[theandrewbailey]

> The more money the government prints the more the stock market goes up.

I'm not an economist, but I have some speculation (no pun intended):

When the government prints money, most of it ends up with the rich. The smart rich know that it's unwise to have lots of money lying around, so they buy investment assets, like real estate and stocks.

When quantitative easing started in 2008-ish, guess what got more expensive? When COVID hit and money printer go brrrr, what got more expensive?

[imtringued]

>When the government prints money, most of it ends up with the rich.

That is also true of money "printed" by commercial banks. It is also true of money you spend. It is basically true of money anywhere in the economy.

Why? Because investment income i.e. capital gains scale with how much capital you have. If you can live off interest, your wealth is basically guaranteed to grow exponentially from that point onwards. You earn more than you spend, and the surplus is invested into assets that allow you to earn even more. It is a positive feedback loop that grows stronger and stronger over time. It has absolutely nothing to do with what the government does. It is purely the nature of compound interest.

The only thing the government can do is implement negative interest rates because interest rates go down as wealth concentrates. If interest rates become negative, then the rich no longer earn more than they spend from their capital. Instead, they must work to maintain the capital they have.

[coned88]

You're the one who seems to get what I'm saying exactly. It's like a big snowball that the more you feed it the more it grows as it rolls.

I can't tell if this is good or bad or not. Because it seems like funny money to me.

[SilverBirch]

I could be completely wrong about this, but the counter side of this is that when stock prices goes down (due to interest rates or whatever else) the value destruction is not equal to the money transacted. If you buy 1000 shares of TSLA for $1000 your position was $1m. When I buy 1 share for $5 after the crash you've lost 99.5% despite not transacting a penny. Hey presto! All that inflation disappeared!

[youeseh]

This is why more seasoned traders pay attention to trading volume. It is also how many players manipulate the naive traders into thinking a stock is crashing or booming.

[alaricus]

When government prints money, people don't go and drive the price or bread and butter up. They go and invest in financial markets, driving the price of financial products like stocks up.

[chii]

which then encourages investment (it is, after all, what financial products end up being used to finance).

This investment would, if done smartly, will produce more goods and services to justify the higher prices of those financial instruments.

Thus, the economy grows. The financial growth leads the goods/services growth. Unless, of course, the financial growth is spent poorly (which is of course, totally possible), and thus you get nothing out of the spent resources.

[alaricus]

Not necessarily. How did the economy benefit from retail investors driving up the price of memestocks? Financial activity can be extractive.

[chii]

> How did the economy benefit from retail investors driving up the price of memestocks?

GME did a secondary offering during the memestock rise in price. https://www.shacknews.com/article/125255/gamestop-gme-comple...

it created funding, which they could've used to pivot their business. Whether they use this money wisely to generate more profit is a different question, but you'd expect a business to generally try.

Just because some activities are extractive, doesn't mean all activity of that type is extractive.

[Sevii]

The concern is that with enough printing (aka 2020-21) there aren't enough wise investments to put the money into. If capital is already cheap, even cheaper capital doesn't help anyone.

[chii]

> there aren't enough wise investments to put the money into

yes, that is a concern, but only for those who are investing. Not for society in general imho. The investment would lose money if it wasn't wise, and the investor who did it suffers the loss. unless, of course, this loss is subsidized by taxpayers (e.g., a bailout).

Cheaper capital allows for investments that otherwise would not have happened to happen. An example is the massive amounts of dark fiber left over from the dot-com boom. the losses from building out those fiber is suffered by the investors, but the benefit is now being reaped by whoever that purchased it on discount after the bust.

I wish the same could've been said for fracking shale oil - unfortunately, that didn't happen (and thus led to high prices of oil today). So it's not always the case that unwise investments turn out to be useful in the future, but you can't really know ahead of time.

[imtringued]

That is true but honestly, it's only a problem with real estate and land.