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Comment by wilkommen | Hacker News Reader

Idk how people write posts like this anymore. Clearly the stock market isn't rational, and prices of stocks are not tied to financial fundamentals. Stocks are essentially a deflationary alternative currency that only people with disposable income can afford. The rich (and to a smaller extent, the middle class) take the currency which devalues every year (USD) and use it to buy the currency which increases in value every year (stocks and other digital assets), and this is part of the funnel that increases the wealth of the rich at the expense of the poor and middle class. People who think valuations of stocks are tied to fundamentals are smoking medical-grade copium. I too wish that the backbone of our financial system was a not a corrupt, rigged game that benefits a small and decreasing number of people every year, but it is.

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> Clearly the stock market isn't rational, and prices of stocks are not tied to financial fundamentals.

Stock prices are tied to anticipated future earnings, not past or present financials.

> only people with disposable income can afford

Anyone can invest in stocks with $100 or less. As for disposable income, anyone that can buy beer, drugs, or lottery tickets has disposable income that can be invested in stocks.

> part of the funnel that increases the wealth of the rich at the expense of the poor and middle class

Corporations make money by creating wealth, not "funneling" it from other people.

The numerous downvotes on this post containing basic statements of accepted fact is one of the more concerning things I've seen online in some time.

Agreed. The level of financial illiteracy in many of the comments on the post is particularly concerning.

Especially in response to a post that is solely trying to teach some basic economic principles.

This site has turned into a worse version of reddit, which is what I would come here to get away from (I stopped commenting there long ago, and barely visit at all at this point).

It's really unfortunate that what was a place to talk about tech and startups (and therefore capitalism and investing) with people living that experience is now yet another another online progressive cesspool.

In the 1980s, my dad was the head of the finance department at a small college. He taught finance classes, and he taught how free markets worked. Student after student would come to him, and say this amazed them. They said they had never heard of a case for free markets.

I attribute this to the complete lack of any school teachers or professors having any business experience whatsoever.

None of my K-12 grade school classes said anything about free markets. None offered any accounting instruction, or finance instruction, or anything about managing money.

It's a sad state of affairs.

I find it reassuring. More people are waking up from our collective trickle-down, "free market hypothesis" fever dream and are starting to understand that there's nothing natural or rational about the stock market - it's just an elaborate wealth allocation machine that showers wealth on those who already have wealth (and showers more wealth on you, the more you already have). The stock market is about as natural or rational as the most Communist land redistribution program, except it runs in the other direction. Money is political, and politics is about power! Too many people are still brainswashed by elite propaganda to think a machine designed to increase the power of the rich is somehow a mechanism as natural as the sun and wind.

This is exactly what I'm talking about. Nothing you said has anything to do with the post in question; it's just an angry, uninformed, emotional screed.

The way to fix that is to stop debasing the currency.

I stopped buying stocks a few years ago. The moment there is a contraction of credit or circulating currency we will see a 1929 style crash. Not worth the risk anymore.

What does "contraction of circulating currency" look like in the post-cash world?

A drastic rise in interest rate or actual destruction of bills.

What incentive do any of the few actors with the ability to effect that change have to actually pull that lever? I imagine that you have spent a lot of time thinking about this, and I would like to understand your position.

That's the core question. I would like to see the parent poster's answer as well, because I don't see it happening as long as the US can price debt in its own currency, and the only way that stops happening is after a catastrophe that isn't worth planning for because there's no way to survive financially.

That is the problem. Reigning in debasement is what needs to happen or the dollar is dead. But, reigning in debasement means spending less. Spending less means people can't be reelected for "bringing federal money home". So, there is no incentive for Congress to cut anything. But, the piece that makes me pretty sure that debasement is the goal, is that by debasing the currency it makes it possible to pay off dollar denominated debt. I can't be the only one that sees it. Nations have been divesting of US Bonds for years now.

I'll say it another way. The government can pay off its debt by making your money worthless.

I changed my investment habits as soon as I recognized it. I am already happy I did.

So, if I got it right, your argument is that the US government has issued so much debt that in order to pay for its interest in the future it will find itself forced to devalue the USD, and that will lead to the stock market to underperform.

Did I get the gist of it?

> I can't be the only one that sees it

Correct. It is a pretty common argument.

A common counterargument is that the US government has two advantages when it comes to issuing debt.

First, the USD remains the primary reserve currency around the world, and for good reasons, too. As long as global trade relies so heavily on the USD and, more generally, on exports to the US, foreign exchange rates will continue to prop up the value of the USD and USD-denominated debt.

Can this global economic system change in the future? Sure. But it has a lot of mass and momentum behind it. It can't stop overnight, any more than a tornado can.

Second is that the US government issues debt in USD and it has its own central bank, which allows them to pull levers both on the fiscal policy side and the monetary policy side. This allows them to issue pretty much as much or as little debt as they want, pay for it as much or as little as they want (let's not forget forget QE), and adjust inflation up or down with an enviable degree of freedom.

Can this destabilize? Of course, it is possible to mismanage it badly enough, in theory. But given its position as the world's reserve currency, they can get away with murder compared to other less privileged countries and currencies.

Lastly, understanding something is not enough to make money out of it. You need to have privileged knowledge that other people lack. Is that what is happening here?

Unless something changes the government will be forced to continue devaluing the USD. They have been doing it since 1913. This is late stage debasement, not the start. Unless there is a drastic change in spending or growth there is no stopping this train even for a reserve currency. Being the reserve just allows us to spread out the damage. This points back to countries selling their US debt. They see default as more likely and want to get rid of it before they get caught holding the bag. It doesn't help that we have been abusing reserve currency privilege by using USD as a weapon. Who wants to be friends when our friendship is conditional on compliance?

The stock market will continue to go up as long as inflation happens. The dollar losing value is now the dominant market force. That makes the stock market increasing dependent on cheap credit. It is too risky for me to have money in the stock market. That value can evaporate faster than I can realize it on a decision as common as a FedFunds rate increase.

The last stage of a currency collapse is the country selling assets priced in dollars to pay dollar denominated debt.

I think in the short to medium term, they will continue expanding the availability of credit and expanding the money supply when crashes happen in order to keep asset prices high. At some point there will be a breaking point, but I think 2009-style "Quantitative Easing" and 2020-style fiscal spending can and will happen again. So I'm still in, but this game won't last forever.

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