You’re not wrong, except the part where the money becomes more real once you sell the stock. All assets are like this – if you lasso an asteroid that contains $45 umptillion of gold, you won’t be able to sell it for $45 umptillion because you’ll crash the gold market.
Comment on $1.8 trillion was wiped out from the US stock market yesterday, where did it go?
dihutenosa@piefed.social 1 day ago
Stock valuation has always seemed like play/imaginay money to me. Until I sell my stock and buy that large purchase, I treat mine like just a number.
Imagine you’re the richest person on the planet, and own 1 trillion monies in stock of Omnia Corporation. Can you buy 1 trillion ice cream cones for 1 money each? No, because you can’t sell 1T stocks without utterly devastating the stock price… But you sure can take a loan backed by this imaginary money. Boggles my mind.
I wish someone with economics background would correct my thinking.
CombatWombat@feddit.online 1 day ago
bedwyr@piefed.ca 1 day ago
You don’t need a business degree to know you are correct here. Someone whom may or may not be I has one though, and you are correct.
SkyNTP@lemmy.ml 1 day ago
To be fair the very idea of value of money is “imaginary”. Even a bank note is nothing more than a promise.
The value of a stock is derived from the trust that someone will trade you for it. If the trust goes away, so does the value.
Similarly, the value of a bank note is derived from the trust that someone will trade you for it. If the trust in a bank (bank run) or government (scarce money supply, solvency) or economy goes away, so too will the value of money, i.e. inflation.
Even comodities and tangible goods have “imaginary” value, because these things can be under or over produced.
That being said, the degree of imagination needed to trust the value of trade varies, and stocks are definitely close to the top of the imagination tree.
svtdragon@lemmy.world 9 hours ago
A good currency serves two purposes: a good medium of exchange (easy to transact, easy to find someone willing to accept it in exchange for goods and services) and a stable store of value (worth ~the same yesterday as today). They are distinct purposes.
You’re describing the former (finding someone to trade with) but actually talking about the latter in your point about “imaginary value” of money (as distinct from stocks). So I’d offer a small addendum about the value of money being imaginary: the guarantor of a currency plays a huge role in making the value real, in the sense that they are obligated to accept it when you use it to pay taxes.
Likewise commodities like gold are a somewhat stable store of value (disregarding supply shocks for the moment) in the sense that if everything goes to shit you can use them to make shiny baubles (or semiconductors).
Notably this is not the case for stocks, which is why stocks aren’t a good currency.
dihutenosa@piefed.social 1 day ago
The difference with stock being that if you have 1T monies, you can buy stuff worth 1T (after ice cream cones run out, buy a factory or switch to candy). With 1T of stock, you can’t.
Semjeza@fedinsfw.app 14 hours ago
No, but you can take a 2T loan using the 1T stock as collateral, and buy more things with the promise you buy it back.
And you can even use the 2T loan to buy out competitors or otherwise invest in that 1T of stocks. And when it’s worth 2T borrow 5T to pay off the loan and have 3T to invest.
deleted@lemmy.world 1 day ago
I don’t have economics background and think the same way as you do.
They just create money out of thin air.
LifeInMultipleChoice@lemmy.world 1 day ago
Same with money. If the power goes out the can of tuna in the cupboard suddenly is worth more dead president paper. Maybe it was worth a dollar yesterday. But 2 weeks into no power I won’t sell it to you for 5 dollars.
kkj@lemmy.dbzer0.com 1 day ago
The tuna in the refrigerator, on the other hand, is suddenly worth less. Where’s the consistency?