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Shannon Bauman
I realize this may be somewhat of a naive question, but can someone tell me where the money goes during a recession like this? By that I mean, it seems like pretty much everyone (individuals and companies) have lost money from their savings. If it is a zero sum game, where did the money go?
... and if it isn't a zero sum game... well, then I'm even more confused, because it sure seems like it should be (ie, the total number of dollars in circulation should be a finite amount at any given moment). - Shannon Bauman
I think Chris hit it pretty much on the head...oh and people/institutions that were betting against the markets made a lot of money off the people who were betting on the markets. - Scoble, Alex Scoble
It's not a total sum game either, I'd say. In other words at times some wealth does just completely vanish from the system, but you'll never see all wealth vanish. Not everyone loses, but not everyone wins either. Most of us sure aren't winning the game right now though. - Scoble, Alex Scoble
Money is mostly a zero sum game, except for the money supply created by lending. Wealth as measured by "stuff you've got times the current market price" is very non zero sum and subject to bursting bubbles. Wealth as measured by "stuff you've got that's actually useful to you and/or other people" is also non zero sum (but less violently so) because things can stop being useful if people don't need them or want them or can't afford them any more. (Ice cream shops in winter: not as valuable in that sense.) - ⓞnor
Ice cream shops being less useful in winter? You've never met my fiance. - Scoble, Alex Scoble
Been trying to figure this out myself for months. To build on what Bindu wrote, there's a big difference between wealth and actual money. Wealth only gets converted to money when you actually sell an asset, and you usually plow the money immediately back into another asset. We all thought we had assets of growing value, but that turned out not to be the case because we built a huge house of cards where assets value was based on other asset values. So when one set of assets basically tanked, everything.. - Mike Yang
else started to tank too. And everyone started running for the door and trying to get "actual money", and there wasn't enough to go around, thus the credit crisis. And now we're basically trying to make up for it by printing money. Read the wikipedia entries on gold standard and fiat money to learn a bit more about that. - Mike Yang
Krugman likes to relate a story about a babysitting coop that is pretty instructive. Here's a Slate article: http://www.slate.com/id/1937/ - Larry Greenfield
Perhaps this story will help illuminate. Imagine you want to build a business so you recruit some elite wealthy to put up say 40% of the money and the "think they're wealthy" to put up 60%. A year or two later you declare financial troubles and eliminate the 60% who can't meet your cash call. The elite wealthy end up with 100% for their 40% investment and the rest lose everything. Happens all the time in all kinds of businesses...repeatedly. - Gail Gardner
Here's another: there are numerous businesses all in the same industry. The elite move their money to one and out of the others. That one gets (promoted, bailed out, increased stock prices - whatever works this time around) while the others crash. The elite make money and all the "investor" pigeons take a loss. Amazing how long this can work over and over. - Gail Gardner
perhaps the money just gets devalued? today $1 buys you 1 pound of grain. tomorrow, $1 buys you only 0.5 pounds of grain. - pasha
The main issue in the U.S. (beyond the sliding dollar! and unemployment / underemployment) that affects boom or bust is availability of money. When anyone can borrow cheaply the economy expands; when most can no longer qualify for credit (like now) it doesn't matter how low the interest rates are - few can borrow so they can't spend. - Gail Gardner