After Gamestonk will hedge funds now threaten U.S. solvency itself?

Buyetyen

Elite Member
May 11, 2020
3,129
2,362
118
Country
USA
I'm honestly convinced that communists, or at least the vaguely economic left wing people that get grouped into the label, are the only people who study capitalism at this point. Adam Smith, dude who codified the whole concept in Wealth of Nations, knew exactly who created the value in a company.
A machine with no labor generates no wealth, regardless how expensive the capital investment.
The people who shriek the loudest about the superiority of capitalism are invariably themselves shitty capitalists.
 

crimson5pheonix

It took 6 months to read my title.
Legacy
Jun 6, 2008
36,113
3,283
118
Wealth is constantly destroyed. Nearly every car on the road depreciates every time it's driven. Obsolete technology loses value even if it's untouched in a vacuum seal. The values of stocks rise and fall literally at the whims of reddit with no real meaning at all behind why.

Do you really believe that the value of Gamestop right now, based on market cap, is derived from an increase in the workers' efforts?
Stocks are both the best example of how wealth isn't destroyed and how our system tries to cut workers out of their fair share. Stocks are a way to invest in a company with a promise of future returns via partial ownership of that company. Once stocks are traded that stops being true and merely works as a mechanism to move wealth around. A stock's value is it's perception of value, but that perception is gauged by it's trade. When you have a bubble like GME the price of the stock far outweighs the value of the company it represents yes, but it's not really tied much to the company at that point anyway, it's just voting rights in the company so it can be valued whatever it wants to be regardless of the company involved, which is why the price isn't tied to the labor of the workers.

That said though, when the price plummets it's not because wealth is being destroyed. It's because enough people (or a big enough shareholder) bails out with the money they wanted and floods the market with shares. What's happened is a ton of people have bought into the GME market concentrating their wealth in this one area, and somebody took the pot and ran. All that money still exists, but it was just moved from a lot of people to a few people. The wealth wasn't destroyed, it was just moved. For the daytrader, they might have been personally wiped out, but that's just because they gave all their money to some hedgefund manager. What does this mean for Gamestop? Not a damn thing, the value of the stock only matters to the company if the company is holding stock, and the extent to which it matters depends on how much stock the company holds. They might end up like the daytrader having given their money away. For the workers it's truly worthless. And the stock plummeting doesn't have a direct effect on the business, neither does the business have a direct effect on the stocks.
 

Agema

You have no authority here, Jackie Weaver
Legacy
Mar 3, 2009
8,598
5,962
118
The values of stocks rise and fall literally at the whims of reddit with no real meaning at all behind why.
Oh yes there is a reason: it's called gambling.

Stocks are a way to invest in a company with a promise of future returns via partial ownership of that company. Once stocks are traded that stops being true...
Stock trading needs to occur, though: people have to be allowed to sell up and move on.

On the other hand a great deal of stock trading is, I suspect, societally useless.
 
  • Like
Reactions: tstorm823

crimson5pheonix

It took 6 months to read my title.
Legacy
Jun 6, 2008
36,113
3,283
118
Oh yes there is a reason: it's called gambling.



Stock trading needs to occur, though: people have to be allowed to sell up and move on.

On the other hand a great deal of stock trading is, I suspect, societally useless.
That's outside the scope of what I'm talking about though. Debates on the necessity of stock are for other conversations. But functionally, someone who bought stock off of someone else didn't invest in the company, they just bought votes in internal decisions from an investor. Though probably not even that, they bought voting rights from someone who bought voting rights who bought voting rights etc. Only people who bought in at the IPO could say that they gave the company revenue and who can say their stock purchase directly helped the company.

EDIT: Or I suppose if the company sells some of it's stocks later, not necessarily an IPO. The point being stocks aren't investments in the company (and thus don't increase the company's wealth) unless the company is the one selling the stocks.
 
  • Like
Reactions: Seanchaidh

CaitSeith

Formely Gone Gonzo
Legacy
Jun 30, 2014
5,343
358
88
Investors already making money due to bonds losing value(ie hedge funds shorting them).
Besides of that. What are the effects of the bonds losing the value? (bonds which I remind you have an expiration date, unlike stocks)
 

stroopwafel

Elite Member
Jul 16, 2013
3,031
357
88
Besides of that. What are the effects of the bonds losing the value? (bonds which I remind you have an expiration date, unlike stocks)
It makes the state deficit more expensive. The federal reserve will try to mitigate the loss by printing more money. This leads to inflation and an increase in interest rates. Biden needs to borrow more money from the capital markets to finance his ambitious plans adding to the costly deficit that the hedge funds then further aggrevate by shorting bonds. Hedge funds become locked in an outbidding match with the federal reserve. I'm no financial expert but to me this sounds like it could lead to an eventual solvency crisis. Economic growth becomes a religion because you're just one recession away from total disaster.
 

Generals

Elite Member
May 19, 2020
571
305
68
It makes the state deficit more expensive. The federal reserve will try to mitigate the loss by printing more money. This leads to inflation and an increase in interest rates. Biden needs to borrow more money from the capital markets to finance his ambitious plans adding to the costly deficit that the hedge funds then further aggrevate by shorting bonds. Hedge funds become locked in an outbidding match with the federal reserve. I'm no financial expert but to me this sounds like it could lead to an eventual solvency crisis. Economic growth becomes a religion because you're just one recession away from total disaster.
Well yes and no. That scenario would indeed likely lead to an increase in inflation but the FED printing money is very likely to reduce interest rates. One of the ways the FED "prints" money is by buying Treasury Bonds. This effectively increases te demand on Treasury bonds and leads to lower interest rates. That's also partly why government bonds are dirt cheap in the EU. The ECB has been buying a massive amount of government bonds.

But let's be honest here, the US govt has already spent Trillions during the pandemic and is planning on spending trillions more in investments. At this point half a trillion worth of government bonds being pushed into the market through short selling isn't really going to have a significant impact. Maybe a couple of bps.
 
Last edited:

stroopwafel

Elite Member
Jul 16, 2013
3,031
357
88
Well yes and no. That scenario would indeed likely lead to an increase in inflation but the FED printing money is very likely to reduce interest rates. One of the ways the FED "prints" money is by buying Treasury Bonds. This effectively increases te demand on Treasury bonds and leads to lower interest rates. That's also partly why government bonds are dirt cheap in the EU. The ECB has been buying a massive amount of government bonds.

But let's be honest here, the US govt has already spent Trillions during the pandemic and is planning on spending trillions more in investments. At this point half a trillion worth of government bonds being pushed into the market through short selling isn't really going to have a significant impact. Maybe a couple of bps.
Yeah, but the fed might increase interest rates when inflation starts to derail. Fixed-income securities earn no more money so as a result capital is flooding the stock market. There was a report in the financial times yesterday that 875 companies went public in the first quarter of this year alone, breaking the record of 592 companies in 2000(just before the dot com crisis). Together these companies procured 230 billion dollar(in the last quarter of 2000 that was 80 billion dollars).

Now, the catch is that half of these introductions are spacs(special purpose acquisition company) which are blank cheque funds that are searching for companies that can go public. Indices are constantly breaking records. Large companies announced share buyback programs so profit can be divided over fewer shareholders.

When the stock market keeps inflating share value eventually the fed will have to increase the interest rates. And with hedge funds shorting bonds this will make the costs of the state deficit unmanageable. When inflation reaches fever pitch in the stock market then large investors will ofcourse already have cashed out by then. It are usually just the average joes with high mortgage debts and investment savings who will have to foot the bill like with the previous crisis. Biden can borrow trillions more from the capital markets only because the costs of debt are a mirage at this point. The question is how long that can be sustained.
 

Agema

You have no authority here, Jackie Weaver
Legacy
Mar 3, 2009
8,598
5,962
118
Yeah, but the fed might increase interest rates when inflation starts to derail.
US government needs $500 billion to pay off interest? The Fed prints $500 billion and gives it to the government. Crisis over.

Yes, there will be inflation. Not, however, very much. When you stop to consider how much money there is floating around, plus asset wealth, etc. $500 billion for a country the size of the USA is really not very much at all.
 

CaitSeith

Formely Gone Gonzo
Legacy
Jun 30, 2014
5,343
358
88
It makes the state deficit more expensive.
This is the part that I don't understand. I need you to explain me how exactly the secondary market affects the state deficit (because short-selling bonds happens on the secondary market).
 

Generals

Elite Member
May 19, 2020
571
305
68
Which failed ideology are we talking about again, here? Communism or capitalism? It's hard to keep track.
Only one answer should make sense. The Ideology which spawned Mao, the USSR, Hoxha, Castro, DPRK, Khmer Rouge,... or the one which has given us modern day France, Germany, Netherlands, Sweden, Denmark,.... ?
 

Generals

Elite Member
May 19, 2020
571
305
68
This is the part that I don't understand. I need you to explain me how exactly the secondary market affects the state deficit (because short-selling bonds happens on the secondary market).
Directly it doesn't, indirectly it should. If Hedge Funds pump half a billion worth of bonds into the market through short selling that's half a billion worth of bonds the market will not want to buy when the government tries to issue bonds. This would drive the required yield upwards and increase the governments cost of debt and thus deficit. However the impact of that is likely to be minimal.
 

TheMysteriousGX

Elite Member
Legacy
Sep 16, 2014
8,300
6,798
118
Country
United States
Only one answer should make sense. The Ideology which spawned Mao, the USSR, Hoxha, Castro, DPRK, Khmer Rouge,... or the one which has given us modern day France, Germany, Netherlands, Sweden, Denmark,.... ?
...the ideology that spawned Mao, the USSR, Hoxha, Castro, the DPRK, the Khmer Rouge, Vietnam (wonder why you didn't mention them 🤔), etc, was "being on the losing side of brutal colonialism, gunboat mercantilism, and capitalism"

Shit man, all you're saying is "lol, don't get colonized and enslaved or live under a brutal autocratic monarchy run by all my examples of winners"
 

Attachments

Generals

Elite Member
May 19, 2020
571
305
68
...the ideology that spawned Mao, the USSR, Hoxha, Castro, the DPRK, the Khmer Rouge, Vietnam (wonder why you didn't mention them 🤔), etc, was "being on the losing side of brutal colonialism, gunboat mercantilism, and capitalism"

Shit man, all you're saying is "lol, don't get colonized and enslaved or live under a brutal autocratic monarchy run by all my examples of winners"
Sure we could also mention the Vietnamese autocrats. I still prefer my freedom to think and speak.
Nobody forced these commie leaders to be oppressive cunts and enforce violent oppression. Blaming that on "colonialism" is absurd. Maybe you could blame the rise of communism on that, but the choice of these communists to setup shitty regimes is all on them.
 

Generals

Elite Member
May 19, 2020
571
305
68
The latter being "given" to us by the systematic oppression, robbery and starvation of pretty much everyone in Africa, South America and most of Asia. Capitalism only makes sense to those of us in the West because we are the winners and those that suffer (and die in droves) do so in poor countries on other continents, which makes it convenient for us to ignore the real price of Capitalism.

You know, that and the fact that Capitalism's eternal chase of constant growth is very literally making the planet we live on uninhabitable. That should be considered the ultimate failure of all time.
Systems evolve and many capitalist countries have evolved for the better and have shown their ability to provide freedom and opportunities for the less fortunate. That to this day autocrats in developing countries are selling out their people is on those autocrats. The environmental issues are very much linked to many politicians not taking their responsibilities, but Capitalism can coexist with regulation. It already does and more regulation and oversight won't kill it. Additionally Capitalism doesn't need "growth" in absolute terms to exist. We have just become addicted to it, but the current environmental crisis is leading to a lot of debates on that and how we can further adapt the system to be more "environmentally friendly".

In conclusion: There are existing capitalist countries which are much better than communist countries have ever been. One ideology has failed the other has shown itself as being the least bad one and is continuously evolving and adapting. Feel free to propose a system better than Capitalism, but it most certainly isn't Communism.
 
Last edited: