QE3 Announced

The history of the stock market is filled with crashes [I have never seen evidence that they are more frequent today. They certainly aren't as severe or prolonged.] and old blue chip companies going bankrupt. Of course technology changes from standing under a buttonwood tree to moving indoors to using electricity to computers to HFT. The technology changes, but human nature doesn't.

 

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Nothing is forever.

 

I did not say crashes, I said flash crashes. The key difference being the amount of time. When a stock can go to zero in microseconds, then pop back up on the radar as if nothing happened, that is an entirely different phenomenon.

 

Diamonds are forever, no?

 

It really isn't new. People have been putting in incorrect trades from the beginning of the stock market -- market orders when limit orders should be used, misplaced decimal points, etc... The only difference is the speed, and that isn't significant. No company has zero value just because someone fat fingered the trade or the computer program did the electronic equivalent. The fact that the bid prices rise back to normal levels within minutes is evidence.

 

In TV ads they are.

 

Death and taxes?

 

Death and taxes are the only things guaranteed in life.

Suicide is forever.

 

Originally Posted by rickmp

If they are in an intense fire ( 850 C ) they turn into graphite,

 

This is true. QE changes our financial system from a negative response system to a positive response system. To my knowledge this has not happened in the USA since Colonial times when the BoE used the technique to crash the Colonial economy.

The distinction between the two types of systems is probably lost on most who are not engineers, physicists, and mathematicians, and certainly unknown to mostly clueless "economists". However the distinctive feature of a positive response system is that it self destructs. The math, which can be denied but never ignored, says it has to.

So you are quite correct. QE won't last forever.

 

Death isn't forever from a Christian point of view. The authorities would have people believe that taxes are inevitable, but if you study history there have been many exceptions.

 

Can you provide a little more detail?

 

The Colonials had created fiat money called Colonial Scrip. It allowed the Colonials to avoid dealing with the BoE and allowed them to control the money supply. (At the time the global finance system was maintained by the BofE managing gold & silver and providing settlement.) Colonial scrip wasn't backed by anything but promises. When Benjamin Franklin went to England and described the practice to the finance officials and BoT, the bankers were horrified as they knew what this meant.

The concept of fiat was still new at the time, but none the less they realized the underlying issues. It didn't take long before they decided to teach the colonials a lesson and thus started to flood the colonies with scrip that dramatically increased liquidity and eventually led to financial collapse of the system. There was a short economic boom followed by a dramatic period of hyperinflation which ended with people not being able to purchase anything unless they held gold & silver. It's considered the real, but not talked about, reason for the American Revolution and how a small group of people got an area as large and disparate as the 13 colonies with primitive communications, to agree turn on their own government.

It's also the reason the framers were very keen to put into the Constitution the statements about gold & silver being money.

 

Can you provide a source for this? [If not, that's okay because I rarely keep track of my sources] Everyone knows about the inflation during the war, but I've never seen any evidence or assertion that the BOE flooded the Colonies with paper money prior to the war or that this was the cause of the conflict. The cause is generally attributed to a variety of actions preventing the colonies from governing themselves and enforcing it with troops.

 

^It's easy enough to look up if you really want to know. Start with the rationale of the thinking of the Constitution. I'm not really in the mood to do it for you and it's not relevant to the topic anyway.

 

When there can be literally millions of trades per second from a single source, that is significant IMO, because the price of a stock can go to zero faster than you can blink. You are correct in that the behavior is not new, but the impact of robot traders is something we have not dealt with until the last decade, and the amount of robot trades is increasing exponentially. It accounts for approximately 90% of all market movement today, and those of us who work with computer systems know that there is no such thing as bug free. I also agree that just because the stock goes to zero that doesn't mean the company has zero worth, but people still make and lose money off the price regardless. I would also point out that the only reason the price goes back to its norm before the flash crash is because trading is halted in every case. Otherwise if left to the market it would be obliterated for good. Since computer algorithms are doing so much of the trading, there is real time reaction to market movements that can cascade before a person ever realizes what happened or why.

 

Even with robo trades, that is not how the market works. There has to be 2 sides of the trade. You can submit an order to buy 1 trillion shares of GE at $1.00 , and absolutely no trade will occur. You can start a "Stock walk", placing an order at 1 cent less each 100 shares, and you will be stopped within a few cents with a couple of hundred shares or less. No way to get it down close to zero. And in case of "System shocks" such as a 9.9 quake in NYC, circuit breakers drop in at specific points to slow or halt trades.

 

That's what I thought. More revisionism.

 

If you think about it, this is a tremendous advantage for the individual investor since it presents profit opportunities far greater than markets of the past. Of course, trades that take a stock price to near zero are normally cancelled, but volitility is the friend of the individual investor as long someone has an idea about how to value a company. And if they can't do this, they shouldn't be investing anyway. So what is a negative to you is a godsend to me.

 

All history is revisionism. The winner gets to write the history books. They only write what they want you to know.