has increased it by $800 billion dollars since September.

Re: Stock Depreciation and Deflation

Scott Jefferies — Fri, 05 Dec 2008 01:31:33 GMT

I apologize if I haven't made my question clear, but to be as direct as possible: what happens to the money supply during stock depreciation?

Re: Stock Depreciation and Deflation

Bogart — Thu, 04 Dec 2008 23:22:19 GMT

Individual stock depreciation may have a component related to deflation whose size is probably related to the industry. The more likely reason is that stock buyers and sellers do not expect future earnings to be high enough to support their previous prices. The best example of this is the relations between GM and Ford, and Toyota and Honda. All have fallen as total vehicle sales have dropped and individual company sales have dropped. But people expect that Toyota and Honda future earnings will be greater than GM and Ford so their stock prices have not come down as much. Similarly people believe that Honda will earn more than Toyota as the price to earnings value for Honda is around 12 while around 7 for Toyota.

Re: Stock Depreciation and Deflation

Scott Jefferies — Thu, 04 Dec 2008 19:58:23 GMT

By stock depreciation I mean the decline in price of any single company stock. I understand there is deflation in the sense of falling prices, but on a monetary level, is there a constriction in the money supply that results from anything other than hoarding or recapitalization?

Re: Stock Depreciation and Deflation

nazgulnarsil — Thu, 04 Dec 2008 07:49:42 GMT

from this excellent post:

http://www.winterspeak.com/2008/11/macro-under-construction.html

"In this recession, consumption and investment is falling as the housing bubble pops, and the leverage that created it unwinds. Essentially, the monetary base is shrinking as credit (a key element of money) is withdrawn, written down, or written off. Exports were increasing, but the rise of the dollar (as the world rushes to Treasuries) means that that is down too. And, as people spend less, imports fall. All of these declines mean that the economy will go into a recession (GNP will fall). Keynes would argue that if you increase Government Spending enough -- G -- then GNP will rise and the economy can escape recession. Note that he is arguing for a *fiscal* stimulus, greater government spending, as the key to avoid GNP falling. Keynes argued for the Government paying people to "dig holes and fill them up again", and said that this would somehow get the economy back on track. You are quite right to say "huh?""

Re: Stock Depreciation and Deflation

GS751 — Thu, 04 Dec 2008 07:48:26 GMT

im still working on understand this. But overall what do you men by stock depreciation? A fall in SPY and Dow? Deflation means your dollars are worth more.

Look at the Dow in terms of gold maybe that will help

Stock Depreciation and Deflation

Scott Jefferies — Thu, 04 Dec 2008 06:29:06 GMT

How does depreciation work, on a monetary level, to decrease the money supply? Or conversely, how does appreciation monetarily work?

Basically, how does deflation occurr besides from people hoarding cash or slowly recapitalizing?