Social Security Bonanza
In the casino there are two poker tables, one with a hundred dollar pot, another with a ten thousand dollar pot. What's the difference. They play with the same deck of 52, they play by the same rules, and each player thinks he's good enough to be at the table. The difference - the people at the ten thousand dollar table sat down with more money in their pockets than the ones who joined into the hundred dollar table. The same thing happens on the stock market.
During the 90s 401K investments had the same effect on the market. Truck loads of tax sheltered money from the hinterland just kept showing up on Wall Street. Every morning a new line of trucks were waiting outside, full of money. It wasn't like the businesses inside had attracted this money the old fashioned way by improving performance. Investing hard earned cash on Wall Street was not really that attractive on the merits, which is why it had been sweetened with a tax shelter.
A bad consequence of tax shelter motivated investing is that people hate to pull their money back out of the market because then they'll have to pay those deferred taxes. Once the money gets to the market it becomes a captive, a desperate captive looking for some place, any place, to hide from the tax collector. Re-directing Social Security contributions to Wall Street would turbo-charge that effect. No one is proposing that you could just take your money back and spend it on ice cream or even put it into the Social Security Trust Fund and pretend that it had been there all along.
Only one thing causes a stock market bubble - too much money chasing too few opportunities. As the supply-side of the economy became glutted in the 90s, the value of stocks rose obscenely beyond the value of the companies behind them, companies didn't even bother to claim that they had earned the new investment. One of the popular theories of the day - more investments gave companies the money to make the changes that would make the investments worthy. We all participated - we heard analysts say things like that and didn't call the cops. So why do we want to do this again? More precisely, who wants to do this again?
No one ever saw people shoveling greenbacks into incinerators down on Wall Street. There were no truck loads of money running down to the docks, unloading onto barges to be scuttled at sea. Not a penny was lost on the market. For every dime lost by Peter, Paul found a dime.
When Peter bought that last golden opportunity he bought it from Paul. Paul is no fool, he plays with the big boys over at the ten thousand dollar table, he knows that you can not just play your own hand, you have to play everybody else's hand too. As Kenny Roger's gambler put it, Paul knows "when to hold 'em, when to fold 'em". Paul wants to do this again!
80% of stocks are owned by 3% of the population. You don't get to be a member of that club by being a fool, they don't play the game the way we play it over here on the hundred dollar table. When Peter bought that last golden opportunity from Paul, Paul didn't re-invest the money in the kind of companies he'd been jacking the price up on last week. He put his "bubbled wealth" into rail, real estate or some other safe cookie jar, then set back to watch the bleeding begin.
We're all aware that the boys on Wall Street plan to skim their fees out of our retirement. Some have realized that corporate executives will skim billions more in bonuses when the company's stock bubbles even though they've done nothing to make the company more valuable. But few realize what will automatically happen to Paul's stock as the Dow magically rolls from 10K to 20K, fed by truck loads of new money from the countryside.
Without lifting a finger, without a single new product, without any improvement in efficiency or gain in market share, the value of Paul's stock will double it's current value. Paul's wealth will double. All he's got to do is find a Peter from Omaha to sell those stocks to. And George is out giving away bus tickets in 60 cities for rides to Wall Street, where the Peters will desperately search out the Pauls, begging for a piece of the action. Paul's been here before, he's a survivor of the last round of robbing-Peter-to-pay-Paul. He knows it's a scam. He knows it's a fraud. George knows it too. George knows this could be the biggest transfer of wealth in history - that's the whole idea!
During the 90s 401K investments had the same effect on the market. Truck loads of tax sheltered money from the hinterland just kept showing up on Wall Street. Every morning a new line of trucks were waiting outside, full of money. It wasn't like the businesses inside had attracted this money the old fashioned way by improving performance. Investing hard earned cash on Wall Street was not really that attractive on the merits, which is why it had been sweetened with a tax shelter.
A bad consequence of tax shelter motivated investing is that people hate to pull their money back out of the market because then they'll have to pay those deferred taxes. Once the money gets to the market it becomes a captive, a desperate captive looking for some place, any place, to hide from the tax collector. Re-directing Social Security contributions to Wall Street would turbo-charge that effect. No one is proposing that you could just take your money back and spend it on ice cream or even put it into the Social Security Trust Fund and pretend that it had been there all along.
Only one thing causes a stock market bubble - too much money chasing too few opportunities. As the supply-side of the economy became glutted in the 90s, the value of stocks rose obscenely beyond the value of the companies behind them, companies didn't even bother to claim that they had earned the new investment. One of the popular theories of the day - more investments gave companies the money to make the changes that would make the investments worthy. We all participated - we heard analysts say things like that and didn't call the cops. So why do we want to do this again? More precisely, who wants to do this again?
No one ever saw people shoveling greenbacks into incinerators down on Wall Street. There were no truck loads of money running down to the docks, unloading onto barges to be scuttled at sea. Not a penny was lost on the market. For every dime lost by Peter, Paul found a dime.
When Peter bought that last golden opportunity he bought it from Paul. Paul is no fool, he plays with the big boys over at the ten thousand dollar table, he knows that you can not just play your own hand, you have to play everybody else's hand too. As Kenny Roger's gambler put it, Paul knows "when to hold 'em, when to fold 'em". Paul wants to do this again!
80% of stocks are owned by 3% of the population. You don't get to be a member of that club by being a fool, they don't play the game the way we play it over here on the hundred dollar table. When Peter bought that last golden opportunity from Paul, Paul didn't re-invest the money in the kind of companies he'd been jacking the price up on last week. He put his "bubbled wealth" into rail, real estate or some other safe cookie jar, then set back to watch the bleeding begin.
We're all aware that the boys on Wall Street plan to skim their fees out of our retirement. Some have realized that corporate executives will skim billions more in bonuses when the company's stock bubbles even though they've done nothing to make the company more valuable. But few realize what will automatically happen to Paul's stock as the Dow magically rolls from 10K to 20K, fed by truck loads of new money from the countryside.
Without lifting a finger, without a single new product, without any improvement in efficiency or gain in market share, the value of Paul's stock will double it's current value. Paul's wealth will double. All he's got to do is find a Peter from Omaha to sell those stocks to. And George is out giving away bus tickets in 60 cities for rides to Wall Street, where the Peters will desperately search out the Pauls, begging for a piece of the action. Paul's been here before, he's a survivor of the last round of robbing-Peter-to-pay-Paul. He knows it's a scam. He knows it's a fraud. George knows it too. George knows this could be the biggest transfer of wealth in history - that's the whole idea!
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