What affect does mass selling of stock have on the economy. With the recent stock markets plummeting, many people are selling their stocks. How does this affect the economy in terms of aggregate expenditures. Specifically consumer consumption of goods and services, investments, export and imports? Does the unemployment rate go up? What about inflation, does it go down or up?
I know buying and selling stocks is trading, it is just a exchange in assets, so it doesnt do anything to the economy. But I'm curious on what happens when everyone starts selling their stocks. Doesn't selling stocks need a buyer, so why does it collapse?
I'm taking micro and macro economics in university right now. But we have not really talked about the stock market. I'm just interested if anyone wants to answer some of my questions. when trading there is a winner and loser? i disagree
but what about the principle on maximization...
people will not trade unless they benefit, their are always downfalls, but the benefits outweigh the downfalls, that is why the trade went through. No one trades something, when they know they will lose. I would have thought of it a bit like this.
In any trade especially in share trading you have a winner and a loser.
However I would assume the effects of the stockmarket are a symptom of the economic conditions.
The fears of recession - weakening economic growth is what forces people to rethink the PE Ratios which many stock investors pride themselves on. Basically a repricing of debt/risk.
There are speculators out there but generally the PE Ratios kick in again and everyone snaps up a good bargain, however you must look at both sides of the argument, some people that believe a recession will occur will factor it into the company earnings forecasts as they only do this every quarter, this will cause lower earnings and thus lead to lower PE Ratio in their view, it all depends on the company to perform.
It all depends on the economic conditions, but stocks always fly too high or sink too low leading for opportunity to buy long and to sell short.
My view is mass selling/shorting of stocks due to speculation really isn't an issue for growth. Though it does tighten the credit market and make it harder to finance your company, especially if your company stock is undersubscribed.
Generally I believe stockmarket activity is symptomatic of any economic indicators, thus why it is so profitable to news trade!
Wealth and money never disappears, in fact they are always pumping in extra money into a financial system in order to ward off a credit crisis.
So who earns the money you would ask, well mainly the institutions as they usually hold the orders to stock trades and can see whether the crowd is generally buying or selling a stock, this is why it is very risky playing the stockmarket game.
Money/Credit never disappears, only gets harder to access it.
The Interest Rate as you know is the price of money...
When you are thinking about write-offs, money doesn't really disappear, it just means that their product is no longer worth as much as they thought it did.
Once upon a time ago I used to think write-offs and bankruptcies meant money just disappeared, but generally this didn't seem to be the case, someone had earned money on that trade, similiar to selling a stock short.
Yeah, you could have a win-win situation where you trade something that the other person doesn't have, but price wise you one of you is going to have an upper hand compared to the other.
When you haggle, it's likely one of you will lose, generally the buyer loses as the seller is always looking to profit, even if it is for a small amount. It could happen the other way around but rarely.
We are talking market prices here, not whether you just want to get the shares off your hands because you have excess or because your worried.
Both people are trying to maximise their gains, it's a bit of game theory, but someone there is always a winner and a loser, it just depends how big a winner or loser you are. Trading \affects economy
If there is a panic , the cash flow wont be there
whihc means no supply of money
and gues wat the inflation will rise as we;ll When the market for any asset declines, it means there is less wealth. Less wealth means less spending. Spending creates jobs. Jobs create income. People invest a part of that income in assets. Which creates more wealth.
You're very astute in your observation that every stock seller needs a buyer. Just like any other "product", some people like to buy when an item goes "on sale". |
