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> Why does the capital have to go anywhere? People just bid less and less for the same assets and prices go down. So the law of supply and demand just magicall
by refurb 8mo ago
> Why does the capital have to go anywhere? People just bid less and less for the same assets and prices go down.
So the law of supply and demand just magically reverses itself?
- triceratops 8mo agoNo idea what you're talking about. Explain.
- refurb 8mo agoStatement: if AI crashes where will the capital go? Claim: people will just choose to not invest capital at all Response: that’s the opposite of what we know about supply/demand. When a supply of something (desirable investments), goes down, with demand steady, prices go up It’s the same thing that happened during zero interest rate environment - huge supply of capital, few places to put it, so it piled into tech which drove up prices So I guess my answer to “where will the capital go?” is “the next best thing” which drive up prices of that thing
- triceratops 8mo ago> Claim: people will just choose to not invest capital at all No. Claim: People will have less capital to invest. Most portfolios are not cash-heavy. They own assets. If they want to invest in something they borrow against the assets or sell them and get cash. If the assets' prices crash they can't get as much cash for those assets. Cost of borrowing - which is what you're referencing from the ZIRP era - is another factor into how much people can borrow against assets. But if the assets themselves trade at an average P/E of 20 instead of 40 then people can only borrow half as much money at 1% interest rates.
- PeterHolzwarth 8mo agoPeople, or organizations, but mainly people, can just refuse to invest in stuff, parking their money in low-interest bank accounts, or the old style "stuffed into mattresses." This was the multi-decade problem Japan ran into after its hot economy imploded, and unleashed the "lost decade" (which became decades). It was not a marginal issue, and for year the Japanese government tried everything it could think of to get people to invest in things - to little effect.
- simpsond 8mo agoMarket cap doesn’t equal liquidity. If everyone wants out of an asset, and no one wants it, supply exceeds demand and the price crashes.