Stock Market: Speculation vs Investment

[ianlippert]

I just finished listneing to Stefan Molyneux's Podcast Stock Market: Speculation vs Investment and his basic claim is that all of our tax dollars that get put into the stock market through our CPP/Social Security payments are what causes the real short term focus of the stock market. Because there is so much money in the stock market that shouldnt be there, short term investment (speculation) is promoted and long term investment is discouraged. He makes it seem like the government sets the system up for the 'financial elites' so that they can fleece those that have no idea how the stock market works, but are forced to put their money into it. When I was listening I was picturing the government forcing people to spend 25% of their income on poker where the pros basically eat the fish up. Although in this case its worse because people dont know whats going on, they think their money is going to a good use.

My question is what systems are in place that give the elites their advantage? Where do are Social Security (Candadian Pension Plan) payments go to? Is it basically a scam where the government can hold on to our money and not worry about spending it responsibly because they wont have to deal with it for decades? Any explanation of what exactly goes on in a speculative stock market would be appreciated.

[Riddick]

Don't know about Canada but in America our Social Security payments ($600 billion in total) are immediately redistributed ($500 billion) and the surplus ($100 billion) is immediately spent and replaced with an IOU (basically a promise to raise taxes later).

The American privatization plan currently on the table would allow the option of investing in the markets, bonds, or neither.

[Machinehead]

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the surplus ($100 billion) is immediately spent and replaced with an IOU (basically a promise to raise taxes later).

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Do you have a source for that? I thought the surplus went into US treasury bonds.

[lehighguy]

They do. That's the point.

It would be like writing an IOU to yourself. The government writes itself IOUs.

[Machinehead]

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They do. That's the point.

It would be like writing an IOU to yourself. The government writes itself IOUs.

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Of course, but the government does this all the time. What else would they do with it? Keep a giant room full of hundred bills? It's like when you put money in a bank, they don't keep a stack of money in safe with your name on it. They play with it.

[lehighguy]

There are many things they could do with it. Pay off existing debt for one.

[adios]

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the surplus ($100 billion) is immediately spent and replaced with an IOU (basically a promise to raise taxes later).

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Do you have a source for that? I thought the surplus went into US treasury bonds.

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Actually they're replaced with non marketable treasuries i.e. they can't be bought and sold on the open market like marketable treasuries. So basically the only party that can redeem the non marketable treasuries is the U.S. government which means the U.S. government can do anything they please with them. So in essence the Riddick is correct.

[Machinehead]

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Actually they're replaced with non marketable treasuries i.e. they can't be bought and sold on the open market like marketable treasuries. So basically the only party that can redeem the non marketable treasuries is the U.S. government which means the U.S. government can do anything they please with them. So in essence the Riddick is correct.

[/ QUOTE ]

I understand what you're saying, I just think calling it an IOU is misleading. By that logic, couldn't you call any currency an "IOU"? I also thought it was misleading saying it's a promise to raise taxes later. That's what the entire national debt is basically. It's not like there's a deadline date that the government has to come up with this money. When the bonds are needed they'll most likely just pull from somewhere else to pay it. Treasury bonds are considered the safest investment on the planet, so it's not like the surplus is in danger of not being paid out.

Like I said before, what should they do with the surplus if they aren't putting it into bonds?

[lehighguy]

A bond is only an asset if it is held by another entity. Imagine if GM issues GM bonds and bought them itself. How much money would GM raise? $0. Similarily, the US government issuing bonds to itself creates both an asset and a liability. Thus it doesn't create value.

If they wanted to keep the "surplus" they could use it to pay down existing debt or obtain securities issued by other entities (countries, corporations) or simply buy commodities (gold, oil).

[Riddick]

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I understand what you're saying, I just think calling it an IOU is misleading.

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If you actually understood "what he's saying" then you wouldn't believe it to be misleading.

What is misleading is saying that there is $1.7 Trillion in the trust fund, enough money to pay for Social Security until 2054!

Maybe you should educate yourself on some basic level, get some sort of a clue, before you start accusing me of being "misleading".

Like for instance, a basic understanding of the trust fund balance:

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These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense.... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)


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Or a basic understanding of how the trust fund works.

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It's not like there's a deadline date that the government has to come up with this money.

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[img]/images/graemlins/confused.gif[/img] [img]/images/graemlins/confused.gif[/img] [img]/images/graemlins/confused.gif[/img]

Umm, yes, there is. Its called bond maturity. Good grief.

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When the bonds are needed they'll most likely just pull from somewhere else to pay it.

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Somewhere else??? [img]/images/graemlins/confused.gif[/img] [img]/images/graemlins/confused.gif[/img] Do you mean, like, the Treasury Department accounts? Where they send collected taxes to? Where else would this money come from?

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Like I said before, what should they do with the surplus if they aren't putting it into bonds?

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How about give it back to the taxpayers from whom it was stolen?