The stock market
Is a place where money makes money by buying and selling ownership of certain companies all around the world. At this moment in time money is being “lost”. You know, like when you go down to the shops and you find the $20 note you had tucked into you pocket before you left has suddenly worked its way out onto the pavement on the way.
The stock market is a bizarre concept in many ways but one thing is commonplace, the herd instinct. When the mass of brokers and agents that fly high in the charged atmosphere of the world markets suddenly start heading for safer waters then a stampede is on. This happens with the stock market every now and then, fairly famously in 1929 which in turn generated the depression of the 1930’s. In recent times, in 1987 the markets underwent a similar “correction” which produced another period of depressed economic activity.
There is an argument that the crash of 29 did not actually cause the depression of the 30’s rather the depression was part of the same cycle, one that was exacerbated by poor monetary policy and bad government decisions. Their is no real argument that the wild speculation of the early 20’s which drove the stock market up until its crash was fundamental to its subsequent demise. People borrowed money to buy stocks believing that the ever inflating stock prices would return a suitable profit, it was a get rich quick scheme! Unfortunately when panic set in, a lot of people got poor even quicker.
Times have moved on but somethings do stay the same, people and their behaviour for one. We have seen an almost unprecedented bull market in recent times, as the stock market has surged to new heights on an almost daily basis. Does this mean that all of these companies have suddenly tapped into new and highly profitable markets and that the world has discovered new sure ways for making money? Or are we simply witnessing the herd at work, people wanting the stock market to be their financial saviour and building their castles on the surface of its ever expanding bubble?
When money gets lost on the stock market in a big way there is a distinct likelyhood that people who didn’t gamble on rising stock prices will end up being hurt as well. Spreading more paper money around after people lose their shirts on a crash risks devaluing the currency and severely courts the possibility of high inflation. Not doing anything might be a tough choice but how else will we move away from gambling on the future to actually doing something concrete? The great depression ended in the US after the New Deal kick started economic activity with renewed nation building activity and laws designed to regulate more tightly the financial markets. Unfortunately unemployment remained high until the WW2.
From the viewpoint of 2007, what has changed? There has been a long period of economic growth, some of which is surely based on speculation. If companies such as Microsoft are considered blue chip then it is clear that the market is obsessed by day to day profits and has no capacity for the broader concerns of a fairer and more equal society. There has been a worrying trend to more casual credit in recent times as people have struggled to maintain their standards of living. Coupling our national economy with the world at large might appeal to certain vested parties but there are considerable risks as the fallout from the so-called sub-prime fiasco demonstrates. Anyone who thinks the recent turmoil on the stock markets won’t have an impact on the rest of us is living in fairyland.