Ping!
Has it destroyed wealth, or was the wealth never really there to begin with?
It did not destroy wealth. It just forced us to lower our valuation of it.
[Lots of fat is destroyed last year along with some meat. Much more fat still remain. It would be to be destroyed along with huge chunk of meat in coming days and months.]
It could go on for a very long time. Nothing Bush did, and especially everything Obama is doing, is meant to correct the underlying problems. Gonvernments can’t print their way to wealth. Ponzi on top of Ponzi.
Accountants can’t destroy wealth. There is more stuff now than last year and stuff is what wealth is. The amount someone is willing to pay for my stock has changed, but the stuff that is the company has not. Was the stock ever ‘worth’ $40? Is it really worth $12 now? I don’t know, but I still like the company and still own a lot of stock. We got a PS3 and a 50” plasma this year — THAT is wealth ;-)
One hopes the US will return to the days of basing wealth on tangible items.
But I don't hold out high hopes.
Those post-nationalist traitors mean to subvert national sovereignty -- if they couldn't do it by "well, we're all interdependent by trade, so why have borders at all" then they will try it by "these financial crises demonstrate the need for a trans-national, supra-national economic governing body...like US." (How conveeeeeeeenient.)
Anti Davos Sarcasm Torpedo ARMED. FIRE!!
A real president would rescind executive orders on assassinations and launch a strike on Davos.
...unfortunately, that president is Ahmadinejad.
So, Euroweenies, how's that "negotiation for non-proliferation" working out for you...?
NO cheers, unfortunately.
No it hasn’t. Real wealth can’t be destroyed. It can only be TRANSFERRED.
Which is equivalent to the exchange value of money increasing, and to long term interest rates increasing.
Some portion of the reduction in long dated claims reflects actually lower future cash flows now expected, than expected previously. But the largest portion of it, by far, simply reflects a lower value being put on any future anything, compared to ready money, available this instant.
The first portion - actual reduction in nominal future cash flows - is in turn composed of two elements. A big part of it is simply lower future inflation expectations. The same real values earned and paid 5 or 10 years from now, let alone 20 or more, are expected to cost fewer nominal dollars.
Only a residual left after both of those adjustments, reflects a *true* reduction in the real value of actual future cash flows.
And only that residual is any actual reduction in anything that should meaningfully be called "wealth".
A mere rise in interest rates that adjusts the "terms of trade" between present and future goods is not a reduction in real wealth. The same present goods exist as before, and the same future goods, and their utility. And mere decline in inflation expectations likewise is not a reduction in real wealth. It may involve a net transfer from holders of equity to holders of debt forms of financing, but it isn't a change in the future real value being divided between them.
The residual of real losses basically just reflects the pause in economic growth. If a world economy normally growing 2.5% a year in real terms, instead declines 2.5% a year in real terms for one year, and then instantly gets back on its normal 2.5% a year growth track, there are two ways of looking at the cost or damage. One is that two years of effort leave the world as wealth as before and then normalcy returns. The other is to see the permanent track of income growth as 5% lower than one imagines it might have been. For good. To the extent that asset values capitalize expectations of the latter sort, that can and will be the permanent effect on real capital-wealth.
But the world is not remotely 40% poorer. Income has fallen about 2%, and with lost growth maybe that rises to 4%. 4 isn't 40. Most of the rest is changes in interest rates and inflation expectations, and maybe a portion is also overshoot in capital markets. (Certainly the corporate bond market, for instance, it seriously undervalued at present levels).
How does 'cash' evaporate? This is sounding like voodoo magic.
Wealth isn’t destroyed; it’s all paper money, folks. That home you bought is still there; it’s just not worth what you though it was.
LLS
When the Russian mafia is selling apples on the street corners, we’ll know we reached bottom.
Your Congress, with Dodd and Frank and others, fomented and abetted a financial crisis, which has had the effect of stripping $ 7.5 TRILLION from the value of American homes and $ 7.5 TRILLION from the value of Americans stock holdings in their 401K’s and IRA’s.
They also spent a total of $ 2 TRILLION last year between stimulus, TARP,pork, and Federal Reserve pumping money into the banking system.
Now they want to spend $ 819 BILLION. And that isn’t all!
Mr.Geithner now is pushing for a national bank to take over “toxic assets” to the tune of $ 2-3 TRILLION.
Not only have you been personally looted by your own Government, but so have your grandchildren and great grandchildren.
And with this proposed spending, there will be massive inflation by the end of 2009 into 2010, that will further erode your savings. Looted again!
Just remember, this money represents hours of your life that you spent working to build your future, and Congress squandered it.
Angry yet? Pick up the phone on Monday and let the grifters in DC know how you feel. After all, you’re paying for this fiasco.
......Lots of fat is destroyed last year along with some meat......
You are correct. In the modern world, wealth is merely electron blips in a system hard drive. Banks are movers of electrons posted in ever increasing numbers to ledgers representing nothing of substance.
The current crisis is pretty much a hard drive failure. The real wealth is still there in the form of solid companies, real estate, gold and other hard assets.