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This is an inaccurate narrative. The more wealth inequality there is in a nation, the less that increases in the money supply effect the economy. This is why we

This is an inaccurate narrative. The more wealth inequality there is in a nation, the less that increases in the money supply effect the economy. This is why we have no inflation with trillions injected. The rich simply store the money in assets like stocks and houses and it never touches consumption. The only thing that needed to happen to keep the economy afloat was the Congress passing their bills.

tylerhou 6y ago
> The rich simply store the money in assets like stocks and houses and it never touches consumption. But these do affect consumption. 1) Stonks going up means that companies have more capital (through stock issuances and equity raises). Companies use this capital to buy things and pay workers, so the dollars end up recirculating through the economy just like if a regular person spent it. 2) Buying houses is consumption. And increases in housing prices causes more building of houses. Which leads to people getting paid for building houses and creating materials which leads to money circulating. Wealth inequality is bad, and Congress should have done more to help the American people. But the populist "rich people hoard money in stonks and houses so it doesn't recirculate" is also a complete misunderstanding.
- ItsMonkk 6y ago
  1. When the money supply is increasing at a rate faster than stuff, the best use of capital is to hoard it. Can you show me examples of major companies issuing stock right now? Looks to me like they are all buying back their stock, which has the opposite effect. 2. Buying houses is an investment and is specifically carved out in the CPI. Consumption is Owner's Equivalent Rent, buying is not.
  - tylerhou 6y ago
    https://www.cnbc.com/2020/12/08/tesla-to-raise-up-to-5-billion-in-share-offering.html https://www.cnbc.com/2020/12/08/tesla-to-raise-up-to-5-billi... https://www.ft.com/content/a59c2a9d-5e0b-4cbc-b69e-a138de76a776 https://www.ft.com/content/a59c2a9d-5e0b-4cbc-b69e-a138de76a... https://www.bloomberg.com/news/articles/2020-12-21/u-s-stock-sales-raise-435-billion-amid-2020-s-ipo-euphoria https://www.bloomberg.com/news/articles/2020-12-21/u-s-stock... Stock and bond issuances are at all time highs. Housing is an investment in the CPI because most people don’t buy houses as consumption. The CPI aims to create a basket of consumption for normal people. Rich people do consume houses, and their consumption leads to money circulating. Should rich people be rich enough to buy houses willy-nilly? That’s a different question. Maybe they shouldn’t, to the current degree.
    - ItsMonkk 6y ago
      > highest-profile recent example of borrowing for buybacks: > Apple (ticker: AAPL). The tech giant sold $14 billion in bonds this month, and said it would use at least part of the proceeds on buybacks and dividends.[0] Kinda problematic when one large company doing buybacks dominates over thousands doing issuing reversing your entire narrative. Taking out bonds to give to shareholders is not something that helps main street. [0]:https://www.barrons.com/articles/debt-fueled-stock-buybacks-are-coming-back-that-could-hurt-tech-companies-credit-51612895429 https://www.barrons.com/articles/debt-fueled-stock-buybacks-...
      - willcipriano 6y ago
        I post this here for posterity: Within ten years a film will come out about the next economic disaster and everyone will be saying "how could we be so stupid to allow firms to buy their own stock with debt?" much like the housing crisis.
        wyre 6y ago
        I don’t think the average person really knows how stocks work and isn’t even aware firms are able to buyback stock with debt.
        willcipriano 6y ago
        How many knew about CDOs before The Big Short?
        MrMan 6y ago
        Or how to run a baseball team before Moneyball
        chii 6y ago
        > buy their own stock with debt? why not? What's wrong with altering a company's capital structure to be more efficient? Stocks have a cost (aka, cost of equity), just like debt. Sometimes, cost of equity is higher than cost of debt (aka, the interest rate). Sometimes, the cost of debt is higher than cost of equity. This is determined by the general market conditions and economic environment. A company may find itself in a situation where the cost of equity is very high, and cost of debt is very low. In this case, it makes a lot of sense for the company to borrow to reduce the amount of outstanding equity on the market. There is an equalizing point, where the total cost of capital is lowest, and that is where the company's money source is most efficient. There is absolutely nothing wrong with company buying back stocks, if this is the case. The only problem, really, is that buybacks gives capital gains for stockholders, and this is taxed lower than normal income. This is a question of taxation policy, not stock buybacks. Is it fair that capital gains are taxed less than earned income?
- icefrakker 6y ago
  Are people still pushing that trickle down nonsense? They pushed that idea because they think the masses are idiots and we ate it up because the masses are indeed idiots. As far as your point about housing: the supply demand nonsense you learned as a freshman in college is total garbage - the real world does not work like that. You live in a fantasy world where people can say things like "free markets work like so" without any embarrassment, but there never has been a free market in the existence of humanity and there never will be.
- Retric 6y ago
  1) No. Stock prices only directly impact companies when they actually sell stock. So, propping up the market has zero long term impact as the value of future cash flows is unchanged. It’s simple a handoff of money from the government to people selling stocks over a short period. It’s popular because it keeps highly leveraged investments viable.
  - tylerhou 6y ago
    And conveniently for my point, 2020 saw the largest stock and bond issuances of all time.
    - Retric 6y ago
      They get the same amount of money from issuing bonds independent of the interest rates they pay. Injecting money into the bond market reduces their costs, but doesn’t directly hand them more money any more than a home loan at a lower interest rate does. In terms of stock issuances that’s surprisingly nuanced. Delta Airlines for example has 2.7% fewer outstanding shares in Dec 31 2020 vs Dec 31 2019.
  - hntrader 6y ago
    It has a huge long term impact. There's been hundreds of near dead companies that have had their stock prices pumped and have raised loads of money through an at the market offering or secondary offering which would've been impossible a year ago. AMC is the most public example, where they dumped their at the market offering into retail investors. But there's hundreds of other examples. Big caps: CCL, TSLA both with multi billion at the markets with little dilution thanks to stock price being propped. Small caps: Literally hundreds of names, check DilutionTracker on Twitter. The parent post is correct in that an increase in the stock price in the secondary market has a material impact on the prospects of the company, especially if it's struggling. Raising money isn't the only mechanism, employee retention is another. In this sense, Soros' positive reflexivity has some merit.
- toiletfuneral 6y ago
  do you have any evidence of a company's positive financials correlating with them paying their workers more? I have literally never seen this, though I absolutely have seen they cut workers wages on negative financials. And don't say worker's stocks go up too, because we all know how disproportionate shareholders take it.
ISL 6y ago
Or adequately addressing the pandemic; the gravest error of our time.

tylerhou 6y ago

> The rich simply store the money in assets like stocks and houses and it never touches consumption. But these do affect consumption. 1) Stonks going up means that companies have more capital (through stock issuances and equity raises). Companies use this capital to buy things and pay workers, so the dollars end up recirculating through the economy just like if a regular person spent it. 2) Buying houses is consumption. And increases in housing prices causes more building of houses. Which leads to people getting paid for building houses and creating materials which leads to money circulating. Wealth inequality is bad, and Congress should have done more to help the American people. But the populist "rich people hoard money in stonks and houses so it doesn't recirculate" is also a complete misunderstanding.

ItsMonkk 6y ago
1. When the money supply is increasing at a rate faster than stuff, the best use of capital is to hoard it. Can you show me examples of major companies issuing stock right now? Looks to me like they are all buying back their stock, which has the opposite effect. 2. Buying houses is an investment and is specifically carved out in the CPI. Consumption is Owner's Equivalent Rent, buying is not.
- tylerhou 6y ago
  https://www.cnbc.com/2020/12/08/tesla-to-raise-up-to-5-billion-in-share-offering.html https://www.cnbc.com/2020/12/08/tesla-to-raise-up-to-5-billi... https://www.ft.com/content/a59c2a9d-5e0b-4cbc-b69e-a138de76a776 https://www.ft.com/content/a59c2a9d-5e0b-4cbc-b69e-a138de76a... https://www.bloomberg.com/news/articles/2020-12-21/u-s-stock-sales-raise-435-billion-amid-2020-s-ipo-euphoria https://www.bloomberg.com/news/articles/2020-12-21/u-s-stock... Stock and bond issuances are at all time highs. Housing is an investment in the CPI because most people don’t buy houses as consumption. The CPI aims to create a basket of consumption for normal people. Rich people do consume houses, and their consumption leads to money circulating. Should rich people be rich enough to buy houses willy-nilly? That’s a different question. Maybe they shouldn’t, to the current degree.
  - ItsMonkk 6y ago
    > highest-profile recent example of borrowing for buybacks: > Apple (ticker: AAPL). The tech giant sold $14 billion in bonds this month, and said it would use at least part of the proceeds on buybacks and dividends.[0] Kinda problematic when one large company doing buybacks dominates over thousands doing issuing reversing your entire narrative. Taking out bonds to give to shareholders is not something that helps main street. [0]:https://www.barrons.com/articles/debt-fueled-stock-buybacks-are-coming-back-that-could-hurt-tech-companies-credit-51612895429 https://www.barrons.com/articles/debt-fueled-stock-buybacks-...
    - willcipriano 6y ago
      I post this here for posterity: Within ten years a film will come out about the next economic disaster and everyone will be saying "how could we be so stupid to allow firms to buy their own stock with debt?" much like the housing crisis.
      - wyre 6y ago
        I don’t think the average person really knows how stocks work and isn’t even aware firms are able to buyback stock with debt.
        willcipriano 6y ago
        How many knew about CDOs before The Big Short?
        MrMan 6y ago
        Or how to run a baseball team before Moneyball
      - chii 6y ago
        > buy their own stock with debt? why not? What's wrong with altering a company's capital structure to be more efficient? Stocks have a cost (aka, cost of equity), just like debt. Sometimes, cost of equity is higher than cost of debt (aka, the interest rate). Sometimes, the cost of debt is higher than cost of equity. This is determined by the general market conditions and economic environment. A company may find itself in a situation where the cost of equity is very high, and cost of debt is very low. In this case, it makes a lot of sense for the company to borrow to reduce the amount of outstanding equity on the market. There is an equalizing point, where the total cost of capital is lowest, and that is where the company's money source is most efficient. There is absolutely nothing wrong with company buying back stocks, if this is the case. The only problem, really, is that buybacks gives capital gains for stockholders, and this is taxed lower than normal income. This is a question of taxation policy, not stock buybacks. Is it fair that capital gains are taxed less than earned income?
icefrakker 6y ago
Are people still pushing that trickle down nonsense? They pushed that idea because they think the masses are idiots and we ate it up because the masses are indeed idiots. As far as your point about housing: the supply demand nonsense you learned as a freshman in college is total garbage - the real world does not work like that. You live in a fantasy world where people can say things like "free markets work like so" without any embarrassment, but there never has been a free market in the existence of humanity and there never will be.
Retric 6y ago
1) No. Stock prices only directly impact companies when they actually sell stock. So, propping up the market has zero long term impact as the value of future cash flows is unchanged. It’s simple a handoff of money from the government to people selling stocks over a short period. It’s popular because it keeps highly leveraged investments viable.
- tylerhou 6y ago
  And conveniently for my point, 2020 saw the largest stock and bond issuances of all time.
  - Retric 6y ago
    They get the same amount of money from issuing bonds independent of the interest rates they pay. Injecting money into the bond market reduces their costs, but doesn’t directly hand them more money any more than a home loan at a lower interest rate does. In terms of stock issuances that’s surprisingly nuanced. Delta Airlines for example has 2.7% fewer outstanding shares in Dec 31 2020 vs Dec 31 2019.
- hntrader 6y ago
  It has a huge long term impact. There's been hundreds of near dead companies that have had their stock prices pumped and have raised loads of money through an at the market offering or secondary offering which would've been impossible a year ago. AMC is the most public example, where they dumped their at the market offering into retail investors. But there's hundreds of other examples. Big caps: CCL, TSLA both with multi billion at the markets with little dilution thanks to stock price being propped. Small caps: Literally hundreds of names, check DilutionTracker on Twitter. The parent post is correct in that an increase in the stock price in the secondary market has a material impact on the prospects of the company, especially if it's struggling. Raising money isn't the only mechanism, employee retention is another. In this sense, Soros' positive reflexivity has some merit.
toiletfuneral 6y ago
do you have any evidence of a company's positive financials correlating with them paying their workers more? I have literally never seen this, though I absolutely have seen they cut workers wages on negative financials. And don't say worker's stocks go up too, because we all know how disproportionate shareholders take it.

ISL 6y ago

Or adequately addressing the pandemic; the gravest error of our time.