All That Money You Lost - Where Did It Go?

Surprise! It Was Never Really Money In The First Place

(AP)  Trillions in stock market value - gone. Trillions in retirement savings - gone. A huge chunk of the money you paid for your house, the money you're saving for college, the money your boss needs to make payroll - gone, gone, gone.

Whether you're a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you've lost a whole lot of the money that was right there on your account statements just a few months ago.

But if you no longer have that money, who does? The fat cats on Wall Street? Some oil baron in Saudi Arabia? The government of China?

Or is it just - gone?

If you're looking to track down your missing money - figure out who has it now, maybe ask to have it back - you might be disappointed to learn that is was never really money in the first place.

Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money - it's simply the "best guess" of what the stock is worth.

"It's in people's minds," Shiller explains. "We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today - who are very, very few people - are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth."

Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000.

"In a sense, $50,000 just disappeared when he said that," he said. "But it's all in the mind."

Though something, of course, is disappearing as markets and real estate values tumble. Even if a share of stock you own isn't a wad of bills in your wallet, even if the value of your home isn't something you can redeem at will, surely you can lose potential money - that is, the money that would be yours to spend if you sold your house or emptied out your mutual funds right now.

And if you're a few months away from retirement, or hoping to sell your house and buy a smaller one to help pay for your kid's college tuition, this "potential money" is something you're counting on to get by. For people who need cash and need it now, this is as real as money gets, whether or not it meets the technical definition of the word.

Still, you run into trouble when you think of that potential money as being the same thing as the cash in your purse or your checking account.

"That's a big mistake," says Dale Jorgenson, an economics professor at Harvard.

There's a key distinction here: While the money in your pocket is unlikely to just vanish into thin air, the money you could have had, if only you'd sold your house or drained your stock-heavy mutual funds a year ago, most certainly can.

"You can't enjoy the benefits of your 401(k) if it's disappeared," Jorgenson explains. "If you had it all in financial stocks and they've all gone down by 80 percent - sorry! That is a permanent loss because those folks aren't coming back. We're gonna have a huge shrinkage in the financial sector."

There was a time when nobody had to wonder what happened to the money they used to have. Until paper money was developed in China around the ninth century, money was something solid that had actual value - like a gold coin that was worth whatever that amount of gold was worth, according to Douglas Mudd, curator of the American Numismatic Association's Money Museum in Denver.

Back then, if the money you once had was suddenly gone, there was a simple reason - you spent it, someone stole it, you dropped it in a field somewhere, or maybe a tornado or some other disaster struck wherever you last put it down.

But these days, a lot of things that have monetary value can't be held in your hand.

If you choose, you can pour most of your money into stocks and track their value in real time on a computer screen, confident that you'll get good money for them when you decide to sell. And you won't be alone - staring at millions of computer screens are other investors who share your confidence that the value of their portfolios will hold up.

But that collective confidence, Jorgenson says, is gone. And when confidence is drained out of a financial system, a lot of investors will decide to sell at any price, and a big chunk of that money you thought your investments were worth simply goes away.

If you once thought your investment portfolio was as good as a suitcase full of twenties, you might suddenly suspect that it's not.

In the process, of course, you're losing wealth. But does that mean someone else must be gaining it? Does the world have some fixed amount of wealth that shifts between people, nations and institutions with the ebb and flow of the economy?

Jorgenson says no - the amount of wealth in the world "simply decreases in a situation like this." And he cautions against assuming that your investment losses mean a gain for someone else - like wealthy stock speculators who try to make money by betting that the market will drop.

"Those folks in general have been losing their shirts at a prodigious rate," he said. "They took a big risk and now they're suffering from the consequences."

"Of course, they had a great life, as long as it lasted."

[nojoy01]

And then when the time is right, you sell - effectively siphoning off the REAL money because you traded imaginary money for stock or oil at a low price, and then sold it for real money at a high price...

Posted by ibsteve2u at 08:01 AM : Oct 13, 2008

You''re half-right. You use real money (cash) to buy oil, stocks, whatever at a low price. If the value goes up it isn''t ''real'' money until you sell it for cash. On the other hand, after you use cash to buy whatever it is you''re buying, and it goes down, it''s not a real loss until you sell it & get real cash. Trust me, if the IRS doesn''t tax you for the value your stock gains until you sell it, it isn''t real money. It''s the same the other way, you can''t take a loss on your stock until you''ve sold it. Like I said, if even the IRS doesn''t try to tax you on the amount that your stock went up until after you''ve sold it, it ain''t real money.

[fedupredneck]

If the money in my 401K isn''t real then why do I have to pay taxes on something that doesn''t exist when I cash it out? For that matter why do I pay taxes on my salary?Its a check-therefore not REAL money right? I am with soremeat on this one-the math might not be accurate but its one heck of an idea.

[libluv2cnsor]

you cannot loose anything that never existed to begin with....what is paper and what is credit????!!

we placed this imaginary value to a piece of paper.

[jehovahwtnss]

COMMENT BY SOREMEAT:
How do you settle the "financial crisis" ? We could throw 100s of billions at the rich and hope the big companies pull through with $400,000 worth of massages at resorts. Or we could give every adult American a million dollars, require they pay off their home loan first, buy a new American made car, pay off one credit card, and eat out at least one night a week for a month. That would take about 200 million bucks, solve the housing problems of every one but those who thought they need to live in a house that cost over a million.

--------------------------------------------------

I think%u3000soremeat has lost a few zeros in his calculations

[jehovahwtnss]

I think%u3000soremeat has lost a few zeros in his calculations

[indianaman13]

Where did it go? I have to ask where it all came from. How much money did we print? My personal opinion goes like this: Every Large Corporation has hidden accounts, slush funds if you will, hidden rainy day accounts. Along with that you have Gangs across the world hording cash. In-between both you have money launderers hiding both. With inflation on top to sweeten the whole mess. How much has money been moved, hidden, inflated, overvalued, laundered, and held in escrow? If the amount of money printed is a large pool, and large corporations, gangs, and the few extremely wealthy are like giant straws that suck up money and hold it inside the straw, it lowers the level of available money for the rest of us. If you look at the first depression, Mr. Morgan, Mellon, Ford, Rockefeller, Rothchild, Vanderbilt, Carnage, and a few others held almost all the money in the money pool and because no one had money and were forced to buy stocks on credit, crash. Same thing here.

[missingamerica]

And all the moaning & whining that SOMEBODY has it & this is ''their'' fault is just like believing the earth is flat or that ''there is no gravity, the earth sucks''

Posted by nojoy01 at 07:51 AM : Oct 13, 2008

lollll....oh, I see...so when the Republicans say put Social Security into the stockmarket, they are really saying that it may very well "disappear" but it will not be anybody''s fault?

Interesting conjecture.

Now if only nobody understood how you (if you have the power) can create truly fake money (except they call it highly-leveraged instruments in the form of default credit swaps, SIVs, and so on) and use it to create the APPEARANCE of huge amounts of money, artificially inflating the price of everything from oil to stocks.

And then when the time is right, you sell - effectively siphoning off the REAL money because you traded imaginary money for stock or oil at a low price, and then sold it for real money at a high price...

lolll...that is what they want to do with Social Security, too...

[nojoy01]

Try telling the people who bought stocks at $40 that are now worth $20 that they did not "really" lose anything.

Posted by ibsteve2u at 07:45 AM : Oct 13, 2008

Wouldn''t dream of it sibsteve, but what has happened is that the stock bought for $20 went to $60 & now is down to $35. The value lost is ''paper'' value. Now, if I woke up morning & my bank acct only has $60 in it instead of the $100 it had last night--You betcha I lost the money. But if it ain''t cash in hand, it ain''t real. It''s just positive thinking.

[nojoy01]

That would violate the second law of thermodyamics (look it up). Someone gains from that labor and time, ie your labor is going toward SOMEONE''''S leisure.

Posted by MarkinGA7 at 03:45 AM : Oct 13, 2008

Sorry Markin, the Second law of Thermodynamics is a law of PHYSICS. That is, the interaction of things physically real in the universe. Money is a psychological & emotional abstraction. Money only have the value that people believe it has, not something absolute like kinetic energy or gravity. And yes, good people, several trillion dollars DID ''evaporate'' & NOBODY has the evaporated money in their cellar. And all the moaning & whining that SOMEBODY has it & this is ''their'' fault is just like believing the earth is flat or that ''there is no gravity, the earth sucks''

[missingamerica]

Try telling the people who bought stocks at $40 that are now worth $20 that they did not "really" lose anything.

And try telling the people who bought the stocks at $40 from some deep-pocketed entity or person who was a member of the exclusive club allowed in on the IPO and got them for $7 that the latter person or entity did not make money.

And then, of course, don''t forget to tell the people who have lost cold hard cash that none of the aforementioned deep-pocketed people or entities was aware that this deregulated market was a shell game - even if this White House has been riddled with Goldman Sachs'' personnel since day one.

[chrisdoe1]

Blaming Bush for all of America''s woes is totally ignorant. America has been spiriling downward toward third world status for MANY decades, aided and abetted by both republican and democrat members of the legislative, executive and judicial branches of government. Please put your party bias aside for the moment an give serious consideration to this longtime destructive pattern. America''s future depends on it.

[piercetheval]

...Sorry Man, but your labor and time DO DISAPPEAR...to the USURERS!...Ususary is a SIN.
Your American Currency is FIAT money.
Either go back to the Gold Standard or start batering goods and services.

[markinga7]

The expert in this article assumes that the economy is just one big game of Monopoly with paper "money" and the little green houses and red hotels. WRONG. Ever since we traded a hunter/gatherer lifestyle for advanced capitalism, each dollar in the real economy represents workers'' Sweat (labor) and Tears (time away from family) given in trade for room and board for the term of labor and post-labor retirement. However, unlike Monopoly where one loses or wins there is no gain for the winner (since there is no value of the "money")the labor and time lost does not just disappear in the ether. That would violate the second law of thermodyamics (look it up). Someone gains from that labor and time, ie your labor is going toward SOMEONE''S leisure.

[homespunlady]

Unfortunately, the ORIGINAL REAL ASSET is although still "out there" the DILUTION of it''s value through SUBTERFUGE does make it SEEM that it DOESN''T EXIST and those that FALL FOR such CLAPTRAP are left wondering what happened.

Here''s the REAL answer - the one that DILUTED it played a VERY fancy kind of SHELL GAME on those that TRUSTED and DEPOSITED -then after "DILUTING and spending the REAL ASSET" Handed back SMOKE AND MIRRORS.

Proof - it WASN''T something of "no real value" that those AIG executives RECEIVED at that "resort" after screaming they were "broke".

and OH by the way I heard their "Guest of Honor" was Sarah Palin - maybe they were teaching HER the fine art of making something of value "disappear".

[homespunlady]

Actually, this description is accurate -when something becomes vastly overrated.

It also is VERY valid for the "gambling" that has recently occurred - especially with that PONZI SCHEME called DERIVATIVES.
It was also true when centuries ago Europe "overvalued" a flower called the TULIP and left an indelible memory called "Tulip-mania".

BUT, UNDERLYING all the PONZI SCHEMES there is a TINY seed of "real value" that some people then USED to profit from by INFLATING it.

So, the SHORT VERSION of what REALLY happened to get us into this mess:
Someone WORKED or SOLD something TANGIBLE - they then decided rather than risk theft they would put it in SECURE hands and someone ELSE PROMISED that SECURITY.
The someone that PROMISED security - if a "bank was "allowed" to then LEND OUT TEN TIMES the amount the first person stored with them and IT WORKED for the "banker"

- until the "Banker" got GREEDY and decided that if TEN TIMES WORKED then WHY NOT A THOUSAND OR MORE TIMES that ORIGINAL DEPOSIT then SCHEMED to SUBVERT a system that "worked" for HUNDREDS of years

- and BELIEVED "nobody would be the wiser".

THAT is the REAL LOSS of VALUE in this PONZI SCHEME!

Unfortunately , OVER and OVER when this HUBRIS of the "banker" takes place - it leads to a "collapse". EACH time the BALANCE and Sustainability of that system is OVER-REACHED a "collapse of the MULTIPLIER" is inevitable.

[linfinster]

So the fiscal geniuses tell you the money you lost wasn''t really money in the first place.
It WAS money when your earned it however, trading your labor for a paycheck.
It''s when you "invested" the money that it was converted from money to non-money.

And that non-money is now worth a lot less.
...... "
Posted by johnbrown888

THAT''S what I wanted to say and wouldn''t have been able to write it down in writing as clearly as you did!! Good one! However, to say that it didn''t go ANYWHERE is BS ..

I just started to put my money in the stock market and didn''t really want to, but at 44, with very - very little in retirement and will never have savings, but always in debt (mortgage of an OLDER home,) I was starting to worry if I was being stupid not too .. well it''s all pretty much GONE ... so EXCUSE me if I think this story is BS!

[macmcf]

It''s even worse than he says: Even the "real" money isn''t "real". Long ago, the "hard" backing of our currency faded away like the Cheshire Cat. It''s just a Federal Reserve Note, i.e., an IOU from the Fed, based on bank deposits. These deposits, in turn, include loan documents, including private mortgages, many of which have gone or are going bad, thereby reducing the underpinnings of the financial system. This causes a contraction of the money supply, and causes bankers and politicians to scurry about like ants trying to plug the holes in the system.

[mikec4prez]

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[rcgreene1]

Finally I really clear explanation of the stock market shell game -- really a myth. Yes, the money invested was, in a real sense "lost" to you the moment you invested it -- or better said, taken captive and put to work earning someone else a line of credit to fund his company''s budget. And when the market crashes this hard, people stop investing and so those company budget''s are not funded, and jobs are cut, and -- you guessed it someone is out alot of money! This is a shell game after all. And the sooner we are rid of it -- or at least its grossest abuses -- the better off we will be.

[jerr11]

Another MISSION ACCOMPLISHED moment for the Liar-in-Chief!

He removed a secular dictator in Saddam and replaced him with the Iranian mullahs running the country!

So the Christians are being evicted from Mosul!

Thanks to George W Bush!!

At what cost to the country?

$3 trillion spent.

4180 Dead Americans!

The guy who gave us Iraq and Katrina is now giving us the sequel, Nightmare on Wall Street!

Heckuva job, Bush!!