Wednesday, August 29, 2007

The Supercharged Stock Market: An Object Lesson in the Perils of Coercion

A central reason for the instability of the stock market is the hundreds of billions of dollars being forced into it by endless government programs.

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Joe said...

You write that "we end up being forced to speculate" and that the financial services industry "depends on this violence". I'm afraid you're interpreting force, coercion and violence, way too broadly. Last time I checked, I was able to invest/speculate in a 401K strictly as a matter of personal choice, i.e., no one was holding a gun to my head, not even figuratively. Furthermore, it's up to each individual to decide how much of their compensation to defer and how to allocate their funds among investment alternatives. In all four cases that I'm personally familiar with, the employer companies offered not only U.S. stock market funds, but also international stock funds, bond funds and plain money market (simple interest bearing) funds.

FSK said...

The primary reason for volatility in the stock market and other assets is volatility in the value of the dollar itself.

You are "forced to speculate". If you hold Federal Reserve Points, inflation steals your savings at a rate of 10%/year or more. Gold and silver are the best inflation hedge. The price of gold and silver, denominated in Federal Reserve Points, has volatility because the value of the dollar itself has volatility. However, taxes on gold and silver are a strong disincentive towards using gold and silver as money.

model said...

I think that the main reason why people start to speculate is inflation. If prices go up 10% a year as the printing presses run wildly and your bank gives you an interest rate of 4% (as they get plenty of printing press money anyway), you have no other choice than to speculate. The rest is mainly a consequence. Also without union/401k compulsion people plunge their money in the stock market if prices go up wildly. Prices only go up wildly if their is a lot of money around to bid them up.