Where has all the money gone!

[AlHindi]

With all the losses creating problems in the economy, I wonder where all the money has gone. Let us assume X billions were lost by investors, homeowners and all. But some did gain that X Billions. Unless these some sent the money to moon, that money has to go back in the economy, either in Banks, Bonds, Stocks or what ever you have. So money should be back in the economy by this logic. What is the need to lower rates or give tax rebates?

[doctorwes]

Suppose I borrow a $20 bill from you, and burn it. Where has that $20 gone? Opinions differ.

[hector]

Ever heard of asset price bubbles, creative accounting, mark to market, vaporware, repricing of risk etc. ? Not all that glitters is gold!



PS - If the price of gold suddenly falls from $1000 an oz to $100, has global wealth somehow increased? If house prices fall by 25% has someone realized this loss as a relative gain? If inflation rises 100% a year who is richer?

[Path Integral]

into the deep pockets of the invisible hand muhahahahaha

[Bachelier]

AlHindi, errr uuhhhhhhh...no offense, but you need to take a basic course in banking and the monetary system and how money is created (and destroyed).



Hint (Quiz): when you cash your paycheck and put the money in a bank, the bank ....



1) lends out exactly that same amount to someone,



2) lends out 90% of it, the rest is "reserves" the bank has to keep in a vault underground



or



3) the bank lends out even more money than you have deposited

[FDAXHunter]

There is no money.

[Ice Viking]

3 ..i know the answer..pick me..pick me!! Applause

[phys]

I didn't take any basic course in finance, but I would say value of things is purely relative. So you are rich because people think you are. If the common understanding you have with others about valuation vanishes, your valuation change accordingly. That's how money vanishes I'd say.



Even for gold, seen as very very stable this could happen -- see the film Goldfinger for instance.



Would the NP finance gurus say my intuitive view is flawed?

[apine]

in addition to the fractional reserve system that Bachelier points out, there is also the way that wealth is measured. wealth is measured as the value of assets. so if i buy msft at $10 and it goes to $20 due to the buying of others, my broker says i am up $10. so now my wealth is $20 (say). i dont carry any more cash in my pocket -- but if i sell it i will. but people don't always sell their stock or their homes. the aggregate stock market goes up and people in aggregate hold stocks. voila. they are rich. but their cash position doesnt change. now it goes down. they are poor again. note also that their broker or bank won't let them do as much financing in their brokerage account (or say home equity loan).

[ast4]

"into the deep pockets of the invisible hand muhahahahaha"



That actually made me laugh out loud.