Where has the money gone?

[Aliantha]

So, with this crisis going on with money all over the world, it's obvious that money is 'falling out' of economies all over, but where is it falling to? Is it that rather than profits being spread all over the place fairly evenly, they're going to just a few places? If so, where? And why don't those places then spend the money?

I realize a lot of the problem is all the 'not real' money spent by people living on credit etc, but surely there must be someone or somewhere that all this money has gone to?

What businesses are actually making a profit these days?

[classicman]

Most of the money is apparently staying within the commercial banks. That which is being spent is covering past debts. How this trickle down shit was supposed to work is beyond me. We could have bought every defaulting loan and still had plenty to spare to waste elsewhere. At least that way more people would have kept their homes... maybe.

[Aliantha]

Originally Posted by classicman

Most of the money is apparently staying within the commercial banks. That which is being spent is covering past debts. How this trickle down shit was supposed to work is beyond me. We could have bought every defaulting loan and still had plenty to spare to waste elsewhere. At least that way more people would have kept their homes... maybe.

Well if we're going to talk about trickle down effect, then it definitely happens a lot fucking quicker on the way out than on the way in.

It took 10 years for economies to top out thanks to growing economies and it's taken less than 1 year for them to go to shit when the proverbial hit the fan.

[tw]

Originally Posted by Aliantha

Well if we're going to talk about trickle down effect, then it definitely happens a lot fucking quicker on the way out than on the way in.

Trickle down is a myth based in political agendas; not in economic principles.

The idea was to solve a liquidity crisis. Nobody was broke according the theory. But since Enron accounting principles are so rampant, then the idea was to flood finance markets with money - like too much oil on a rusty bolt. Reality, assets had completely vaporized leaving a resulting debt AND those debts were well hidden in Enron accounting. Those unknown debts were literally sucking up the money.

This is better explained in How the GAME is played..

Bottom line - something like 40% of this nation's wealth simply vaporized leaving outstanding debts. How does accounting work? Much of that wealth has disappeared long ago. But reality from spread sheets tends to suddenly appear like a rogue wave. Welcome to reality finally popping up like splotches of grass on a desert prairie.

Cellar dwellers had to know this economy had serious problems. The housing bubble was pictured on the Economist's front cover as a falling brick labeled Housing Prices. That cover discussed here often. Charts made obvious that homes were 20% and 40% overpriced. The Economist noted this problem very recently (recently in Economics terms) on 16 Jun 2005 which was reposted in the Cellar also in 2005:

Perhaps the best evidence that America's house prices have reached dangerous levels is the fact that house-buying mania has been plastered on the front of virtually every American newspaper and magazine over the past month. Such bubble-talk hardly comes as a surprise to our readers. We have been warning for some time that the price of housing was rising at an alarming rate all around the globe, including in America. Now that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.

That was a symptom of wide spread and out-of-control money games being played by finance people. People who historically are only a service industry and yet pay themselves as if they innovate and produce something. Just another example of why so many hard assets are missing in finance institutions.

Zengum asked 'when did the money go'. So accurate. To understand what he was saying, read post 1 in How the GAME is played. It completely answered this topmost question.

[classicman]

Originally Posted by tw

Zengum asked 'when did the money go'. So accurate. It completely answered this topmost question.

Did the money actually exist? That is the question. This whole boom started without many REAL assets to back it up, then those that were real were leveraged way beyond their actual value. Is that a real worth? Or just smoke? I think I smell something burning...

[tw]

Originally Posted by classicman

Did the money actually exist? That is the question.

Invent assets with Enron accounting and money games. Take a paltry $67million bonus because the company did not do too well this year. Money clearly existed where it was "important". Suddenly, when real funds no longer exist, what does the company do? Go after the guy who signed off on Enron accounting? Or run to the government for protection?

Let's see. George Jr's administration refused to prosecute Enron until all but embarrassed by the State of Oklahoma. Clearly the money existed where it was important.

Meanwhile, because he was doing so much good for GM, Rick Wagoner got a 34% in 2006 and a 67% increase in 2007. This money clearly exists. No problem. The government will now pay for the ROI that cannot exist because Rick Wagoner (like Nardelli) have a long and well proven history of decreasing profits. But the money did exist in their paychecks. Nothing else matters.

[Skunks]

Well, there's a hole in daddy's arm where all the money goes...

[ZenGum]

A lot of the money that has "gone" never really existed.

Suppose you buy some shares for $1,000. They go up to $3,000, but you don't sell them. Have you made $2,000? It is tempting to think you have, but you haven't until you sell them.
You may use them as collateral and borrow $3,000. Then the market falls and the shares are worth $1,000. The bank forecloses, and takes your $1,000 worth of shares. You're back to zero and the bank is down $2000. Thus money never really "went" somewhere, rather we realized that we didn't have the money we mistakenly thought we had.


ETA: Consider that few people asked "where is the money coming from?" during the big growth surge that got us here. You might say that we borrowed it (in, say 2003) from the future (2009) and we are now paying it back. So instead of "where did the money go?" you might ask "when did the money go?". The last decade, mostly.

[Pie]

Originally Posted by ZenGum

So instead of "where did the money go?" you might ask "when did the money go?". The last decade, mostly.

Zen, you live up to your name. I like it.

[Aliantha]

Originally Posted by ZenGum

A lot of the money that has "gone" never really existed.

Suppose you buy some shares for $1,000. They go up to $3,000, but you don't sell them. Have you made $2,000? It is tempting to think you have, but you haven't until you sell them.
You may use them as collateral and borrow $3,000. Then the market falls and the shares are worth $1,000. The bank forecloses, and takes your $1,000 worth of shares. You're back to zero and the bank is down $2000. Thus money never really "went" somewhere, rather we realized that we didn't have the money we mistakenly thought we had.


ETA: Consider that few people asked "where is the money coming from?" during the big growth surge that got us here. You might say that we borrowed it (in, say 2003) from the future (2009) and we are now paying it back. So instead of "where did the money go?" you might ask "when did the money go?". The last decade, mostly.

Well I knew all that mate, but this 'crisis' is not just affecting people who invest in the stock market directly. It's affecting other ordinary blue collar workers too. Suddenly they're finding it hard to pay the bills etc.

All I'm wondering is what businesses are making money now? There must be profits somewhere, somehow, so where are they?

[Shawnee123]

All I'm wondering is what businesses are making money now? There must be profits somewhere, somehow, so where are they?

Higher education? Medical?

[Flint]

Originally Posted by Shawnee123

Higher education? Medical?

You're in education, right? I'm in Medical. We both just got new jobs with big raises, right? It certainly seems that way.

[Shawnee123]

Very true!

I almost feel guilty. I've struggled for years yet now that I am in a good place a lot of people aren't and I wonder why I deserve to be so lucky.

[Clodfobble]

Originally Posted by Aliantha

All I'm wondering is what businesses are making money now? There must be profits somewhere, somehow, so where are they?

Well, ah, Mr. Clod works for an employment messageboard/searchengine. They're doing pretty well right now.

[Elspode]

Zen is essentially dead on, here. The other side of this economic coin is repayment of loans/mortgages. The securities that were made by bundling together dicey loans had a *theoretical* value based on the interest that would have been earned had people actually made payments on those loans. People couldn't pay on mortgages that were made because they shouldn't have been able to get those mortgages in the first place, and so those created securities yielded...zip.

The financial growth of the past decade in this country has been illusory, a puff of smoke. The precursor to it was the dotcom bust, where speculative investment ultimately was lost because there was *nothing underpinning the investments*. It has been an economy based on vaporware, essentially, and worse, it has all been driven by *credit*. Credit which no one is now able to repay.

The infusion of cash to the banks that our government has undertaken is being used at present to simply stabilize their own asses. They aren't putting the money into play so that the economy can stabilize.

Doesn't matter, though, because *that* money isn't based on anything, either. The Fiat system of finance has hit the wall. Without jobs, we can no longer be consumers. Without natural resources, we can no longer sell anything.

Ultimately, all we have is the fruit of our labors and the raw materials we can peddle on the open market. And we're out.