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Comment by whatshisface | Hacker News Reader

All of the return-seeking money that pushed up asset prices in the first place is still out there, because stock market crashes don't destroy money (they just redistribute it). I wonder who has it now, and I also wonder when it will end up back in the market.

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I was under the impression that the money supply can contract since most of it is in the form of debts and asset valuations and not in cash. If my house is worth $1 million but then because of a recession, less people are interested in buying houses and its price goes down to $500k, where did that money go?

Naive answer: your money never left you. Its velocity was reduced and your home's buying power has been adjusted to reflect that.

Not only that, the initial $1 million you lend from the bank was literally created out of nothing. I.e. it never existed before you lent it.

>most of it is in the form of debts and asset valuations and not in cash

There are several definitions of money supply, but I don't think asset valuations are included in most of them.

...stock market crashes don't destroy money (they just redistribute it).

Source needed.

Stock market crashes absolutely destroy money by any reasonable definition of the money supply.

> Stock market crashes absolutely destroy money by any reasonable definition of the money supply.

Mind sharing that definition? I don't see that quite squaring with this: https://en.wikipedia.org/wiki/Money_supply#Empirical_measure...

We’re destroying valuations, not money.

I'm no expert, but I think I get what he said.

If I have $100 and I buy a stock worth $90 from you, there's $100 in the economy.

If the stock goes up to being worth $110, there's still $100 in the economy.

If the stock goes bust, there's still... $100 in the economy.

Great point, all the "big boy" traders who have been raking in profits on put options, VIX volatility, and leveraged inverse etf's eventually will switch their trades to bull.

However, keep in mind, a market down 30% requires a 43% gain to break back even.

Sorry for a maybe dumb question but what is the logic for 43% gain needed?

100 - 30 = 70

70 * .43 = 30.1

70 + 30.1 = 100.1

30% loss from 100 is 70.

30% of 70 is 21. So a 30% gain at 70 gets you to 91.

1/.7 = 1.429

If the market drops by 50%, e.g. from 20,000 to 10,000, it will need to increase by 100% from that point in order to recover (from 10,000 back to 20,000).

Because gains or drops are a percentage of where they were at just before, not from a fixed value.

See this article on investopedia[1].

[1] https://www.investopedia.com/investing/selling-a-losing-stoc...

100 -> 80 is a 20% decrease ((80-100)/100). 80 -> 100 is a 25% increase ((100-80)/80).

Math: 30% drop means going from 100 to 70. Now to get back up to 100, you need a 43% gain (30/70).

1 * (1 - 0.3) = 0.7

0.7 * (1 + 0.43) ~= 1

It might be more intuitive with round numbers. If you lose 50%, you need to double (+100%) to get back to your original value.

Don't have to be a big boy trader to do that. I'm up nearly 200% since last Monday just trading on Robinhood. yeah I didn't get my max returns due to their system being fucked a couple of time but I'm steady making money.

Good for you, but don't really appreciate the gloating as I losing my savings and retirement hand over fist.

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