3 ms·

Gold might be a better example then.

saalweachter 5y ago
Eh, gold is probably more analogous to houses. The current price is largely a product of the speculation in the market, but at the same time ... a lot of people buy houses just because they want to live in them. So you have people buying houses at two, three times the price they'd be paying without the pure real estate investors speculating up the price, but at the same time, they're just buying them because they want a house and will pay the absurd price. Likewise, there's a huge amount of speculation in the gold market, and that's probably what defines the price of gold, but at the same time, something like 50% of newly-mined gold goes to make jewelry, and most people buy it because they want it, even though [or because] it is over-priced, and they aren't buying it as an investment, just a pretty thing to have. That doesn't mean that gold or houses are good investments, or that the markets aren't going to crash to a tenth of their current valuations next month or ten years from now, but it does mean there is a second component to the market -- you have speculators interacting with consumers, and the speculators can extract money from consumers who will buy the underlying good even at a bad price. (Oddly, I'd say house buyers are more-expecting to get the money they invested back at some time in the future, compared to gold jewelry buyers.) [But what do I know, I'm just a jerk on the internet saying things.]
- shawnz 5y ago
  It doesn't matter if all the activity is 100% speculative, that is still not a Ponzi scheme. Maybe you might call it a bubble, but it isn't a Ponzi scheme. In order for it to be a Ponzi scheme, speculators would have to believe they are actually investing in a business which uses their investment to generate profit, and not simply speculating against other investors. The investors must be misled about the actual source of their returns.

Eh, gold is probably more analogous to houses. The current price is largely a product of the speculation in the market, but at the same time ... a lot of people buy houses just because they want to live in them. So you have people buying houses at two, three times the price they'd be paying without the pure real estate investors speculating up the price, but at the same time, they're just buying them because they want a house and will pay the absurd price. Likewise, there's a huge amount of speculation in the gold market, and that's probably what defines the price of gold, but at the same time, something like 50% of newly-mined gold goes to make jewelry, and most people buy it because they want it, even though [or because] it is over-priced, and they aren't buying it as an investment, just a pretty thing to have. That doesn't mean that gold or houses are good investments, or that the markets aren't going to crash to a tenth of their current valuations next month or ten years from now, but it does mean there is a second component to the market -- you have speculators interacting with consumers, and the speculators can extract money from consumers who will buy the underlying good even at a bad price. (Oddly, I'd say house buyers are more-expecting to get the money they invested back at some time in the future, compared to gold jewelry buyers.) [But what do I know, I'm just a jerk on the internet saying things.]

shawnz 5y ago
It doesn't matter if all the activity is 100% speculative, that is still not a Ponzi scheme. Maybe you might call it a bubble, but it isn't a Ponzi scheme. In order for it to be a Ponzi scheme, speculators would have to believe they are actually investing in a business which uses their investment to generate profit, and not simply speculating against other investors. The investors must be misled about the actual source of their returns.