Apr

10

a mcmansion

What the Stocks and Bonds have that the Government does not is a mechanism to maintain the cash flows to the company to a positive present value. Meaning that through the financial markets management is held accountable for their actions. While clearly there can be some robbing the bondholders to enrich the stockholders and vice versa with leverage or without… management decisions still have to make the most long term sense to the business as a whole for Modigliani-Miller theorem to work as Rocky pointed out.

Monetary policy could never exist in a tax free world; what gives money its store of value is the ability to use money to pay  taxes on real taxable assets, be it gold or personal income. Government issued money would be only paper without the government's power to tax. 

Further, a liberal monetary policy debases the purchasing power of money, and therefore is a figurative tax on the past producers of wealth that have stored their value in fiscal assets. This of course drives up demand to store value by holding real assets, like McMansions or Dot.com start-ups, or commodities.

Whereas a tight monetary policy increases purchasing power, and therefore is a real tax on the future producers of wealth. Which erodes demand for real assets to store value and drives a demand for fiscal assets.

Perhaps soon they will see that the swings can be wild rides if they switch between the two quickly.

Finally, emerging markets are full of wealth to develop; like the boomers example competition increases wealth for all and there must be a hundred ways that the increase in wealth from the past 60 years is speeding up rather than declining.


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