Comment by dheera
3 days ago
There is only so much real money in the world, and that is determined by the Treasuries and Feds of the world. There are only so many dollars that were ever created, so many Japanese yen that were ever created, and so many Turkish lira that were ever created.
The stock market is a wealth redistribution mechanism, not a money printer. Market caps going up are not equal to money being created. It's not like the shareholders could collectively cash out all of that market cap and spend it. If everyone sold all of their stocks and pulled fully out of the stock market until everything crashed to $0, everyone's cash would still sum to whatever the government printed.
Although the stock market isn´t in itself, it benefits from the second order effects of continuous money supply expansion, and long term processes progressively concentrating money into the financial system.
Sorry, but that is wrong or confused on multiple levels. You claim that a) "real money" (whatever that is) is determined by how much money central banks supply, and b) the stock market is a redistribution mechanism, not a wealth creation mechanism. In reality, the stock market creates wealth, and central banks control the nominal quantity of money (not "real money"), thus influencing inflation and shifting around real wealth (between creditors and debtors).
The entire point of the stock market is to support an economy that creates value: take inputs that are worth X (basically, cost of goods sold) and combine them into something that is worth more than X (revenue), with the difference being a profit that (after interest, taxes, depreciations) is paid out to stockholders as dividends. That is positive sum.
The market cap of a firm is the best estimate of the discounted value of future earnings. When it goes up, that does represent (estimated) value creation.
Stocks have a fundamental value. Everyone would not "collectively cash out" - stock prices would fall well below their fundamental value, others would see a bargain, and buy the stock. (Unlike crypto, say, which has no fundamental value but is purely sentiment; well that plus supporting the underground economy.)
Of course, it is conceivable that something happens (nuclear war, say) that would reduce company earnings for the foreseeable future, and then the stock market would collapse. But that is because it correctly anticipates reduced future earnings, not because "everyone collectively cashed out". If everyone is wrong about the stockmarket, but you are right, you can realise your gain over time. Just hold on to the stock and wait for the dividends to roll in.
So, the economy is positive sum, the stock market is a wealth creation machine (refuting your b).
Next, on money. My entire discussion above was purely in real terms. Yes, central banks determine the money supply (commercial banks create most money, but central banks control it). But they don't determine how much real wealth is produced every year; rather, they try to control the money supply so as to achieve moderate inflation.
By creating more or less inflation the central banks achieve some redistribution of wealth from debtors to creditors or vice versa, but again, they do not influence real wealth creation (unless inflation becomes so extreme (either deflation or hyperinflation) that it affects consumer behaviour, degrades planning, etc.).
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