Pray for a Stock Market Crash

The news is all about hopes for a convincing recovery in 2014. We should all be praying for a stock market crash.

It’s impossible to measure and difficult even to define, but the economy has a certain value. Think of all the stuff in the society plus all of the work that people do plus all of the natural resources plus everybody’s skills and knowledge plus a bunch of other things. As with kinetic energy, think also of the potential — things that people might do, discoveries that might be made, inventions that might develop.

In general, fiat money (i.e., cash) is just a relative standard for measurement of that value, allowing people to transfer the stuff in complex arrangements.

If we imagine a pile of money representing an equally sized pile of economic stuff and then we add money to the pile, what does that do? The money itself has no intrinsic value except what it represents as a proportion of stuff, so more money will now equal the same value. It will take more dollars to buy the same thing. This is inflation.

Behind all of our positive economic results lurks the reality that the Federal Reserve has been inflating the investment markets for years, now. The stuff of the markets is now represented by a lot more dollars. As long as inflation is contained in that way, nobody cares, because the purpose of investing, to the investor, is to grow the pile of dollars.

When Rhode Island’s pension gurus target a 7.5% rate of return, for example, it doesn’t much matter to them whether the size of the assets represented by their stocks increases or more money in the market is chasing the same amount of value; they still hit their target. That’s why everybody fears the Fed “taper,” whereby the central bank will begin pumping fewer new dollars into the investment market.

But you can’t inflate just the stock market forever. Eventually, investors will let their super-abundant dollars leak out. That will send the inflation into the general economy, making stuff cost more to buy because there are more dollars to spend on it.

This will hurt the poor and working classes most, because they have less of the stuff that holds its value. The work they do for a living is worth less (in economic terms, not moral), which is why they’re poor and working class. Much of what they buy, they use up… like cars they drive into the ground. And much of what they buy can be manufactured cheaply enough that it doesn’t hold its value even if people want it. For a used video game console, for example, the risk of missing parts, wear, and loss of pleasure in buying something new will generally not be worth the difference from buying one that comes in a never-been-opened box.

So, I say, pray that the stock market crashes, because that will mean that the inflation will burn itself out mainly where it occurred, rather than spreading to the rest of society. And in the meantime, you might want to consider gathering some stuff, whether that means practical skills or objects that will keep their value.

Disclaimer: The views and opinions expressed in The Ocean State Current, including text, graphics, images, and information are solely those of the authors. They do not purport to reflect the views and opinions of The Current, the RI Center for Freedom & Prosperity, or its members or staff. The Current cannot be held responsible for information posted or provided by third-party sources. Readers are encouraged to fact check any information on this web site with other sources.

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