patrick.net

The reason the stock market does what it does is because it has always done what it has done. It goes up, and it goes down. In the meantime people invest and over the long term its proven more or less to deliver reliable returns. People can either choose to decide that the market is always ready to crash or always going to go up up up. Neither are right. The answer is basically backed up by historical performance.

Original poster has fallen into the Conspiracy Trap.

The reason the stock market tends to go up is because it MUST do so.

Majority of financial services jobs are predicated on the idea that this system can grow without bounds. Therefore they will do whatever it takes whether consciously or not, to ensure that happens. Maybe it's a little "loosening" of accounting standards here, maybe a little push to deregulate securitization there, or perhaps even fiddling with reserve requirements. It all adds up to inexorable pressure to make sure the stock indices ALWAYS move up in the long term.

No individual actor in this sees themselves as a member of a conspiracy to defraud. The consequences however of their FAILURE to act in the interest of their group, would be a public losing faith & interest in financial tiddlywinks and thus defunding their revenue stream.

Profits don't have to grow in order for the market to go up. Why not? Share buybacks.

EconPete says

But then I remember that Federal, State, and Local government make up about 46% of GDP

Where are you getting this number? I thought private sector is almost 80% of the GDP.

Source: http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/07/12/recession-deflation-and-deficits.aspx

Sorry, I don't have an up-to-date graph.

"Where are you getting this number?"

Um wikipedia:

http://en.wikipedia.org/wiki/Government_spending

"The Organisation for Economic Co-operation and Development (OECD) reports that total federal, state and local spending in the United States was $6.134 trillion in 2010."
6.1 trillion/14.6 trillion = 42%

basic math

http://www.usgovernmentspending.com/index.php

EconPete says

The reason that the stock market has rebounded since 2008 is not for any authentic reasoning.

Where was I when that happened?

Vicente says

The reason the stock market tends to go up is because it MUST do so.

Majority of financial services jobs are predicated on the idea that this system can grow without bounds.

This is the part that always blows my mind. How can anyone actually believe in unbounded growth? Nothing good ever comes from acting on that idea. I tend to think of it as being a "sawtooth" system...rising, rising, rising, rising, CRASH, rising, rising, rising, rising, CRASH, rising, rising, rising, rising, CRASH.....etc.

bmwman91 says

This is the part that always blows my mind. How can anyone actually believe in unbounded growth?

Yes it does require some thinking.

"Growth" of what? Manufacturing to increase 5% per year until we are buried in "stuff"? Infotainment to increase 5% per year until we are all wired into Facebook 24x7 while living a reality show? Efficiency to increase 5% per year until in the end a few robots and maintenance workers produce everything while billions work cleaning each other's toilets and selling each other fast food?

Hmmmm......

My thoughts exactly. I guess that smart people work on this premise to profit wildly in the near term, but have an escape plan for when it inevitably comes crashing down. One needs to be careful though, because people might notice that you were a major contributor to the collapse and hold you accountable!

There was a good TED talk recently about we have reached "peak child". And that from here on out, the bulge will move through the snake and we will stabilize at 10 billions.

So I could see arguments about growth of this and that being needed for the extra 3 billion we'll eventually accomodate. However, we'll be flattening and stabilizing within my son's lifetime. Then what? A lot of basic assumptions will come crashing down.

Vicente says

"peak child"

Sounds like a Michael Jackson video.

Vicente says

There was a good TED talk recently about we have reached "peak child".

http://www.ted.com/talks/hans_rosling_religions_and_babies.html

Good video. Basically, high mortality = high population growth.

This is true because people have many children expecting most of them to die before reaching adulthood. This was true in America in the 18th and 19th centuries.

Hopefully, the conclusion is right that the population will trail off naturally without the need for war, disease, famine, or other ways nature limits population. [War being natural in the sense that different groups kill over competition for resources.]

It will be interesting, for sure.

From a "central planning" perspective, less humans is just fine...you just need less stuff produced since there are less people.

But yes, how would a capitalist system handle the situation??

If history is any guide, not well. Didn't the plagues in Medieval Europe wipe out the economy as the population tanked?

wthrfrk80 says

If history is any guide, not well. Didn't the plagues in Medieval Europe wipe out the economy as the population tanked?

I think that it is safe to assume that the economy was tanking because society was being ripped apart by disease, and people were either unable or unwilling to participate in it because of the epidemic. There were too many variables in that one to conclude that "decreasing population" caused the economy to fall apart. The thing that caused a decrease in population was probably also what was causing the broken economy!

Cash is still king... real estate is not liquid .. Good luck

bmwman91 says

There were too many variables in that one to conclude that "decreasing population" caused the economy to fall apart.

I think you can safely assume that in places like southern france, spain, and italy that had 75-80% of the population disappear in 4 years that decreasing population caused the economy to fall apart. Especially since the plague followed 7 years of crop failures and famine that wiped out 10-20% of the population before the plague hit.

bob2356 says

bmwman91 says

There were too many variables in that one to conclude that "decreasing population" caused the economy to fall apart.

I think you can safely assume that in places like southern france, spain, and italy that had 75-80% of the population disappear in 4 years that decreasing population caused the economy to fall apart. Especially since the plague followed 7 years of crop failures and famine that wiped out 10-20% of the population before the plague hit.

Sorry, I was being unclear. The population was decreasing rapidly for very specific reasons back then, that were totally beyond anyone's understanding or control. Even tougher, it was happening FAST! There's no comparison between an epidemic that wiped out 75%+ of the population over 4 years, and people deciding to have fewer kids. The economy fell apart during the plague because society itself was falling apart from mass deaths & a lack of a steady food supply. It may or may not fall apart as people have fewer kids, but the effects of that manifest over generations, giving everyone plenty of time to deal with it.

wthrfrk80 says

Didn't the plagues in Medieval Europe wipe out the economy as the population tanked?

The historians usually concluded that plagues led to the Renaissance. Various rationales through various lenses for this effect. One argument is that the suddenly shrunken agrarian and low-end labor pools could demand and receive better wages. Thus a suddenly richer (if smaller) labor class pumped economies by enforcing trickle-down. But how true is that conclusion? More research required.

wthrfrk80 says

If history is any guide, not well. Didn't the plagues in Medieval Europe wipe out the economy as the population tanked?

Vicente says

One argument is that the suddenly shrunken agrarian and low-end labor pools could demand and receive better wages.

http://www.bbc.co.uk/history/british/middle_ages/blacksocial_01.shtml

There's a great account I read (not at above link) of the aftermath of the black death and how it played out at a British Monastery. The Abbot or Steward-Monk complaining about high labor costs, with peasants playing all the landlords against each other for better wages and becoming "uppity" in general, and how he had to finagle to find enough laborers to do various tasks.

Well that's one solution to low wages...a massive die-off!

Hopefully it won't come to that...

thunderlips11 says

The Abbot or Steward-Monk complaining about high labor costs, with peasants playing all the landlords against each other for better wages and becoming "uppity" in general, and how he had to finagle to find enough laborers to do various tasks.

When the Black Death killed between a quarter and a third of the European population, the lack of peasants caused the slave wages to be replaced with real living wages. As a result, the lower 90% became prosperous and were able to start businesses of their own. They developed specialized trades.

This boom to the peasants is the most direct cause of the Resistance and Europe's climb out of the desolation of the Middle Ages. Rising wages for the masses is the best thing that ever happened in Western Civilization's history. Even the greedy ruling class benefited as the quality of life for even the rich in Middle Ages pales in comparison to the middle class today. But, of course, the ruling class does not have enough foresight to ever recognize this fact.