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Posted By Kent Merritt

I've  resisted posting anything about our economy, mainly for two reasons. One, I felt all along that the whole housing market mess, foreclosures, and the banks taking the losses, would eventually work itself out one way or another.  Secondly, I really don't know much about how the economy works.  But then, obviously neither does the present administration.

I did enjoy reading a recent article online that did a good job of explaining the mess we're in. I thought I'd quote a bit of it here:

 

"Whether you're a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you've lost a whole lot of the money that was right there on your account statements just a few months ago.

But if you no longer have that money, who does? The fat cats on Wall Street? Some oil baron in Saudi Arabia? The government of China?

Or is it just — gone?

If you're looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place.

Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money — it's simply the "best guess" of what the stock is worth.

"It's in people's minds," Shiller explains. "We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today — who are very, very few people — are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth."

Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000.

"In a sense, $50,000 just disappeared when he said that," he said. "But it's all in the mind."

 

 

So, if you've lost money in the stock market, your 401K, etc., hopefully, you can comfort yourself with the fact that the money was never really there in the first place. It was all in your mind.

 

 

 

 

 

 
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