> > have been solely as a result of money actually leaving the > system to go > into more secure things like money market instruments, > > Money does not leave the system. When one person sells > stocks, another > person is buying. But evidently much new money is going to > money market > funds. > > > Fred Foldvary
I think "money" does, in fact, enter and leave the "stock-money" system. (It might be there are different definitions of money and system, please educate me if so.) In an IPO, new shares enter the system, and the share issueing company receives some money. This is new money which has entered the "stock-money" system. If the share price increases, the first investor can sell at a higher price; this is new money entering the system. If this later higher price then decreases, the second investor can sell at a lower price; and money has "left" the system, since the third investor puts in less money for the same shares. While it's that first investor who sold at profit who gets the money that left, it's not clear that the money has, in fact, left, until the second investor gets a loss with the sale to the third investor. And where that first, profiting (maximizing?) investor then invests in, bonds or money market, or real-estate, or other shares, will be getting new money. If the "system" is the entire financial system of "all assets - all money", which surely includes bank loans collateralized by assets at some valuations, than certainly money/ asset valuations can leave the system. This is shown in Japan, whose Tokyo real estate bubble burst in 1989, with every Japanese bank being "technically" insolvent if they marked to market value of their real estate loans. This may be just clarifying my ignorance, but it's how I think the money system is. Tom Grey
