: How does a stock market “crash”?
I understand the gist of it being that it led to the depression and blah-dee-blah-dee-blah but im not understanding the the whole “crash” part. Did it really “crash”? Or what?
Answers and Views:
Answer by J C
A stock market “crashes” when the value of stocks drops very fast in a very short time. The potential causes for this are too complex and numerous to name. One cause is that something happens that causes a lot of people to panic, and there are many more people trying to sell than there are people trying to buy.
The only value anything has is the value we give it. Either based on faith shared by a society, or the individuals sense of sentimentality.
Nothing has an “innate” value.
Even cold hard cash money is just pieces of paper with green ink. It only has buying power because society has accepted a belief that it does. And when society loses faith in the dollar, it decreases in value. It is how economic trends happen.
The value of company stock is based less on the company’s services and products, and based more on the faith other stock traders put into it. If the stock market guru that everyone listens to says the stock will crash, everyone will believe it, no one will want it, and those that have it will try to sell it. Demand drops, supply increases, and naturally the value goes down and the stock will crash. Why? Not because the guru predicted it, but because the guru made it happen. And now everyones faith in the gurus mad skills are validated further.
Some people think money has value because its backed by gold. That might have been the case at one time, but probably not anymore. Fort Knox’s vault could be empty, for all anyone knows, and cash is backed by nothing but our faith. That wouldnt give it any less value, though. Cash has value due to faith in the exact same way gold has value due to faith. Except instead of having faith in gold coupled with additional faith that cash is backed by gold, there are fewer faithful steps and less to go wrong.
Even gold has no innate value, its just a shiny, pretty metal that until recently was too soft to use for anything, not unlike cheap lead. Its just a mineral ore that some retarded people long ago decided to risk their lives for by digging tunnels deep underground. And that is largely why gold has value. Because of the time, energy, and risk that individuals put into getting it.
Man-hours of labor is ultimately what all “value” boils down to. When the mass-production line was invented, products became ridiculously cheap. Why? The same materials were used, the product was the same. The only difference was the time it took to construct and how many people it took to do the work.
The faith we have in the dollar is an homage to the value of life. Human life. And when you dont value a life (like slave labor), the work they accomplish is not of worth, and a high degree of man-hour labor does not increase cost, it decreases it.
When you accept the wage that you do, you are accepting that your time, your life, is worth more or less than anothers.
Humanity started out with barter. In order to increase trade and standardize the notion of worth, we started bartering with a medium… many societies took various objects, shaped rocks, etc, even minerals. Eventually they adopted gold as the standard of trade. But no one wanted to carry a scale around to measure out fine quantities, so governments measured it for them and stamped their logo into it – this is a coin. No you dont need to measure the gold if you trust the government to have done it accurately for you.
Eventually, to protect a nations gold, they stuck it all in a vault and distributed copper coins instead, telling the people that its just as good since the coins are backed by gold, so its essentially the same thing as trading gold coins. Again, trust the government. Then paper money did the same thing in larger denominations because it was easier.
Now we stick our meaningless paper cash/copper coin money in a third-party’s vault, called a bank, as they stick binary ones and zeros into a computer somewhere. And we put faith in the bank. So we trade digital money, which is nothing tangible, for our goods and services because we trust that the bank will back it with cash. And we trust the cash because we believe the government can back it with gold, and we trust the gold… why?
And now we trust credit companies who do the same thing, except they dont necessarily have the cash anymore. They trade in digital money exclusively. They have a logo, and we trust the plastic cards they give us. And they pay off their debts to stores digitally with the debts to them we pay off digitally. We can put faith in credit card companies because we put faith in their logo, and we believe that the companies can pay the transactions; because we put faith that other people in society will pay off their debts to credit companies.
Voila. That is our society today. We trade air because some fool dug a deep hole to dig out useless metal.
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