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Billionaires

Gameface said:
The question wasn't clear I guess. Let's say every billionaire wanted to carry their liquid assets in cash? Would that have a negative effect on the economy? Obviously this is a hypothetical, please don't answer with "well, they wouldn't..."

Since their must be liquid assets available to purchase any tangible assets, where do these liquid assets come from and how do they increase?
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An oversupply of money like that would likely create massive inflation because what are they going to do with it other than compete with the rest of us for goods and services. If there is only one gallon of milk left in the store and the billionaire is willing to pay a million bucks for it while you want it for $3.25, guess who is getting the milk.

The money supply itself is managed by the central bank. Different economists have different beliefs about proper management of this process. The way people behave based upon the way they believe the system works actually impacts the way the system works. For this reason it is literally impossible to define exactly how it works because the act of successfully defining it would cause it to behave differently. It would be akin to asking a single starling why the flock moves in the patterns that it does and where it is ultimately going to go. All that each single bird knows is that it is constantly trying to get to the center of the flock because that is the position the bird perceives to be the safest. Investors are the same way. They are each constantly looking out for number one.

It's fascinating to recognize that the market participants belief or faith in the competent management of the money supply is in many ways more important than the actual competence.
 
It's okay if you don't know the answer, joe.
 
I guess the question is, is there enough wealth in the world to buy all the wealth in the world? I think the answer is no. As soon as people try to move too much of their imaginary wealth the value of that wealth would wither away.

There is not enough cash to cover all the cash people have access to.

But it's odd. Obviously I get a paycheck and I can turn that into cash. Most people are like me in that way. But most wealth is not paid via a paycheck. But a company has to have actual cash on their books to pay their employees, to pay their electric bill, to pay their suppliers, to purchase real property, to acquire other companies. All that takes cash on the books or a bank that will pay cash and give the company credit. But these banks can't just offer loans on money they don't have. They have to have access to that cash in one form or another. So, I'm just wondering, does the fed have a way to meet the demand for liquid assets as it grows?

And if anyone else wants to take a crack at the hypothetic (hint, this is not a realistic scenario and has nothing to do with a billionaire paying a million dollars for a gallon of milk), if all the billionaires in the world wanted to pile their cash in their front room so they could look at it for a day, all on the same day, before putting it all back in the bank, would there be enough cash in the world to cover it?
 
I'm surprised that Moe is essentially saying there is no wealth creation. Obviously there has to be. There are around 7 billion people on the planet. There is more stuff out there than ever before. All of it has value, some of it real and some of it perceived. But none the less, there are more people doing more stuff and owning more goods and consuming more services. If wealth was not created we'd all be sharing the same dollar bill because 100 years ago there was nowhere near as much wealth, or people or goods around. So clearly turning a dirt field into crops, or forming metal into a hammer, or taking wood and turning it into a house, you're creating something valuable where it didn't exist before.
 
moevillini said:
I understand, but I'm still not convinced to what degree new wealth is absolutely created and to what degree it's transferred on paper.

If everybody tried to liquidate their shares in AAPL at once, a lot of that wealth would rapidly disappear.

Look at all the wealth that was created when folks were overspending on housing due to loose lending standards and the easy availability of credit. Where is that wealth now?

I'm just not sure what are the absolutes here.
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First of all, ask yourself why everybody would want to liquidate at the same time. Such an event could only be the result of a market collapse. It would represent the loss of faith in the value of the company. Now think about how it would happen in the real world. If everybody liquidated AAPL each one of them would have to find buyers, so there would necessarily be investors in proportion to sellers. So everyone would not be liquidating. Some people would be buying the stock up. If there is no buyer at the price a stockholder is willing to sell then no sale is going to take place. So ultimately it is the faith of the marketplace in the value of the company that is determining the value.
 
Don't confuse money with wealth. Wealth is a claim, money is what you use to purchase a claim from someone else. Billionaires became more billionairy in recent years because a bunch of people panicked and sold their claims. The billionaires were happy to oblige them.
 
I was waiting for heyhey to chime in. Always good insights on this topic.
 
I don't want to throw something out that gets anyone in trouble (meaning not having the required savvy/experience to benefit), but a great way to create wealth and particularly for retirement (59.5 years old), is using call options within a ROTH IRA.

I will give the very basic components in how I utilize them.

I will buy an option to purchase a property (most use call options in the stock market) through my ROTH IRA. Let's say I pay $5,500 for the option.
Then, I purchase that option from my IRA for, say, $500,000 and exercise the option outside of my ROTH.
The entire profit from the sale of the option is tax deferred. I can continue to do this, tax free, until either a) I take money out of the IRA and pay the appropriate tax (whether it be ordinary income or long-term capital gains), or b) at 59.5 years old can take it out tax free.

There are VERY creative ways to amass wealth quickly and this is the vehicle Mitt Romney uses (among many others) to do the same.
 
Gameface said:
I guess the question is, is there enough wealth in the world to buy all the wealth in the world? I think the answer is no. As soon as people try to move too much of their imaginary wealth the value of that wealth would wither away.

There is not enough cash to cover all the cash people have access to.
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A conundrum indeed!
 
Joe Bag hasn't just taken the bait of the neoclassical synthesis, he's swallowed the hook.

His notion of "value" is so lopsided and full of blind spots that I don't even know where to begin. Here's a little start: I have friends in Trinidad whose grandparents grew up near the bubbling tars. The locals at the time didn't find them "valueless"; on the contrary, they were utilized for certain health benefits and there was plenty of local lore that grew up around them. "Technology" didn't give these places value. The value was already there; it just wasn't seized by, striated, and subsequently controlled by the (colonial) State.

I'm not arguing about the "falsity" of Joe Bag's comments. Many of them are "correct" from within the fictions of neoclassical economics and Keynesian theories. That doesn't make them universally correct. When I read these kinds of comments, I'm amazed at how often HUMAN WILL and TECHNOLOGY appear as God-like in their beneficence.... creating something from nothing. Belief in that miraculousness is what buoys the fiction. Value was there already, y'all. Just because the market and State didn't recognize it doesn't mean it wasn't there. Humans don't create objects from inanimate or "dumb" matter. Nonhuman entities have agency in this creation... and they have value regardless. Good grief.
 
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I think it's now less than 10% of "wealth" reaches the form of paper money. The rest of it is coded and transferred in digital forms.
 
Gameface said:
I guess the question is, is there enough wealth in the world to buy all the wealth in the world? I think the answer is no. As soon as people try to move too much of their imaginary wealth the value of that wealth would wither away.

There is not enough cash to cover all the cash people have access to.

But it's odd. Obviously I get a paycheck and I can turn that into cash. Most people are like me in that way. But most wealth is not paid via a paycheck. But a company has to have actual cash on their books to pay their employees, to pay their electric bill, to pay their suppliers, to purchase real property, to acquire other companies. All that takes cash on the books or a bank that will pay cash and give the company credit. But these banks can't just offer loans on money they don't have. They have to have access to that cash in one form or another. So, I'm just wondering, does the fed have a way to meet the demand for liquid assets as it grows?

And if anyone else wants to take a crack at the hypothetic (hint, this is not a realistic scenario and has nothing to do with a billionaire paying a million dollars for a gallon of milk), if all the billionaires in the world wanted to pile their cash in their front room so they could look at it for a day, all on the same day, before putting it all back in the bank, would there be enough cash in the world to cover it?
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Are you asking if there is enough physical cash or are you asking if there is enough "buyers" to provide liquidity to take the other side of the transaction for the Billionaire's?

In theory, the answer is probably yes to both, although the dislocations associated with a mass "sell" would in itself initiate a pretty horrific feedback loop.
 
NAOS said:
I think it's now less than 10% of "wealth" reaches the form of paper money. The rest of it is coded and transferred in digital forms.
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And paper money isn't even really necessary. I was using it to try to make it more understandable for me. Obviously much of wealth is in what a person owns. Stocks are probably the thing that most seems like a puff of smoke that could vanish at any given time. But wealthy people also have large bank accounts. If they wanted to pay cash for a house they could do it.

What is the process by which there is more cash in the world. As far as the U.S. is concerned this is the function of the Federal Reserve, yes?
 
Dr. Jones said:
I don't want to throw something out that gets anyone in trouble (meaning not having the required savvy/experience to benefit), but a great way to create wealth and particularly for retirement (59.5 years old), is using call options within a ROTH IRA.

I will give the very basic components in how I utilize them.

I will buy an option to purchase a property (most use call options in the stock market) through my ROTH IRA. Let's say I pay $5,500 for the option.
Then, I purchase that option from my IRA for, say, $500,000 and exercise the option outside of my ROTH.
The entire profit from the sale of the option is tax deferred. I can continue to do this, tax free, until either a) I take money out of the IRA and pay the appropriate tax (whether it be ordinary income or long-term capital gains), or b) at 59.5 years old can take it out tax free.

There are VERY creative ways to amass wealth quickly and this is the vehicle Mitt Romney uses (among many others) to do the same.
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Does this still work well with much smaller numbers? say $500 and $5000
 
The Pearl said:
Are you asking if there is enough physical cash or are you asking if there is enough "buyers" to provide liquidity to take the other side of the transaction for the Billionaire's?

In theory, the answer is probably yes to both, although the dislocations associated with a mass "sell" would in itself initiate a pretty horrific feedback loop.
Click to expand...

Not physical cash. Weather or not the system could support liquidating all the actual money the ultra wealthy have in their bank accounts. Not their property, not their stocks, not their collection of priceless paintings. What happens to the system if they all want to transfer their account into a cashier's check, or something like that.
 
Dr. Jones said:
I don't want to throw something out that gets anyone in trouble (meaning not having the required savvy/experience to benefit), but a great way to create wealth and particularly for retirement (59.5 years old), is using call options within a ROTH IRA.

I will give the very basic components in how I utilize them.

I will buy an option to purchase a property (most use call options in the stock market) through my ROTH IRA. Let's say I pay $5,500 for the option.
Then, I purchase that option from my IRA for, say, $500,000 and exercise the option outside of my ROTH.
The entire profit from the sale of the option is tax deferred. I can continue to do this, tax free, until either a) I take money out of the IRA and pay the appropriate tax (whether it be ordinary income or long-term capital gains), or b) at 59.5 years old can take it out tax free.

There are VERY creative ways to amass wealth quickly and this is the vehicle Mitt Romney uses (among many others) to do the same.
Click to expand...

So is this something you started doing right when you turned 59, or did you wait a few years?
 
Gameface said:
Not physical cash. Weather or not the system could support liquidating all the actual money the ultra wealthy have in their bank accounts. Not their property, not their stocks, not their collection of priceless paintings. What happens to the system if they all want to transfer their account into a cashier's check, or something like that.
Click to expand...

I believe the answer is still yes. All of the banks assets and liabilities have to match. The Fed is the bank to the banks and would provide the liquidity.
 
Dr. Jones said:
I don't want to throw something out that gets anyone in trouble (meaning not having the required savvy/experience to benefit), but a great way to create wealth and particularly for retirement (59.5 years old), is using call options within a ROTH IRA.

I will give the very basic components in how I utilize them.

I will buy an option to purchase a property (most use call options in the stock market) through my ROTH IRA. Let's say I pay $5,500 for the option.
Then, I purchase that option from my IRA for, say, $500,000 and exercise the option outside of my ROTH.
The entire profit from the sale of the option is tax deferred. I can continue to do this, tax free, until either a) I take money out of the IRA and pay the appropriate tax (whether it be ordinary income or long-term capital gains), or b) at 59.5 years old can take it out tax free.

There are VERY creative ways to amass wealth quickly and this is the vehicle Mitt Romney uses (among many others) to do the same.
Click to expand...

As explained, this makes little conceptual sense and probably might skirt the IRS rules on a prohibited transaction.
 
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