I have a hypothetical scenario I'd like some help with. Let's imagine a country, I was going to say the USA or something easy to recognize but let's use Brazil or India, one of those countries that has a lot of potential yet seems to find itself in a constant state of economic fuckery.
Let's say the country is taken over by a Trillionaire King, a guy with almost infinite money, and this King proceeds to remove all market regulations except extremely basic stuff, ends all taxes (pays for everything himself) and proceeds to invest something around 50-100 Trillions into the country's industries.
What exactly would happen?
I've posed this question to a libertarian/ancap friend of mine and he thought about it a little and laconically answered "inflation".
If its trillions in fiat, then inflation is right. If its gold or crypto with a hard cap, then thats different.
Logan Smith
Where did his money come from? At the level of trillionaires you might as well forget about amounts of dollars or coins and think directly about the claim on resources and productive capacity that the money represents. If his money came from other countries, it would basically be a massive transfer of wealth from the other countries to the country he rules. But since we're talking about tens to hundreds of trillions, yes there would also be a lot of inflation.
Benjamin Nelson
It would be most likely in stocks
Let's say they were acquired by investing in the foreign (American) stocks market, cashed out and kept in one singular bank account - for the sake of an easier allegory.
And then this money was used to invest in stocks in the local industries.
Aaron James
In that scenario, in the short term American stock markets would have a massive crash, and his country's stock markets would have a massive pump. Effectively his country's companies would temporarily have access to an infinite amount of financial capital. This would boost growth, but since you only need so much financial capital before you're more constrained by human capital and labor, it might not be as much of a boost as you'd expect. Wages would rise, so more people would want to come there for work. Real estate prices would rise. Overall it would be great for growth. Also in the short term, people in his country who already owned stocks would have a huge windfall and could afford nicer stuff for a certain amount of time.
Lucas Rodriguez
So the entire country would kind of become Monaco, with the insanely low (in this case non-existent) taxes, high real state prices and people with a lot of disposable income, if not at the price of some inflation that may end up being somewhat manageable.
Interesting.
Thanks for the help.
Charles Ward
Depends to some degree on how immigration is controlled. If the king allows a lot of immigration, companies could afford to spend their windfall on hiring a ton of people, so you could end up with the most densely populated country in the world with less total wealth per capita but probably still a high average standard of living.
If immigration is tightly controlled, companies would be restricted to mostly just investing in overseas enterprises for growth, so you would end up with a hyper-Monaco of a capitalist leisure class country that mostly just extracts rents from the rest of the world by investing their abundance of financial capital. Everyone who's not in this capitalist class because they didn't own enough stock or real estate before this happened would be priced out of the country.
Camden Adams
It would be particularly good to have a "loose" immigration policy in the cases of Brazil and India so that the impoverished populations of neighboring countries could pour in and get some of the action. In which case the country would look more like Singapore.
Carter Gutierrez
Well if it's Brazil or in particular India, you have to take into account that the existing population is already huge. You probably couldn't get India to the level of Singapore just by investing a lot of money, the entire world economy might not be productive enough to support that.
Isaiah Johnson
Let's consider the outside influences. >How would other countries behave? >Would there be massive immigration into said country? >How would big corporate react?
Kayden Price
Well, I'm Brazilian myself and I can attest that despite us having 200 million people, most are concentrated in four states in the South-East, two of which are VERY small and the other two are the size of the average American state or a little smaller. We have a lot of spacious, low-density territories that could be put to use.
Logan Lee
>Let's consider the outside influences.
>>How would other countries behave? The neighboring countries might start pouring in, but the other countries I have no idea.
>>Would there be massive immigration into said country? Likely.
>>How would big corporate react? In the country, they would receive virtually infinite financial capital, and be able to reach some growth, but outside (USA for example) they'd be dealing with a crisis caused exactly by this growth (see above)
Xavier Jenkins
Well the issue isn't how much space you have for new real estate development, but how much the world economy can produce relative to your population. The world economy only generates so much stuff per year, and that amount only grows based on increasing world population and improving technology. A trillionaire king mostly just affects how wealth (which is a claim on part of the world's productive capacity) is distributed among people, not how much there is in total. The question is whether you could get Brazil to Singapore's level of per capital wealth or income using the resources the world has available.
Luke Morgan
Well I read somewhere that Africa could feed not only itself but the entire world five times over in one year if they had the resources (wealth in general) to do so. The problem is they don't, so we'd need to invest in the foreign market if that is the case.
Which makes me think that maybe inflation wouldn't be that bad because Brazil/India/whatever, with that much financial capital, could start producing like crazy for itself and even things out with the population's disposable income.
Correct me if I'm wrong tho
Angel Powell
>but outside (USA for example) they'd be dealing with a crisis caused exactly by this growth (see above) It wouldn't really be a crisis caused by his country's growth, it would be caused by him market selling all his US stocks, which are a big fraction of all US stocks. The amount of financial capital the US has available would be suddenly reduced because it's been sent to his country.
The really interesting thing about this is, wouldn't the US be able to immediately solve this "problem" by quantitative easing the shit out of itself and creating a bunch more financial capital out of thin air to get back to where they were? This gets at the question of whether "financial capital" is really fundamentally worth anything, or if it's really kind of a meme at a fundamental level. That's a deeper question than I have any idea how to answer though.
Nolan Jenkins
well, you'd have a genuine economic boom but also there'd be bubbles built around wherever that king would have spent his money - and eventual as his pockets run dry the bubbles will burst. but overall: it'll be like better hong kong with flying cars and stuff
Elijah Taylor
It's not really that simple. Africa's economic problems come from the fact that they can't seem to organize themselves in productive ways to generate economic growth. Institutions have been giving them money for a long time and it's not clear how much that solves their problems.
The important thing is to stop thinking about what numerical amount of money a country has, and instead think about what the money actually represents. Money is just a unit of account, what matters is the stuff it buys. It's pretty much self-evident that moving around numbers on ledgers isn't going to dramatically increase the total stuff that the world produces, so is there enough stuff out there to give a certain amount of stuff on average to every Brazilian citizen?
Jack Diaz
>so is there enough stuff out there to give a certain amount of stuff on average to every Brazilian citizen? With 200 million there is. With more, things get sketchy.
Luis Rivera
Yeah, that's just about the upper limit. USA and Singapore wealth per capita are around the same ($250k for Singapore, $300k for US). The US has about 1.5x the population of Brazil. So by literally draining the US to the level of Brazil, you could get Brazil to roughly 1.5x the level of the US. But if you do this, you still have the problem that Brazil has not historically been as economically productive as the US, so over the medium to long term it may not be possible to maintain US levels of wealth.
Henry Howard
An insider perspective: Brazil has fallen immensely ever since it once were the world's 4th economy due to being strongly taxed and regulated by the government throughout the military dictatorship and the current Republic. Most of its economic incompetence comes from proto-commies running things, so with the total annihilation of taxes and most regulations this problem may not be as much of an issue.
Dominic Mitchell
In the end it comes down to math. Math you. You do the math. (Don't forget your here forever.) (The star thing annoys me. Don't forget this is song XXXXXXX from my mouth. Put that in your records.) (Business. Don't forget this is XXXXXXXX business man/life/story/difficulties/success) (Don't forget this XXXXXXXXXX average man) if you died and were forced to relive it all. How much tolerance and practicality do you have.) And what the fuck. The majority of this messes choices the fuck. In the end everything gets fucked. The giant black expanse of nothing that is human life is scared of itself. Thus you have a small black expanse choosing to fuck a smaller black expanse to call itself darker. thus you have "Well atleast I know I fucked myself" Instead of "Well atleast I know I fucked myself" what the fuck is this. I was supposed to be in politics to stop all this bullshit. Here is reality and facts. This is beating around the bush and this is straightforward. This does this. This doesn't do this. Here is my defence (Achievements, rep, status.) Here is my evidence (Everything else in existence)
Alexander White
Are you high, young man?
Logan Anderson
If my tank charges into healers and dies by the other teams mage. And my rogues are left to deal with the other teams tank. And I the dps have to kill there tank while my mage has to kill their rogues while my healers have mana drained and can't cast do to excessive healing. Do I have a tank or do I have extra healers?
Jonathan Barnes
It'll end up like most of oil countries. The huge sudden influx of dollars would cause a huge appreciation of that country's currency, producing anything will suddenly become way more expensive than importing it from abroad, in the same way your exporting sector will collapse because other countries will be able to produce things locally or buying from someone else rather than importing them from you. The country will end up extremely dependent on the king's money and won't be able to be competitive in any industry, just like it happens to oil countries, look up 'Dutch Disease'
Lucas Moore
Depends on a lot of things but if the "investment" is in stocks as you say here , you'll just get an asset price bubble and very likely economic stratification overall. It's actually a historically recent thing to call buying stocks "investment." It's really just price speculation, not a productive investment in the real economy outside of the IPO. FDI is what actually matters. Aside from that, the enormous amount of money would create a massive capital account surplus for the country which would cause their currency to become vastly overvalued and probably lead to price deflation from surging imports unless their country absorbed most of it into their foreign exchange reserves (creating and dumping new currency on the market to counter the value of their currency rising).
Ending taxes and continuing to pay for the government expenses would have a stimulative impact on the economy and increase economic multipliers. However, growth would still be limited by the available infrastructure and there's only a slim likelihood that your deregulation would spur any kind of development. In fact, the earlier mention asset price bubble would spur formerly productive capital to speculate on the asset bubble in a reflexive cycle.
Adrian Lopez
It's gonna turn into japan >high productivity and development, but... >lacking welfare and labors rights, the well-organized corporate institutions keep winning the tug of war against the workforce towards longer and longer hours, until 10 hour shifts are normal >insane competition for better jobs has kids locked in studymode until they're 20 >lack of social interaction makes the university kids virgins with very few chads >bunch of grown men buying body pillows to fulfill their needs for women they can't approach >social mobility is so tough women will discard any affection and go for the highest bidder >suicide rates skyrocket
it's almost as dystopian as communism desu. there has to be some balance, or else it should only be applied to small places such as hong kong, singapore, etc, in a way that it's relatively easy to escape and mostly everyone is there because they want to
>inb4 im a communist because i suggest some balance
Isaac Howard
That's a non-issue with fiat currency. If your current account is in surplus (typically leading to a foreign exchange surplus), you can just create as much currency as you need and dump it on the market to subdue your rising currency (which will add to your foreign exchange reserves). It's essentially the core strategy of all the successful East Asian Tigers and why they maintain pegged currency or otherwise intervene.
If you're on a gold standard for some bizarre reason, your hands are tied and you can't subdue your own currency's appreciation without acquiring additional gold to back new currency issuance.
>It's actually a historically recent thing to call buying stocks "investment." It's really just price speculation, not a productive investment in the real economy outside of the IPO. Isn't buying a claim on future earnings investment and not just price speculation, regardless of who you're buying from? Even if you're buying from another investor and not paying money directly to the company in an IPO, you're still freeing up cash for the investor you bought from that will more likely than not then be invested in something else?
t. economicslet
Jordan Jackson
>Isn't buying a claim on future earnings investment and not just price speculation No. Stocks offer no form of reasonable guarantee of return or security, which is a historical prerequisite for something to be considered an investment.
The part about 'productive investments in the real economy' was just to draw a distinction for what you'd actually be doing in a broader economic context.
>you're still freeing up cash for the investor you bought from that will more likely than not then be invested in something else But you can't assume that it's something productive in the real economy. Most likely it'll be recycled back into the price speculation of securities. For example, it's a noted problem that the most of the post 09' recovery has been marred by low corporate investment in their business operations all while the securities markets were hitting record highs.
Ryder Scott
>No. Stocks offer no form of reasonable guarantee of return or security, which is a historical prerequisite for something to be considered an investment. Seems like semantics, no investment offers "reasonable guarantees" of returns, with risk free rates at near zero in recent history. Stocks on average have always at least paid dividends, and if they suddenly decided to stop that would be a big political issue. >The part about 'productive investments in the real economy' was just to draw a distinction for what you'd actually be doing in a broader economic context. Right, there's the question of whether a stock investment counts as an investment for you personally, and the question of whether you're doing something useful for the economy. I was talking more about the latter because I have a hard time buying that even the former isn't true. >Most likely it'll be recycled back into the price speculation of securities. As long as there's some significant fraction that gets paid to companies and then used for productive business purposes, it's still a productive investment. There's some pool of money that gets used for productive purposes, which gets replenished from the pool of money that's just investors trading among themselves.
Christian Ortiz
>Seems like semantics It's a critical distinction.
>with risk free rates at near zero in recent history negative/zero yielding securities would, by definition, not be investment but price speculation.
>Stocks on average have always at least paid dividends They're also volatile, are in the lowest position on the capital structure, are unsecured, and performance is driven totally by the willingness of participants to purchase them at ever increasing prices.
>there's the question of whether a stock investment counts as an investment for you personally, Nope, just the historically accurate definition and distinction of what an investment is.
>As long as there's some significant fraction that gets paid to companies and then used for productive business purposes, it's still a productive investment. And I can tell you right now, if you're not buying stock as part of an IPO, exactly 0% of the money you'd be pouring into a country's stock market would make it to some kind of productive business purpose. The only time a company receives money for its business in the stock market is exclusively from when it does new share offerings. If you're not buying untouched new shares, exactly nothing is reaching the company in question.
Leo Roberts
>performance is driven totally by the willingness of participants to purchase them at ever increasing prices. No it isn't, it's driven mostly by earnings growth. P/E ratios are high recently, but if performance were driven only by price speculation you'd see P/E just increasing over time without bound. >And I can tell you right now, if you're not buying stock as part of an IPO, exactly 0% of the money you'd be pouring into a country's stock market would make it to some kind of productive business purpose. Well if you look at it in aggregate, some fraction of investor money goes to IPOs and some goes to secondaries. For whichever fraction of investors buys into IPOs, they need to be able to get their money back from secondary market investors to be able to continue investing in IPOs.
Isaac Sanders
As an addendum to the last part of what I posted, if you want to get really technical, then actually none of your money is reaching the company any time you buy shares, even during an IPO. Technically, the company raises money directly from an investment bank, then the investment bank recovers that money by selling that company's shares on the open market. So you're just replenishing the investment bank's capital. You'd still be doing something productive, however, because you're facilitating the process of capitalizing companies.
Connor Gray
>No it isn't, it's driven mostly by earnings growth. P/E ratios are high recently, but if performance were driven only by price speculation you'd see P/E just increasing over time without bound. You have fundamentally misunderstood how markets work. Market prices cannot change independent of market participant actions. In fact, market prices are wholly and totally dependent on the market participants to change, regardless of any change in fundamentals. That being the case, earnings growth does not necessarily translate into share price growth--It's even fully capable of going down (which is actually not a rare occurrence).
>if performance were driven only by price speculation you'd see P/E just increasing over time without bound. You're just putting the cart before the horse. The phrase "price speculation" doesn't imply specific action. Maybe you also have an unusual definition of "speculation?"
>Well if you look at it in aggregate, some fraction of investor money goes to IPOs and some goes to secondaries The overwhelming majority of stock purchases are not IPOs. Secondly, investor money is much more likely to pour into what would be the 'hot stocks' you're inflating with all your money.
Juan Rivera
Wtf, now you're telling me that performance is driven by price speculation because someone has to buy at a higher price in order for prices to rise. Yeah obviously that's true, but then your point is just a tautology. The fact remains that earnings influence the prices at which market participants are willing to buy, and if prices were entirely unmoored from fundamentals like you say you would inevitably see a long-term unbounded increase in P/E ratios, which we haven't seen.
Nathaniel Fisher
>The fact remains that earnings influence the prices at which market participants are willing to buy, and if prices were entirely unmoored from fundamentals like you say you would inevitably see a long-term unbounded increase in P/E ratios I think I see the root of your problem understanding what I've said. You're assuming the idea of objectivity/"rational behavior" on the part of market participants. It's a deeper philosophical issue than I care to get into right now, but the short version is that economic actors are only rational from their own point of view and the idea objectivity is beyond reach. What this translates to in the marketplace is that market prices--from a hypothetical 'objective' standpoint--are just as likely to be overvalued as they are to be fairly valued or undervalued. The market is just an aggregation of the subjective interpretations of market participants, not an objective valuation system.
It should go without saying that this does NOT mean that the market then consists of a hivemind of unscrupulous and perpetual stock buyers.
This is also getting away from the original topic.
Colton Nguyen
You said some interesting things in your first posts so I thought you'd have something to say about this topic too, but at this point you're just talking in vague generalities that anyone with econ 101 knowledge knows. If you can't even address my point about how P/E ratios can stay stable if stock prices are driven only by speculation and not fundamentals, I don't think there's any point in arguing about this further.
Brody Smith
>but at this point you're just talking in vague generalities I've actually been very specific.
>that anyone with econ 101 knowledge knows Lol?
>If you can't even address my point about how P/E ratios can stay stable if stock prices are driven only by speculation I have, actually, numerous times in fact. I'm not sure which distinction is evading your comprehension. You'll have to either explain why you think that speculation=blind and undiscerning buying (a definitional error) or how the chain of causation in the marketplace is fact>fact instead of fact>perception>fact (a conceptual error).
Gabriel Brown
Also, upon more reflection, you seem to think that speculation and fundamentals are somehow mutually exclusive concepts. So I'm definitely leaning towards a definitional error on "speculation."
Bentley Campbell
kek
Ok autismus, please at least define what you mean by "speculation" so I don't make any definitional errors. I'm not going to worry about my conceptual error since now you're talking metaphysics instead of economics
Robert Smith
>Ok autismus No need for the outburst. You're just out of your depth is all.
>lease at least define what you mean by "speculation" Speculation implies guesswork or conjecture (I.E. an educated guess). Any kind of activity trying to profit from price movements is speculation because you cannot possibly know with any degree of certainty how other market participants are going to behave, and so you can't know with any degree of certainty how market prices are going to change. This is distinct from (true) gambling which carries no level of advantageous education or suggestive information; If speculation is an educated guess, gambling is just a guess.
>I'm not going to worry about my conceptual error since now you're talking metaphysics instead of economics Inherent market traits are metaphysics now? Fascinating.
Kayden Jones
Alright sorry I'm gonna bow out of this argument, the combination of talking down to me and completely failing to engage with what I'm saying is too annoying. Have a nice day user
Oh, bitch please. You start throwing shade, then complain about me casting a shadow. Get the fuck out of here with that shit.
As for "failing to engage with what you're saying," I've responded to every point you made. You not comprehending them is a 'you' problem.
Josiah Hill
I politely ignored your condescending style for many posts because I thought you might have something interesting to say. The fact that you think you addressed my points just shows that you don't understand them, but I didn't feel like pointing that out in every reply like you do because this is an interesting thread and I didn't want to douche it up. Fuck off
Carter Perry
>I politely ignored your condescending style Sounds like something in your head.
>The fact that you think you addressed my points just shows that you don't understand them, but I didn't feel like pointing that out in every reply like you do Gosh, that sure is a lot of noise with zero substance. I'm thoroughly unimpressed by your attempts at bravado. What's next, 'you were only pretending to be retarded?'
Daniel Long
The richest man in India basically rules the country and is doing something in that direction. Whichever industry he enters they become a monopoly
Jason Ward
God damn but you reek of reddit cancer. Grow some self awareness tbqh
Evan Reyes
Youd get japan/korea after ww2 if the capital is spent on infrastructure. You get europe after ww2 if its spent on socialism.
Your outrage is vapid and lowbrow. You've shown that you have nothing of value to contribute to the subject, nor the perceptiveness to learn from people knowledgeable on it. Don't bother replying.
Adrian Collins
>wealth per capita Essentially propped up by property prices. It doesnt mean those people are rich, just that their land is overvalued
Jonathan Miller
>Don't bother replying. Hey you're not the boss of me! Seriously though you have to go back
