Do Stock Markets Make Sustainability Impossible?

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Krystof_Huang
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Do Stock Markets Make Sustainability Impossible?

I am very interested in receiving discussion and feedback on the following ideas in my article, "Do Stock Markets Make Sustainability Impossible?" Here is a paragraph from each subsection. (For full article see Vermocracy.Org.)

  1. Unless stocks are deemphasized and bonds emphasized, it is ludicrous to assume that solar energy—or anything else—can create sustainability.
  2. Protesting stock markets is as important as protesting air pollution—but nobody is doing so.
  3. The New York Stock Exchange is not an original or necessary institution for capitalism, democracy, Christianity, America or free enterprise.
  4. There is no magical law that requires stock markets to have happy endings.
  5. Overpopulation is not mandated by religion so much as by stock markets.
  6. No movement is making the essential moves against Wall Street to make sustainability possible.

1. Unless stocks are deemphasized and bonds emphasized, it is ludicrous to assume that solar energyor anything elsecan create sustainability. Of course, it benefits the environment to develop non-polluting energy sources. However, overall “sustainability” must include financial stability. Otherwise, we face ever-repeating wars and stock market crashes and consequential ever-increasing populist demands to dismantle environmental protections. From about 1900 to 2000, we had a very inexpensive source of energy called “oil.” The personal computer also increased productivity several times over. All with no net increase in financial stability. In contrast, the ancient Hawaiians perfected fish farming. Thus, they primarily just needed to eat fish and then go surfing and dancing. Also, ancient Hawaiians were never told that they must eat more fish every year. That would have sounded ludicrous to everyone. Today however, we so-called modern people are told by most economists and politicians that we constantly face ruination, not only if productivity fails to grow, but even if the rate of growth fails to grow. At the crux of this naked inanity are stock markets.

2. Protesting stock markets is as important as protesting air pollutionbut nobody is doing so. Of course, there has been an “Occupy Wall Street” movement. However, the Wikipedia article on OWS mainly lists protests against some of the inevitable consequences of overemphasis on stock markets: “wealth inequality, political corruption, corporate influence of government.” There seems no suggestion to deemphasize stock market investing. With no intellectual leaders speaking out against stock marketsit is obviously not feasible for political leaders to do so. Bernie Sanders, self-proclaimed “democratic socialist,” probably is the most harsh critic of Wall Street ever to make it to the US Congress. Every little bit helps. However, his most radical proposal is a small tax on high-frequency trading. Sanders has never proposed to reduce the general tax discount on stock market investingnor proposed a tax discount for bond investingnor criticized our dependence on infinite growth.

3. Contrary to popular assumption: the New York Stock Exchange is not an original or necessary institution for capitalism, democracy, Christianity, America or free enterprise. This article merely points out that modern society is dominated by corporationswhich are funded by stocks and bondsand that long-term stability and peace are possible if and only if we merely deemphasize the stocks! Some people will instinctively respond that to deemphasize stocks is somehow to advocate “communism” or “totalitarianism.” This is obviously not true. Here are the facts.

  • Bonds are not communist. The US government and most US corporations sell bonds.
  • You can buy books on the “all-bond portfolio.” This is a respected investing method.
  • China and Russia are communist or totalitarian or bothand have stock markets.
  • Washington, Jefferson and Franklin were not communistsand had no stock market.
  • Adolf Hitler was propelled to power by the stock market crash of 1929. Stock markets cause totalitarianism. They are not a cure for it.

Others will respond, “This is a free country. If you do not like stocks, you are free not to buy them.” Ironically, this is exactly what this article argues should be true. If the stock market game were deemphasized to the level of a Las Vegas casino, then we might all choose to play it or ignore it. Unfortunately, that is clearly not our situation.

  • Unlike casino games, every news show frets about stocks. Because they affect everyone.
  • The stock market crashes of 1929 and 2008 caused millions to lose their jobs and possibly their life savingsregardless of whether they bought stocks.
  • Walk in to any office of any stock broker and ask what will happen if you do not invest? The answer is that more than 1/2 the value of your savings will be lost to inflation.
  • Walk in to any university and ask any economist, why do we have inflation? The answer is that we must have inflation to support the stock market.
  • If a prostitute is forced to pay 1/2 her income to a pimp, she is said to be “owned” by the pimp. Similarly, everyone is somewhat “owned” by the stock market.
  • For more thoughts in this direction, Google the phrase: inflation is invisible taxation.

4. Contrary to most financial experts: there is no magical law that requires stock markets to have happy endings. Most financial gurus will advise a never-sell buy-and-hold strategy for stocks. Also, for those who desire greater safety, large investments in corporate or municipal bonds. This is in spite of the ubiquitous refrain by the same people: “past performance does not predict future performance.” Buy-and-hold is like a religious faith based entirely on the performance of US stocks in the previous century. This ignores what happened in 2008 and what has happened to most non-US stock indexes since 2008. Also, we saw numerous bankruptcies and near-bankruptcies of US blue-chip corporations, insurers and regional governments in 2008: California, General Motors, Goldman Sachs, AIG, Lehman Brothers, etc., etc. This has proven that corporate and municipal bonds are now like wooden fire escapes: only safe just so long as there is no great need to be safe. Investment-grade corporate bonds should be safe. If not for our over-emphasis on stock markets, most bonds would be safe. Currently howeverso long as the stock market has the power to trigger a cascade of blue-chip bankruptciesthen allocating anything for corporate or municipal bonds primarily means that you can allocate less for maximum-safety gold or US Treasury TIPS.

5. Overpopulation is not mandated by religion so much as by stock markets. Obviously, reproduction is essential for any species. Obviously, nature must create an off-switch for reason wherever reproduction is concerned. It is therefore understandable that even the most rationally-trained people are often bizarrely self-contradictory in opposing the clear mathematical imperative to stabilize the global human population. The Roman Catholic church has gradually been persuaded by scientific reasonsuch as that the earth is not the center of the universe. However, a religion can not be expected to abandon tradition for reasonwhen those supposedly representing “reason” are fanatics for tradition. It is not priests so much as economists who maniacally insist on infinitely more children. Even when the ignorance required to believe in “infinite population” is far more obvious than required for an earth-centered universe. In contrast, the Bible teaches that God created every species. Therefore, to destroy any species is to declare war against God. Not to mention the extinction of dozens of species every decade due to human overpopulation. Also, if all Christians are one family and all Muslims are one family — as both of their scriptures teach — then before having a second child, all parents should at least pay for the education of another child who is living among garbage.

6. No movement is making the essential moves against Wall Street to make sustainability possible.

  • There is what I call the “High Plains Drifter” initiative. This means firstly, for one reputable economist to write one book arguing that capitalism has a future if and only if stock markets are deemphasized. Secondly, for the leaders of one underdeveloped or “outsider” nation to read said book and thus to start one new game on their own terms: encourage corporate bonds with national insurance programs and low tax ratesmeanwhile discourage stocksand thus become increasingly admired and imitated after each new, ever-inevitable global stock market crash. Russia, China, India, Greece, Cuba, Venezuela and Indonesia obviously should encourage bonds over stocks. Currently however, every nation stubbornly bellies-up to be fleeced at the anachronistic Wall Street gameregardless of whether they are a naïve novice, an atheistic anti-capitalist, a religious fundamentalist or even a chronic loser.
  • Or, a “Newman Age” could be upon us if some new promotional strategy somehow enabled stock market corporations in every sphere to be eclipsed by for-charity corporations à la Newman’s Ownwith a similar ferocity as My Space was eclipsed by Facebook. Currently however, there seems little significant interest in such projects.
  • Or, a “Fight Fire With Fire” initiative might mean for some nonprofit foundation to manage “socially responsible” brokerages, autotrading systems, trust funds and mutual funds. If 1/3 of the foundation’s resulting income were used to finance pro-environmental politicians and organizationswhile 2/3 were hoarded and reinvestedthis eventually might build up a war chest with which to enable environmentalists to cross swords with billionaires and corporations. Currently however, environmentalists must forever act like the Dutch boy with a finger in a dyke.

Ebay, Google and Facebook all had humble beginningsand yet, soon eclipsed stock market giants, even before joining the stock market. For the first time in history, it is no longer necessary to own steel mills in order to challenge the likes of Carnegie and Mellon. What is lacking today is only the will, not the capability. Each of the above “non-Wall Street initiatives” obviously could be accomplished within fewer than a dozen years by fewer than a dozen inspired individuals. This is probably a narrow window of opportunity and to which almost nobody is yet responding.

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Jim H
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Feedback...

KH... To be honest, I find your arguments... well.. lacking in actual arguments.  You make statements, like the following;

5. Overpopulation is not mandated by religion so much as by stock markets.

And then in a long, dense paragraph about religion you never again mention the stock market.. not once (sorry, can't seem to turn off bold).  For me, the rest of the piece is similarly unconvincing.  

I believe your entire premise is misplaced.. i.e. that the growth imperative you are ascribing to the stock market is one and the same with our money system, i.e. debt based fiat currency systems, where money is created as debt, with a future interest liability unaccounted for in the money creation process, all but require continuous, exponential growth to remain, "healthy", up until the point at which they cave in on themselves.  It all starts with the money.     

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Krystof_Huang
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Re "Overpopulation mandated by stocks" & non-fiat currency.

Jim, thank you very much for your feedback.

Re #5: "Overpopulation is not mandated by religion so much as by stock markets."

You have a point. I need to start this section with a few sentences clarifying that--according to basic "economics 101"--stock markets require population growth. This is why I say: "It is not priests so much as economists who maniacally insist on infinitely more children."

Previously, I had an entire section arguing that China has every element for a winning bond market, but lacks requirement #1 for a stock market: room for constant population growth. China has recently abandoned its population-reduction policy, largely because population reduction is not feasible with a stock-based economy. However, this is ludicrous because there is simply no room for population growth. China trying to win the stock market game by embracing population growth is like a short person trying to win basketball by standing on his toes. (The China section had to be removed for brevity--which admittedly is something I have somewhat given up on. This is a subject that requires a book to be properly discussed.)

And--unlike any time in the 20th century--the economy of China is now just as influential as the US or the EU. So, China depending on an impossible stock market is a danger we have not faced before. And, China operates on a 12-hour time difference. So, the next major crash could happen overnight, before we wake up in the morning.

Unfortunately, no matter how well I write this section #5, it is not likely to be well understood. This is because most people do not understand "economics 101." Even though they hear on the "economic" portion of the news every day that "we need more growth"--they tend to think I am exaggerating when I assert that "infinite growth" is a basic requirement of the stock market. Whereas those who do understand basic economics--such as stock brokers--tend to have a vested interest in not seeing certain obvious truths--such as that infinite growth is impossible!

That is one reason why my article was difficult to write. It is far from perfect. Any help is appreciated. Thank you, Jim.

...

Re: "the growth imperative you are ascribing to the stock market is one and the same with our money system, i.e. debt based fiat currency systems."

I tend to agree that there is a connection between fiat currency systems and non-sustainable growth-based economics. However, I fail to understand that people can focus on "non-fiat currency"--meanwhile ignoring the "elephant in the room," the stock market, that more directly and more obviously requires infinite growth.

From 1817 to 1929, America was on the non-fiat "gold standard." America nonetheless experienced numerous severe stock-based recessions, culminating in the "Great Depression." Obviously--regardless of the currency used--so long as we have stock markets, we are going to have stock market crashes! We are also going to have consequential endless need for growth and price inflation in order to continue the stock market.

In his "Cross of Gold" speech in 1896, Williams Jennings Bryan made it sound very simple that if we switched from gold-standard to silver-standard, every American would become rich. Today, nobody makes that argument. For one thing, the value of silver is far more volatile than gold. Moreover, there is obviously no magical formula to make everyone rich.

Williams Jennings Bryan was probably a good man and probably correct about many things. Similarly, however, for me, this "non-fiat currency" school of thought is mainly proof of the ability of most people who decry "growth-based economies" to ignore an "elephant in the room": the stock market.

Yes, there is something to "non-fiat currency." But it is not so easy to do, nor are the results so simple. For one thing--so long as the economy is tied to the stock market--we are obviously going to need artificial methods of "streatching reality" in order to prolong this infinite-growth system--which obviously cannot forever be prolonged. For another thing--the global economy and the global population today are both many times more than in 1896. Today--whatever we might use for "non-fiat currency"--there would need to be an awful lot of it! And anything which exists in large quantity is going to be volatile.

I am not an economist. However--even though non-fiat currency might be correct--I suspect that attempting to switch to non-fiat currency at this point might be similar to throwing your car into reverse because you are going too fast.

I.e., fiat currency is like a band-aid for the constant bruises caused by a stock-based economic machine. Tearing off the band-aid without first gradually stopping the machine would seem potentially to result in total collapse.

I am not an economist. I am not totally clear about the "non-fiat currency" question. However, what is very clear to me is that the people who argue for non-fiat currency are not being very clear! If you catch my drift. Meanwhile, what is very clear is that stock markets are obviously growth-dependent! Any stock broker will tell you so! Meanwhile, we are so "traditional" in our growth-dependency that even "anti-growth" thinkers never think to mention the stock market! So, as I say in the full version of my article, this is very much like a sort of mass-hypnosis mass-denial situation--such as described in the classic tale, "The Emperor's New Clothes."

Incidentally--just something to think about--what I posted above is only one paragraph from each section of a 6-section mini-book. Here is the actual ending to section #5. I hope some people might find this interesting.

"If a person has 7 dozen cats, everyone will label that person as pathological for “animal hoarding.” Somehow however, if a person has 7 billion dollars or a planet has 7 billion people, most of our most respected scientists and economists will cheer this on, thinking only about how to facilitate an increase to 14 and 28 billion. This is beyond pathological. This can not end well."

(P.S. Jim seems correct that, in this forum, it is difficult to "turn off bold" and other formatting. In most forums, we can simply "select" the text, then click "B" or "I", etc., to toggle formatting on or off. In this forum, however, it seems that once a format is "on" it will not go "off." We have to "switch to plain text editor." Or--to avoid monkeying with HTML: "cut and paste" the text into a search field or address bar or other non-formattable field. Then repeat a "cut and paste" back into the forum window to result in non-formatted text.)

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Thank you KH..

For the interesting discussion.  I am still not convinced that the stock market is the driver.. I think it's an asset market that is certainly more-and-more viewed as a key indicator (and driver) of economic, "health".  I think one could take the housing market and completely replace all of your arguments with, "housing market" instead of, "stock market" and it would be the same. 

Both are markets that have a money-like quality.. in other words as they expand and inflate, people's savings (or net worth) is inflating, and this can easily be turned into cash equivalents, at least in the case of housing, via home equity (loan) withdrawal.  

Going back to the question of which is actually the dog, and which is the tail, money itself vs. stock and/or housing markets.. .please note that the FED created lots of thin air QE money in order to by MBS, while other central banks more recently (Japan, Switzerland) have been creating thin air QE money to buy (US and other) stocks to hold on their balance sheets.  In each case the central banks are using their unique money creation powers to distort the hell out of the housing and stock markets.  I believe this was done because of the high degree of connectivity between housing, stocks, and the existence (or not) of deflation in the system. 

The stock market seems a rapacious growth machine because it's fueled by, and interacts with the debt-based money system.  The stock market is the tail, and the money system is the dog itself.  I am not necessarily arguing for non-fiat, or even non-debt-based money.  I am though arguing for free markets for money, where the interest rate is determined (dictated)  not by banks, but by the supply vs. demand market for money.  I have also suggested in the past that an interesting patch on the system would be to create each year all the money necessary to pay the interest on the newly created money.. and to pay that out as a kind of dividend to all users.  In this way banks could stay healthier.. because the money to pay off loans would be more readily available.. and hence other artificial (and much less democratized) means to induce growth.. to pick winner and losers.. would not be necessary. 

Since the 1950's, the masters of our money system have not allowed any significant deflation.  It should be allowed.

          https://www.advisorperspectives.com/dshort/updates/2017/02/16/a-long-ter...

Note how deflation.. depicted in the chart (link above) by periods of red (below the line) has been essentially eradicated.  The stock market can and does go down... money though will not be allowed to shrink.  Money is the dog.   

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equity vs debt

Fundraising is required for capitalism to function.  That can be done using debt (bonds, or bank debt) or via equity.

Debt is annoying, because it is difficult to get rid of.  The interest payments are a constant drag on operations, and when you pay it down, you have to do it with after-tax dollars.  Equity feels different.  You get a new partner that you have to share the profits with, but if there are no profits, that's no problem.  You share risks and rewards equally.

I've seen how both operate on a small company; equity puts no pressure on operations, while debt is a constant drag.

Outlawing equity as a means of raising money for companies means you can't have a small company with multiple owners each of which contributes money for the initial startup, nor can you do subsequent funding rounds.  When companies don't have any income, it doesn't make any sense to raise money with bonds - because they have no way to pay those bonds back.

As for a secondary market; the bond market is far bigger than the stock market.

Martin Armstrong is fond of saying that it wasn't a stock market crash that caused the depression - it was the bond market crash that did so.  The bond market crash happened in 1931-32, and it destroyed a lot more money than the 1929 stock market crash did.  You can see the bond market crash in the following chart: rising rates = falling bond prices.

We had a stock market crash in 1987.  No depression.  We had another one in 2001.  No depression.

If you believe that, going forward, there will be no new inventions that need funding, that we've got no small businesses that will have multiple owners, then sure, no equity funding, and no secondary market.

Banks don't do startup funding.  Neither does the bond market.  That's done with equity.  To get bond or bank funding, you need to already have earnings.  How do you get to a place where you can have earnings when you can't raise money?

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rate spread chart

The rate spread chart is the difference between junk bonds and high grade corporates.  When that spread blows out (i.e. when you see a spike in this chart) it is also a sign of a bond market crash.

The reason the spread comes back to normal after the '31 crash?  My guess is, a whole lot of junk bonds died - because the companies that issued them died.  The survivors get their bonds upgraded or they pay them down.

You can see we avoided a bond market crash in 2008 because the spike was relatively brief.  There wasn't enough time to clear out all the debt.   We most likely have another spike in our future, because all that junk debt is still there, and it needs to go away.

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A. Stocks vs. Fiat vs. Control As the Root of All Evil.

Jim and Dave, thank you for the very thoughtful comments. I will try to reply briefly and in order of importance.

A. Stocks vs. Fiat Money vs. Controlled Money As the Root of All Evil.

1. Can someone please explain to me more about "non-fiat currency" being possibly the primary driver of non-sustainable growth-dependence?

Since Jim seems willing to think about the stock market as a driver of growth-dependence--I am now less interested in explaining my view than in someone please explaining more about the "non-fiat currency" theory? I don't get it. I can see that non-fiat currency makes it easier for debt to get out of control. However, I do not see how "fiat money" morphs from an "enabler" to a "driving force"? Nor how re-introducing fiat-currency is going to eliminate debt? Any more than than buying a new milk carton is going to clean up spilt milk?

Also, regardless of whether currency is fiat or non-fiat, when equity enters the stock market, it seems in some sense "fiat" or "floating." Based on a brief internet search: there are about US$200 trillion "cash" in existence vs. $70 trillion in stocks and $1,000 trillion in "derivatives." https://www.quora.com/If-you-converted-all-currencies-in-the-world-to-US... -- http://www.marketwatch.com/story/this-is-how-much-money-exists-in-the-en...

On the flip side--back in the 1990's, the combination of Bush 1, Clinton 1 and Ross Perot's third-party balanced-budget campaign and the financial boom did seem miraculously to balance the US federal budget. (Until new wars were created by Bush 2.)

I am not arguing here for Bushnomics or Perotonomics.  I am simply saying that regardless of currency type, debt can get out of control. And regardless of currency type, debt can be controlled.

In contrast, the stock market requires growth! And if the economy is tied to the stock market--then if the stock market crashes, the economy crashes! So--even if somehow "fiat currency" is the initial driver of growth-dependence--I still would not see how to reduce growth-dependence without deemphasizing stock markets?

***

2. Can someone please explain whether or how bitcoin and "free markets for money" and "non-fiat currency" views are all compatible?

Jim says he personally does not argue for non-fiat money so much as for free markets for money. This seems to me like the "bitcoin" theory. Both of these seem to me diametrically opposed to a "gold standard" or "non-fiat-currency"--which demand that currency be stabilized by being physically backed. And yet, PeakProsperity seems to be a hotbed for both directions. Some people also are saying that bitcoin is more secure than gold. I do not fully understand any of these theories. I would like to know more. However, I am prepared to argue that bitcoin is certainly not equal to gold and not a place to hold your life savings.

(A few of many existing PeakProsperity bitcoin discussions: Gold vs. Bitcoin (2013) -- Bitcoin Architect: Everything About Bitcoin (2013) -- Why the Dollar and Bitcoin Keep Rising (2017).)

***

3. Re the "lack of deflation," my response is simply: so long as we emphasize stock markets, then according to economics 101, we must usually have some inflation or we will have a severe collapse.

Jim seems to think that the fact that governments discourage deflation shows that deflation is a primary cause of something. But if so, what is deflation causing, how is it causing this, and why are governments discouraging it? I do not quite understand what Jim is saying.

Meanwhile, I would simply say that the fact that governments discourage deflation is merely a demonstration of the primary need to feed the stock market.

Jim H wrote:
https://www.advisorperspectives.com/dshort/updates/2017/02/16/a-long-ter... Note how deflation.. depicted in the chart (link above) by periods of red (below the line) has been essentially eradicated.  The stock market can and does go down... money though will not be allowed to shrink.  Money is the dog.

In reply, please consider this. "Inflation is invisible taxation." (Click to google if unfamiliar with this concept.)

A primary reason for inflation is to subsidize the stock market. Because, by itself, the stock market is non-viable. In school, we are taught that stock markets benefit the economy. But if so, why cannot stock markets merely add their so-called benefit, without being subsidized? The fact is, the average "index stock" must usually increase in value. Otherwise, many investors will sell. This starts a chain reaction resulting in a crash. Obviously, it is extremely difficult for any business--let alone most businesses--to increase profits consistently. Therefore, every government targets a certain degree of price inflation and population growth. Therefore, it is much easier for most companies to do better most years--simply because there are more customers who also are forced to pay higher prices. But ultimately, of course, the whole world must pay in wars, depletion of resources and financial crashes. I.e., non-sustainability.

Please note, there is nothing factually "unproven" or even "unconventional" about my description of stock markets. I am merely reiterating what any economist or stock broker will tell you. Just without the usual rose-colored slant. Many people like this system. It favors the super-wealthy and risk-takers. But it is certainly not honest or fair. In addition to the ultimate long-term destruction--even in the short-term, this stock-based system forces everyone either to risk their money in investments--or, if they refuse to take invesment risks, then before they retire, they even more certainly will lose over 1/2 the value of their life savings to inflation.

Conversely, according to economics 101, deflation and population reduction are intolerable to stock markets. So long as stock markets dominate the economy, calling for "allowing deflation" or "reducing population" is calling for that which is financially impossible. It would cause a crash.

***

4. Please note, I am not suggesting that there is any chance that the US government might ever deemphasize stock markets!

In the USA, political initiatives to deemphasize stocks are politically and culturally impossible.

It might be possible, however, for non-stock corporations to develop strategies which enable them to out-compete stock-based corporations. Thus gradually for stock markets to become deemphasized via the laws of competition. This is not very likely to succeed. Nonetheless, I am attempting to develop a non-Wall Street alternative to Facebook.

Also, if other countries such as China or Greece (sure losers in the stock game) were to introduce bond-based economies--then every time there is a cyclical stock market crash, this eventually could inspire gradual changes in the USA. Or--perhaps more importantly--if there is a complete breakdown of the USA--the existence of a better system in another country might inspire constructive reconstruction instead of despair and anarchy.

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Krystof_Huang
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B. Benefits vs. Risks of Stocks vs. Bonds.

davefairtex wrote:
"Outlawing equity as a means of raising money for companies means you can't have a small company with multiple owners each of which contributes money for the initial startup..."

Thank you, Dave, for the opportunity to clarify this issue. This is a frequent misunderstanding which I was unable to discuss in my over-lengthy article.

Firstly--my suggestion is to tax stock markets. (Or at least to stop giving them more federal tax incentives than are given to corporate bonds.) This means limiting the ability of so-called "publicly traded" aka "listed" aka "New York Stock Exchange" corporations to cripple or "hold hostage" the US economy. Stock markets should be deemphasized until their outcomes are like the outcomes of football games and poker tournaments--perhaps highly profitable but never seriously affecting the US economy! This has no effect on the "private corporations" or pre-market startups--which Dave mentions.

Secondly--my suggestion makes it easier for Dave's "private corporation" or small startup to compete. Because they are then not struggling against huge publicly-traded mega-corporations. This is Wall Street vs. Main Street! Dave is talking about Main Street corporations. As everyone knows, they are being driven towards extinction by Wall Street corporations.

(Incidentally, a "private corporation" can become huge. Such as Koch Industries or the Trump Corporation. That is not part of this discussion. Except to say that limiting stock markets does not limit opportunity.)

Thirdly--there are new ways of funding, such as "crowd funding" and "customer sharing." My business model for a "Pro-Sustainability Social Network" includes semi-random profit-sharing with customers. This does not obligate customers to invest time or money. Nor does this obligate me to make any payments to any specific customer. Instead, this obligates me to place some profits in a discretionary fund which I must spend as desired by some customers--and to make all payments transparent. This encourages both "crowd funding" and customer loyalty. This eliminates debt burdens. This also eliminates miles of legal red tape. This also flips the advantage away from Wall Street and in favor of Main Street.

davefairtex wrote:
"Martin Armstrong is fond of saying that it wasn't a stock market crash that caused the depression - it was the bond market crash that did so..."

Thank you, Dave, for another important issue. Martin Armstrong's example actually proves an important point in section 4 of my full-length article. As follows.

Also, we saw numerous bankruptcies and near-bankruptcies of US blue-chip corporations, insurers and regional governments in 2008: California, General Motors, Goldman Sachs, AIG, Lehman Brothers, etc., etc. This has proven that corporate and municipal bonds are now like wooden fire escapes: only safe just so long as there is no great need to be safe. Investment-grade corporate bonds should be safe. If not for our over-emphasis on stock markets, most bonds would be safe. Currently however—so long as the stock market has the power to trigger a cascade of blue-chip bankruptcies—then allocating anything for corporate or municipal bonds primarily means that you can allocate less for maximum-safety gold or US Treasury TIPS.

I.e.--let's complete the timeline started by Martin Armstrong...

  • 1929 -- stock market crash
  • 1931 -- bond market crash
  • 1933 -- bank run (savings banks crash)

It is obvious that the bank crash and the bond market crash were both caused by the stock market crash--which came first. Also, quoting from section 1 of my article:

Of course, stock and bond markets both have ups-and-downs. However, when blue-chip stocks fall, we sell. When individually-held investment-grade bonds fall, we hold to maturity. Thus—in addition to stocks requiring infinite and impossible growth—stocks inevitably magnify instability while bonds generally regenerate stability.

I.e.--masses of people do not sell investment-grade bonds--nor do they close savings accounts--unless bonds and savings are totally unsafe--which can only happen because of a massive stock market crash... exactly as happened in 1929 and almost-happened in 2008. And next time, Trump on the right and Bernie on the left both promise to refuse future bailouts of Goldman Sachs et al. They might be correct--things might work out. But might not. It is all theory and conjecture. Do you want your nation and your life savings to depend on theory and conjecture? Furthermore--perhaps the federal government is unable to do a bailout. We just don't know. What we do know is that it is obviously not "safe" for an entire economy to depend on stock markets!

davefairtex wrote:
"We had a stock market crash in 1987.  No depression.  We had another one in 2001.  No depression."

It is correct that in 1987 and 2001 there was no depression--and also no crash of bond markets--and also no run on banks. Because, obviously, these crashes were not that severe. The above statement seems to imply that there is no connection between a depression and a stock market. But I doubt that anyone here means to say that. Perhaps this is an accidental misstatement?

davefairtex wrote:
"You can see we avoided a bond market crash in 2008 because the spike was relatively brief.  There wasn't enough time to clear out all the debt.   We most likely have another spike in our future, because all that junk debt is still there, and it needs to go away."

I think we partly agree here:

  • Junk bonds are dangerous!
  • If too many junk bonds, big danger for the whole economy!

However, I would add the following:

  • Junk bonds make it easier to get funding.
  • Junk bonds can inspire rapid economic growth.

And I also add the following:

  • Junk bonds stocks casino games. Take serious risk. Maybe get serious reward. Maybe lose all. No guarantees. [Equivalency symbol: ≈ ]
  • A little bit can be shrewd or fun or harmless.
  • Too much = big risk to entire economy = big risk to entire planet.
  • By what right to we force this risk on everyone and the planet?
  • Isn't this obvious?

Junk bonds might have the same power as stocks for rapid initial growth. An overheated junk bond market might also be easier to control than an overheated stock market. Some experts have credited the 1980's junk bonds of Micheal Milken as a primary factor for the financial boom of the 1990's. Quoting from Wikipedia:

His critics cited him as the epitome of Wall Street greed during the 1980s, and nicknamed him the "Junk Bond King". Supporters, like George Gilder in his book, Telecosm (2000), state that "Milken was a key source of the organizational changes that have impelled economic growth over the last twenty years. Most striking was the productivity surge in capital, as Milken...and others took the vast sums trapped in old-line businesses and put them back into the markets." (Additional interesting pro-Milken arguments can be found at his website: http://www.mikemilken.com/myths.taf )

So--to whatever extent stock markets are needed--this need might be met with junk bonds. In addition to possibly being more easy to control, junk bonds are a one-time thing per buy or sell. Stocks markets, on the contrary, permanently burden the corporations with grow-or-die desperation--and burden the entire planet with infinite-growth-dependence. Again quoting from the full version of my article:

...the Club of Rome seems to wish to deemphasize equally stocks and bonds, in favor of unspecified “new methods.” This will be exponentially more difficult than merely favoring bonds—already familiar to all and favored by many. Most strangely, they seem to suggest ending tax deductions for bonds but not for stocks–the opposite of what anyone who protests stock markets would propose.

More fundamentally, the Club of Rome seems to imply that emphasizing growth-dependence is a choice made by corporate executives and investors, and which choice is merely facilitated by the two relatively passive and slightly naughty methods of stocks and bonds. If so, this is amazingly naïve. Firstly, a stock market corporation has no choice but to chase growth or die. The stock market is not the hogtied masochist in this relationship, but is the sadist with the whip. Secondly, an individual investor who buys a bond, a.k.a. “fixed-income security”—unlike the stock investor—is not demanding eternal infinite growth but a one-time fixed return.

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Michael_Rudmin
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Huang: all extensions of AW social archetype

Krystof Huang:

I think that part of the answer is that enablers ARE drivers, but what one or another might see as drivers vs indicators vs enablers are more likely higher and lower on the chain and simply not being recognized as such.

One of the reasons the stock market AND lending are so ubiquitous, is that these things empower a country to war more effectively; and since the winner of the war can set the new rules of the vanquished (or kill, or rape, or pillage) at their pleasure, then this empowers the conquest of humanity by the Bank and Market.

But that is an extension of a lower function.

I have a psychologist uncle who long ago studied anthropology, and he commented that our society is an Agricultrural Warlike society; that there are many kinds of societies throughout the world, but that all the recognized nations nowadays are Agricultural Warlike.

I think the principle of AW is that you engage in agriculture to increase your yields; with the increased yields you proliferate as fast as possible; when your environment degrades to the point that starvation would ensue, you go viking: conquer your neighbors, take their stuff, convert their land to agriculture, go on.

Interestingly, though we know "viking" as going on the warpath and pillaging, the word would seem to be related to the Lithuanian / IndoEuropean root "Vaik", which means to walk.

In other words, it's the walk of the lemming.

So to me, the root of our problem is that our entire society is geared to waste and warfare from its very roots. And any society that leaves the path makes itself fodder for those that DON'T leave the path.

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Jim H
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Bonds and a, "fixed return".

I think you are still missing it Huang... what?  The exponential nature of money at interest. 

You said,

Secondly, an individual investor who buys a bond, a.k.a. “fixed-income security”—unlike the stock investor—is not demanding eternal infinite growth but a one-time fixed return.

If a bond owner lives on his fixed return.. in other words consumes it, then it's fixed.  But.. if a bond owner re-invests this return into more bonds.. then guess what!  It's an exponential system.  Money is an exponential system because of the interest - our money system is the thing that demands eternal infinite growth.  A system that grows by a fixed percentage each year is not a linear system - it's exponential.  

      http://www.resilience.org/stories/2013-09-15/albert-bartlett-on-message-...

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confusing symptoms and root causes

I'll be brief.

You imagine that the 1929 stock market crash caused the '31-32 bond market crash, and the subsequent bank failures, which in turn caused the depression.  I believe you are wrong.  You are mistaking symptoms for root causes.  Stock market crash was a symptom, as was the bond market crash, and subsequent bank failures.  Root cause of all of it was too much debt.

Turns out, "too much debt" was also the cause of the expansion that preceded the 29 crash, as well as the housing bubble in 2003-2007.

Read about Hyman Minsky's financial instability hypothesis.  Mainstream economists were shocked by 2008 (because they don't acknowledge the role of banks, debt, and money in their economic models), but Minsky would not have been, since 2008 was just the very predictable next step after the burst of ponzi lending that happened from 2003-2007.

http://www.economicshelp.org/blog/6864/economics/financial-instability-hypothesis/

I encourage you to go read Minsky and then come back and we can talk further.

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Stock Markets = WMD's of Economic Warfare?

Michael_Rudmin wrote:
...One of the reasons the stock market AND lending are so ubiquitous, is that these things empower a country to war more effectively... all the recognized nations nowadays are Agricultural Warlike. I think the principle of AW is that you engage in agriculture to increase your yields; with the increased yields you proliferate as fast as possible; when your environment degrades to the point that starvation would ensue, you go viking: conquer your neighbors, take their stuff, convert their land to agriculture, go on...

I largely agree with Michael. The world today is engaged in perpetual economic warfare. Of which the major weapon is the stock market. Growth and "dog-eat-dog" competition are fundamental premises of stock markets. This "normalizes" the warfare, making it not only unavoidable, but "business as usual."

Aside from deemphasizing stock markets (which is extremely unlikely)--a more doable step might be for China and the USA jointly to sponsor a global treaty that defines any overall national trade imbalance greater than 10% to 20% as an act of war--unless done with permission. This might help high-growth nations to have slow-stable growth, lasting growth, diversified growth. I.e., less addiction to growth, less hatred from the loser-nations for the winner-nations, less fear that other emerging nations will eventually use economic warfare to dismember China and the USA.

(Also then less potential for addiction to a mono-economy, such as based on oil. A mono-economy is well-recognized by economists to be generally destructive to the sustainability and political stability of Russia, Venezuela, Saudi Arabia, etc.)

Of course, I doubt any of this will happen. Whether liberal or conservative, every politician talks about "bringing jobs back to America." Meanwhile, hardly if ever giving lip service to the financial health of the planet as a whole. Meanwhile, the Chinese and Mexican workers are not exactly wealthy. Each nation simply wants to destroy other nations economically. Nobody wants to build a "sustainable" global economy.

However, please point out to your uncle that nuclear missiles are not the same as spears. Similarly, stock markets are like the doomsday weapons of AW. Please note:

  • The kings of ancient times--and the owners of Main Street businesses--are human beings who can choose from among a substantial range of ruthlessness vs. community spirit.
  • In contrast, a Wall Street or "public stock" corporation must emphasize growth and shareholder profits. To do otherwise is to risk law suits, plummeting stock values and bankruptcy.
  • Also, a Wall Street corporation is required to transfer wealth out of local communities and into Wall Street.
  • Also, a Wall Street corporation is potentially immortal. Even if, for example, Woolworth's or the A&P dies--it will be replaced by Target, Walmart, Grand Union, Price Chopper, etc. All of which have no choice to disobey the "grow or die" agenda. All of which also easily overpower the small Main Street business. All of which must survive by siphoning money out of small communities. And use this to feed the international Wall Street investors. And which ultimately ends up hoarded by the most wealthy investors--who receive special discounts, can afford the best hedge fund managers, etc.

Alexander the Great conquered the world. He then spent lifelong efforts to control the conquered people. Unavoidably, after his death, his empire collapsed.

In contrast, every Wall Street corporation and CEO will be succeeded by a similar corporation and CEO. Also, corporations effortlessly are assumed to own their wealth greater than many nations, their ability to hire and fire entire populations, and to lobby governments to change laws. Corporations also legally have human rights. But even when they start wars or commit mass murder, there is usually nobody to put on trial.

Hollywood has made many movies about ruthless, immortal machines dominating humanity: War Games, The Terminator, The Matrix, etc. Meanwhile, we already are dominated by ruthless, immortal machines called "Wall Street corporations." They do not have computer brains. They are run by humans. However, these humans are chosen so as mechanically to follow "profit first" rules. The constant competition with similar corporations also ensures that, on average, the surviving variations of corporations are those which best follow the "grow or die" agenda.

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The primary question: are stock markets just another investment?

Jim H wrote:
If a bond owner lives on his fixed return.. in other words consumes it, then it's fixed.  But.. if a bond owner re-invests this return into more bonds.. then guess what!  It's an exponential system.  Money is an exponential system because of the interest - our money system is the thing that demands eternal infinite growth.  A system that grows by a fixed percentage each year is not a linear system - it's exponential.  resilience.org/stories/2013-09-15/albert-bartlett-on-message-about-exponential-growth-to-the-end/

Jim, you have brought up the most fundamental question! Are stock markets fundamentally "different" from other investments? As you imply: no matter the investment, we can always re-invest--either in something the same or similar. I have similar arguments with all my friends. They say, "Rich people will always find ways to make money. It is all the same."

My reply to my friends is: "No! It is not the same! Without stock markets, there is the same opportunity to make US$10 million. But without stock markets, it is much more difficult to hoard absurd amounts such as US$1,000 million (billions). Without stock markets--there is also less opportunity for children and great-grandchildren to pay hedge funds to make them more billions without doing anything. There is also less opportunity to force governments to bail-out "too big to fail" banks. And to modify laws so as to favor billionaires and grow-or-die corporations. Above all, the grow-or-die stock market is like a pack of barking dogs chasing humanity over a cliff. Without the stock market, we might not change course--but at least we would have a choice."

Incidentally, how did I first start thinking in this direction? Back in the 1980's, one of my college text books said, "inflation is invisible taxation." Also around that time, I saw Ray Kroc, founder of McDonald's, recounting his life story on television. He said something like this. "When we had our IPO, I went to bed one night, then woke up with more money than I had ever imagined to exist." Later, I became an avid investor. Meanwhile, however, I continued to think about the fact that most billionaires do not become billionaries by selling billions of hamburgers or otherwise "earning" billions of dollars--but by convincing millions of people to invest in their stocks. Then around 2010 I realized that the stock market and overpopulation are the two main drivers forcing humanity over a cliff. I do not mention this as proof of anything. But merely because it may start some people thinking. Just as Ray Kroc started me thinking.

Jim, there seems to me a huge difference between the "requirement" of stock markets to grow--vs. the "possibility" of bond investors to reinvest. This is similar to an army of psychopaths shooting as many people as possible--vs. individuals who only shoot when attacked by psychopaths. A non-Wall Street company might sell bonds for expansion. However--except for direct competition where expansion begets expansion--nothing fundamentally "forces" bonds to be sold. A non-Wall Street company is free not to expand--due to risks--ethics--or if just "rich enough" or "old enough" and not wanting the hassle. In contrast, a Stock Market corporation must constantly "grow or die." Every year, every Wall Street CEO must ask, "How are we going to grow this year?" Ask any economist or stock broker! Listen to any financial television show!

Often you will hear something like this, concerning nations as well as corporations: "China is still growing at a much higher pace than most countries. However, China's rate of growth is not as high as before. This is causing huge problems. The shock waves will be felt around the globe."

Think about it. Modern civilization has all the knowledge to grow food and survive in comfort. "Growth" obviously makes profits easier--but obviously, this is temporary. Growth should not become like a drug addiction to which we are "physically dependent"! And now, we not only depend on "growth"--but there must be "enough growth"--and even "growing growth." This is obviously just like a drug addiction and also obviously required so long as we have large stock markets.

Before having a large stock market, China was able to reduce its huge overpopulation. In the 1970's, Time/Life featured a story, calling it something like, "The most neglected news story of the century: China defusing the population time bomb." Now, China has recently abandoned its population control efforts. Also, some of the same economists who applauded China for "defusing the population time bomb"--today are applauding China for "modernizing its economics." This includes Fareed Zakara, who is strongly in favor of "stopping climage change" and a member of the Davos global economic conference. I.e., even some of the so-called  "progressive" leaders are now all in favor of "infinite population growth." That which is mathematically unsustainable--and the most dangerous thing for the environment--is now endorsed by people who are the most highly trained in mathematics--and who are the most pro-environmental--simply because it is required by stock markets.

Today, many people are thinking, "Hmmm, maybe we must reduce our dependence on fossil fuels?"  Meanwhile, nobody dares to think, "Hmmm, maybe we must reduce our dependence on stock markets?" Just as in the classic tale, "The Emperor's New Clothes," nobody dared to think, "Hmmm, maybe the emperor is stark naked? No, can't be. Not possible even to think that."

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Krystof_Huang
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Debt can cause stock market crashes--but so can stock markets.

davefairtex wrote:
You are mistaking symptoms for root causes... Turns out, "too much debt" was also the cause of the expansion that preceded the 29 crash, as well as the housing bubble in 2003-2007... Mainstream economists were shocked by 2008 (because they don't acknowledge the role of banks, debt, and money in their economic models), but Minsky would not have been, since 2008 was just the very predictable next step after the burst of ponzi lending that happened from 2003-2007... economicshelp.org/blog/6864/economics/financial-instability-hypothesis

Dave, thank you for this well-written reference. According to this reference, Minsky seems to strengthen what I am saying:

  • Minsky says stock markets are naturally unstable and crash-prone.
  • Minsky seems to emphasize "over-exuberance" (not debt) as the cause.

Meanwhile, like most economists, Minsky probably never questioned the existence of stock markets. According to this blog reference, Minsky instead insisted on strong regulation. Meanwhile, most Republicans (and perhaps Jim H here) seem to insist on "free markets" and deregulation. Furthermore, even for Minsky supporters, this blog references the following complications.

The_Blog_About_Minsky wrote:
  • Limitations of Financial Instability Hypothesis:
  • Government regulation of financial markets is often more difficult in practise than theory. Financial firms have ways of avoiding government regulation.
  • Regulators may fail because they get caught in same ‘irrational exuberance.’
  • Financial instability is not the only cause of the 2008 crisis. For example, we had a prolonged growth in total debt levels, there was evidence of global imbalances, with large current account deficits in US, UK and Europe.

Nonetheless, I largely agree that debt has been a primary initiator of stock market crashes.

  • In 1928, street sweepers and millionaires alike were able to buy stocks with pennies on the dollar.
  • In 2007, banks were illegally using the money of depositors to gamble in derivatives. (hblr.org/wp-content/uploads/2014/09/Derivatives-and-Credit-Crisis.pdf.) Derivatives are essentially "leveraged" investments--thus amounting to the same thing as the lax "margin" or "debt" requirements in 1928. Not to mention "illegally using other people's money" also being an extreme form of debt. Banks also made illegal mortgage loans because they could sell these loans to "aftermarket" lenders. So once again, debt was certainly significant.
  • In addition to spending $2 trillion on an illegal war, Bush II reduced the budget for FDIC teams to monitor the banks.
  • Banks today are almost ignoring the Dodd-Frank laws against the derivative speculation that triggered the 2008 crash. They hire expensive lawyers to challenge Dodd-Frank. Even when these court battles are certain to lose--banks can continue to break they law because their court cases are able to delay implementation. thenation.com/article/how-wall-street-defanged-dodd-frank
  • The mega-banks also hire lobbyists who insist that mega-banks must "grow or die" via derivative speculation. Or else, the mega-banks claim, US banks will be at a competitive disadvantage. (Even though Canadian banks, like Toronto Dominion, aka TD Ameritrade, were highly successful without high-risk speculation.)
  • Most Republicans vow to repeal Dodd-Frank.
  • Democratic leader Hillary refuses to release her speech to Goldman Sachs. Did she also promise to neutralize Dodd-Frank?

Therefore, if we elect enough angels to the US Congress--and pray that every bank CEO will obey the laws without being monitored--then perhaps the stock market never needs to "crash." However, I could list other reasons for a crash than "debt."

In any case:

  • My thesis is not primarily about whether stock markets crash--but whether they are sustainable--and whether they can allow the overall economy to become sustainable.
  • Nor do I agree that it is necessary to label any cause as "primary." I am simply saying that the stock market requires growth. Therefore, so long as we have large stock markets, we have unsustainable growth-dependence.
  • If, like most people, you simply think "growth is good," then perhaps we simply cannot agree. There are numerous organizations and documentaries dedicated to convincing us of the need to be free of growth-dependence. If they can not convince you, then I do not expect to convince you. (The Four Horsemen — Mother Caring for 7 Billion — GrowthBusters.org — FEASTA.org — ClubOfRome.org.)
  • However, if you agree what the world needs to reduce growth-dependence--then I do not see how you can disagree that the world needs to reduce stock markets. To me, this seems as obvious as saying that if you want to minimize alcohol, you need to minimize whisky.
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Summary re "Do Stock Markets Make Sustainability Impossible?"

Thank you all for your contributions to this discussion about my article. After several weeks, no one seems to be replying further. So I will summarize what seem to be the two most important suggestions for improving my article.

  • My article needs to become more clear that it assumes agreement with "ending growth addiction." It is futile for me to attempt to argue about the basic principles of sustainability--on top of arguing against the stock market on the basis of sustainability.
  • As Jim H has also made clear, I need to argue more clearly that there is a fundamental difference between the stock market and all other forms of investing, with regards to sustainability. I now will make one more attempt to do so...

In his last post, Jim H referenced an excellent 2013 article: "Albert Bartlett: On message about exponential growth to the end."

Albert Bartlett might have been another obscure physics professor had he not put together a now famous lecture entitled "Arithmetic, Population and Energy" in 1969. The lecture, available broadly on the internet, begins with the line: "The greatest shortcoming of the human race is our inability to understand the exponential function."  The logic is surprisingly simple and irrefutable. Exponential growth, which is simply consistent growth at some percentage rate each year (or other time period), cannot proceed indefinitely within a finite system, for example, planet Earth. The fact that human populations continue to grow or that the extraction of energy and other natural resources continues to climb does not in any way refute this statement. It simply means that the absolute limits have not yet been reached...

His favorite shortcut is the doubling time, the time it takes to get to twice the original number at a constant rate of growth. The formula is 70 divided by the percentage rate of growth per year (or other period). Just a 2 percent growth rate doubles the rate of use of a resource or the size of world population in 35 years. Actual world population growth is about 1.2 percent per year today, which seems benign; but, it implies the next doubling within 58 years to 14 billion. (U.N. forecasts project world population will reach 10 billion by 2070–57 years from now–and continue to grow through 2100.)

This Albert Bartlett article also mentions one of my own primary references, "The Limits to Growth," published in 1972 by The Club of Rome, as being related to Bartlett's thinking. Similar to Albert Bartlett, my article also ignores the short-term facts and figures used by most economists, and focuses instead on the simple mathematical impossibility of any system to be lasting if it depends on never-ending growth. Such as, above all, the stock market.

If Jim H agrees with Albert Bartlett, then we have substantial common ground. However, Jim H seems to believe there is no difference in sustainability between stocks and bonds--and that inflation of money is more damaging than either. However--in my opinion--in order to prove the huge differences in sustainability, we only need to consider the following two facts.

1. A huge difference in the degree of growth between stocks vs bonds vs inflation. The growth potential for stocks is obviously much higher than bonds. Otherwise, no investor would buy stocks. From 1929 through 2009, the average annual returns were 5.8% for US investment grade corporate bonds vs. 11.8% for US stocks--a difference of 6% (finance.zacks.com/stock-vs-bond-returns-4603.html). According to Bartlett's 2% formula, this implies that every 35 years, a stock-based economy generates 2 x 2 x 2 = 8 times more growth than a bond-based economy. For 70 years, this might become 8 x 8 = 64. I.e., if with a stock-based economy we have 35 years before planet Earth reaches a "point of no return"--then with a bond-based economy we might have 35 x 8 = 280 years. Obviously, a bond-based economy would give us far more time to change our destructive habits!

Of course, this is an over-simplification, not to be taken literally. By other reckoning methods, average annualized growth is 7% for stocks and 5% for bonds. Also, there is not necessarily a direct correlation between investment returns and total industrial activity. Nor would bonds in a bond-dominant economy behave the same as bonds in a stock-dominant economy. Nonetheless, the basic mathematical laws are undeniably correct in showing the vast difference in the "growth-reliance" and "growth-pressures" of bonds vs. stocks. Also I repeat: the very reason that stocks are able to exist, in spite of their higher risks, is because of their promise of higher growth rates.

Meanwhile, the average rate of US price inflation for 1919 to 2014 was 3.22% (inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp). Albert Bartlett showed that this was enough to be highly destructive and unsustainable. However, the price growth of 3.2% is not nearly as vicious as the stock market growth of 11.8%. I would also argue--and indeed any economist would assert--that without somewhat consistent inflation in this general range, the stock market would collapse. I.e.--regardless of whether the stock market is "the tail or the dog"--it is obviously impossible to reduce inflation, and likewise impossible to be sustainable, unless we deemphasize stock markets. Until, like poker games and lotteries, stock markets no longer are large enough to cause the US economy to crash every time that US stock markets crash.

2. More importantly: it is simply illegal, unfeasible and impossible for a stock market corporation to stop seeking maximum growth. This is by far the more important difference between stock markets and bond markets. This is the main point of my article. Even if a bond-based economy somehow ended up with a similar average growth rate as a stock-based economy--the nature of bonds does not require growth! A "Main Street" business can say at any time, "We do not like the available means of growth." Because there is too much cost to the environment. Or too much cost to the community. Or they are simply "wealthy enough." 

Conversely, a "Wall Street" or "Stock Market" corporation is simply not able to deemphasize growth! Firstly, the executives of Stock Market corporations are legally required to serve the financial interests of shareholders. This means doing anything legally possible to increase share prices. Secondly, the value of the company is in the popularity of the shares. This popularity is based on growth potential. This obviously will plummet if they cease to seek growth.

Any stock market--and any corporation that is publicly traded on the stock market--and any nation and any planet with a stock market based economy--is always under overwhelming pressure to seek maximum short-term growth. As anyone can verify by listening to any investment program or asking any stock broker.

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Krystof_Huang wrote: I am

Krystof_Huang wrote:

I am very interested in receiving discussion and feedback on the following ideas in my article, "Do Stock Markets Make Sustainability Impossible?" Here is a paragraph from each subsection. (For full article see Vermocracy.Org.)

  1. Unless stocks are deemphasized and bonds emphasized, it is ludicrous to assume that solar energy—or anything else—can create sustainability.
  2. Protesting stock markets is as important as protesting air pollution—but nobody is doing so.
  3. The New York Stock Exchange is not an original or necessary institution for capitalism, democracy, Christianity, America or free enterprise.
  4. There is no magical law that requires stock markets to have happy endings.
  5. Overpopulation is not mandated by religion so much as by stock markets.
  6. No movement is making the essential moves against Wall Street to make sustainability possible.

1. Unless stocks are deemphasized and bonds emphasized, it is ludicrous to assume that solar energyor anything elsecan create sustainability. Of course, it benefits the environment to develop non-polluting energy sources. However, overall “sustainability” must include financial stability. Otherwise, we face ever-repeating wars and stock market crashes and consequential ever-increasing populist demands to dismantle environmental protections. From about 1900 to 2000, we had a very inexpensive source of energy called “oil.” The personal computer also increased productivity several times over. All with no net increase in financial stability. In contrast, the ancient Hawaiians perfected fish farming. Thus, they primarily just needed to eat fish and then go surfing and dancing. Also, ancient Hawaiians were never told that they must eat more fish every year. That would have sounded ludicrous to everyone. Today however, we so-called modern people are told by most economists and politicians that we constantly face ruination, not only if productivity fails to grow, but even if the rate of growth fails to grow. At the crux of this naked inanity are stock markets.

2. Protesting stock markets is as important as protesting air pollutionbut nobody is doing so. Of course, there has been an “Occupy Wall Street” movement. However, the Wikipedia article on OWS mainly lists protests against some of the inevitable consequences of overemphasis on stock markets: “wealth inequality, political corruption, corporate influence of government.” There seems no suggestion to deemphasize stock market investing. With no intellectual leaders speaking out against stock marketsit is obviously not feasible for political leaders to do so. Bernie Sanders, self-proclaimed “democratic socialist,” probably is the most harsh critic of Wall Street ever to make it to the US Congress. Every little bit helps. However, his most radical proposal is a small tax on high-frequency trading. Sanders has never proposed to reduce the general tax discount on stock market investingnor proposed a tax discount for bond investingnor criticized our dependence on infinite growth.

3. Contrary to popular assumption: the New York Stock Exchange is not an original or necessary institution for capitalism, democracy, Christianity, America or free enterprise. This article merely points out that modern society is dominated by corporationswhich are funded by stocks and bondsand that long-term stability and peace are possible if and only if we merely deemphasize the stocks! Some people will instinctively respond that to deemphasize stocks is somehow to advocate “communism” or “totalitarianism.” This is obviously not true. Here are the facts.

  • Bonds are not communist. The US government and most US corporations sell bonds.
  • You can buy books on the “all-bond portfolio.” This is a respected investing method.
  • China and Russia are communist or totalitarian or bothand have stock markets.
  • Washington, Jefferson and Franklin were not communistsand had no stock market.
  • Adolf Hitler was propelled to power by the stock market crash of 1929. Stock markets cause totalitarianism. They are not a cure for it.

Others will respond, “This is a free country. If you do not like stocks, you are free not to buy them.” Ironically, this is exactly what this article argues should be true. If the stock market game were deemphasized to the level of a Las Vegas casino, then we might all choose to play it or ignore it. Unfortunately, that is clearly not our situation.

  • Unlike casino games, every news show frets about stocks. Because they affect everyone.
  • The stock market crashes of 1929 and 2008 caused millions to lose their jobs and possibly their life savingsregardless of whether they bought stocks.
  • Walk in to any office of any stock broker and ask what will happen if you do not invest? The answer is that more than 1/2 the value of your savings will be lost to inflation.
  • Walk in to any university and ask any economist, why do we have inflation? The answer is that we must have inflation to support the stock market.
  • If a prostitute is forced to pay 1/2 her income to a pimp, she is said to be “owned” by the pimp. Similarly, everyone is somewhat “owned” by the stock market.
  • For more thoughts in this direction, Google the phrase: inflation is invisible taxation.

4. Contrary to most financial experts: there is no magical law that requires stock markets to have happy endings. Most financial gurus will advise a never-sell buy-and-hold strategy for stocks. Also, for those who desire greater safety, large investments in corporate or municipal bonds. This is in spite of the ubiquitous refrain by the same people: “past performance does not predict future performance.” Buy-and-hold is like a religious faith based entirely on the performance of US stocks in the previous century. This ignores what happened in 2008 and what has happened to most non-US stock indexes since 2008. Also, we saw numerous bankruptcies and near-bankruptcies of US blue-chip corporations, insurers and regional governments in 2008: California, General Motors, Goldman Sachs, AIG, Lehman Brothers, etc., etc. This has proven that corporate and municipal bonds are now like wooden fire escapes: only safe just so long as there is no great need to be safe. Investment-grade corporate bonds should be safe. If not for our over-emphasis on stock markets, most bonds would be safe. Currently howeverso long as the stock market has the power to trigger a cascade of blue-chip bankruptciesthen allocating anything for corporate or municipal bonds primarily means that you can allocate less for maximum-safety gold or US Treasury TIPS.

5. Overpopulation is not mandated by religion so much as by stock markets. Obviously, reproduction is essential for any species. Obviously, nature must create an off-switch for reason wherever reproduction is concerned. It is therefore understandable that even the most rationally-trained people are often bizarrely self-contradictory in opposing the clear mathematical imperative to stabilize the global human population. The Roman Catholic church has gradually been persuaded by scientific reasonsuch as that the earth is not the center of the universe. However, a religion can not be expected to abandon tradition for reasonwhen those supposedly representing “reason” are fanatics for tradition. It is not priests so much as economists who maniacally insist on infinitely more children. Even when the ignorance required to believe in “infinite population” is far more obvious than required for an earth-centered universe. In contrast, the Bible teaches that God created every species. Therefore, to destroy any species is to declare war against God. Not to mention the extinction of dozens of species every decade due to human overpopulation. Also, if all Christians are one family and all Muslims are one family — as both of their scriptures teach — then before having a second child, all parents should at least pay for the education of another child who is living among garbage.

6. No movement is making the essential moves against Wall Street to make sustainability possible.

  • There is what I call the “High Plains Drifter” initiative. This means firstly, for one reputable economist to write one book arguing that capitalism has a future if and only if stock markets are deemphasized. Secondly, for the leaders of one underdeveloped or “outsider” nation to read said book and thus to start one new game on their own terms: encourage corporate bonds with national insurance programs and low tax ratesmeanwhile discourage stocksand thus become increasingly admired and imitated after each new, ever-inevitable global stock market crash. Russia, China, India, Greece, Cuba, Venezuela and Indonesia obviously should encourage bonds over stocks. Currently however, every nation stubbornly bellies-up to be fleeced at the anachronistic Wall Street gameregardless of whether they are a naïve novice, an atheistic anti-capitalist, a religious fundamentalist or even a chronic loser.
  • Or, a “Newman Age” could be upon us if some new promotional strategy somehow enabled stock market corporations in every sphere to be eclipsed by for-charity corporations à la Newman’s Ownwith a similar ferocity as My Space was eclipsed by Facebook. Currently however, there seems little significant interest in such projects.
  • Or, a “Fight Fire With Fire” initiative might mean for some nonprofit foundation to manage “socially responsible” brokerages, autotrading systems, trust funds and mutual funds. If 1/3 of the foundation’s resulting income were used to finance pro-environmental politicians and organizationswhile 2/3 were hoarded and reinvestedthis eventually might build up a war chest with which to enable environmentalists to cross swords with billionaires and corporations. Currently however, environmentalists must forever act like the Dutch boy with a finger in a dyke.

Ebay, Google and Facebook all had humble beginningsand yet, soon eclipsed stock market giants, even before joining the stock market. For the first time in history, it is no longer necessary to own steel mills in order to challenge the likes of Carnegie and Mellon. What is lacking today is only the will, not the capability. Each of the above “non-Wall Street initiatives” obviously could be accomplished within fewer than a dozen years by fewer than a dozen inspired individuals. This is probably a narrow window of opportunity and to which almost nobody is yet responding.

nice deatiled information. good work mate

Krystof_Huang's picture
Krystof_Huang
Status: Bronze Member (Offline)
Joined: Jan 7 2017
Posts: 25
Recap of this discussion, OWS discussion, "Savant List."

chrishaiden66 wrote:
nice deatailed information. good work mate

Thank you, Chris Haiden. I usually am against long repeats of previous messages--but a recap at this point seems appropriate. (I just hope nobody else does this, please.)

As I said, Jim H was helpful in challenging me to show more clearly that stocks are different from bonds. Dave Fairtex also brought up very important facts--such as that more money is already in bonds than stocks. This point was also brought up at my one other lively discussion at "OWS": http://occupywallst.org/forum/feedback-please-do-stock-markets-make-sust...

Perhaps I should add a "Frequently Asked Questions" section to the end of my article, briefly summarizing my responses to such issues.

Also, one person at OWS has posted a list of savants who potentially are already as "anti-stock market" as myself. However, I do not think any of them are. I have combined that list with what I have learned here at Peak Prosperity. The result is a "savant list" that seems to emphasize my original point: "Protesting stock markets is as important as protesting air pollutionbut nobody is doing so."

Here is my resulting "savant" list, as currently posted at OWS (April 5, 2017). I list each "savant" or organization which people have told me either agree with my message or disprove my message. I briefly explain that they seem to do neither.

I have not had time to study each savant in-depth. Anyone who finds possible errors, please "reply" with corrections. Overall however, if any of them believed as I do that the stock market is the core problem of the world, I believe they would make this crystal clear. I do not find any such indications.

1.) Albert Bartlett. The core of my thinking seems identical to his. Unfortunately, he died in 2013. I have no chance to ask him if his thinking applies foremost to the stock market? He seems rather to have focused on overpopulation. Quoting from a 2013 article: "Albert Bartlett might have been another obscure physics professor had he not put together a now famous lecture... "The greatest shortcoming of the human race is our inability to understand the exponential function." The logic is surprisingly simple and irrefutable. Exponential growth, which is simply consistent growth at some percentage rate each year (or other time period), cannot proceed indefinitely within a finite system, for example, planet Earth... Actual world population growth is about 1.2 percent per year today, which seems benign; but, it implies the next doubling within 58 years to 14 billion." (resilience.org/stories/2013-09-15/albert-bartlett-on-message-about-exponential-growth-to-the-end) (en.wikipedia.org/wiki/Albert_Allen_Bartlett)

In comparison, from about 1920 to 2010, inflation has averaged 3.2% annually, US corporate bonds 5-5.8% and the US stock market 7-11.8%. In addition to experiencing the greatest growth, the stock market is the one component which is unable to stop growing without causing global collapse. Furthermore, the stock market also uniquely REQUIRES inflation and population growth. If and only if we disconnect the economy from the stock market can we achieve consistently low or negative price or population growth without catastrophic collapse. Also, consequently, we thus might remove the pressure on everyone to invest in growth, which obviously generates a "vicious cycle." Currently--in contrast--anyone who fails to invest is certain to lose more than 1/2 the value of all earned income to inflation.

2.) The Club of Rome and "The Limits to Growth" of 1972. And follow-up reports, especially the 2016 summary currently posted at ClubOfRome.org: "A Finer Future is Possible." The Club of Rome largely agrees with the "anti-growth" thesis of Bartlett. However, The Club of Rome fails to focus on stock markets as the most obvious engine of unsustainable growth--also fails to suggest bonds as an obvious alternative to stocks--meanwhile suggesting a vague and utopian idea of "alternative investment methods." To top this off, they improperly blame "humanity" (en.wikipedia.org/wiki/The_First_Global_Revolution). Even though "humanity" has absolutely no choice except to grow-or-collapse so long as the economy is tied to stock markets. This is certainly not the same as my own focus against stock markets.

3.) Gold enthusiasts--and "The Four Horsemen" documentary--and the Peak Prosperity organization--and presumably many other groups with somewhat survivalist tendencies. I am somewhat improperly combining many disparate groups into the category of those who often recognize the need to stop growth-dependence--but who somehow decide that the way to do so is to return to the "gold standard" or to "non-fiat currency" or simply to reduce the level of debt. After lively discussions with a gold enthusiast at SeekingAlpha.com and with several members of the Peak Prosperity forum, neither I nor they seem able to understand each other. Clearly however, they somehow reject my notion that the stock market is a center of growth-dependence.

4.) "Mother Caring for 7 Billion" documentary and "Hooked On Growth" documentary. These are both very educational documentaries about the need to overcome growth-dependence. However, they both somewhat fail to make clear suggestions about doing so or to focus against the stock market. I emailed them both. I received a reply from Dave Gardner of GrowthBusters and "Hooked on Growth." He said that he liked my thinking, had never heard such ideas, and would discuss them with his associates. He has not replied further. Hopefully he is still thinking it over...

5.) Prof. Richard Wolff  seems to have a perspective that is potentially compatible with mine. I must attempt to contact him. Wolff is a self-avowed "Marxist," with which I do not agree. However, according to a Bill Maher interview, Wolff seems to claim a brand of Marxism that is not opposed to capitalism, so much as a method of removing the errors of capitalism. Wolff routinely denounces greed and the fragility of the stock market and of capitalism in general. However, I can not find any indication that Wolff considers capitalism separately from stock markets. Therefore, I doubt that he has considered whether capitalism might be greatly improved by deemphasizing stock markets. ("Stock Unpredictability": youtube.com/watch?v=qeylp9UPeNk) ("Marxian Economics vs Capitalism": youtube.com/watch?v=f8BUXLAu2ZA) (Bill Maher interview: youtube.com/watch?v=W-6nrAnDGyU)

6.) Former Greek Finance Minister Yanis Varoufakis seems to be a practical man who desires social justice. I should attempt to contact him. Varoufakis seems to claim to use both Marxist and capitalist economic theory, as well as to criticize them both (theguardian.com/news/2015/feb/18/yanis-varoufakis-how-i-became-an-erratic-marxist). However, in my brief readings about Varoufakis, so far I can find no evidence of anything like my idea that capitalism can be made sustainable by deemphasizing stock markets. Even though, in my opinon, Greece is one of the most obvious cases of a nation which should deemphasize stock markets and emphasize corporate bonds. In my opinion, Greece has no hope of winning the global stock market game. (reuters.com/article/us-ecb-qe-varoufakis-idUSKBN0MA0H120150314) (en.wikipedia.org/wiki/Yanis_Varoufakis)

7.) The website of Max Keiser seems to claim that current debt levels are dangerous for the stock market. This may be true. In any case, however, this is about standard short-term economics. This has no relationship to my criticizing the basic long-term unsustainability of the stock market. Indeed, in my view, the stock market itself inevitably causes increasingly excessive debt levels. A long-term solution can not be achieved by harping against debt levels. Sustainability might only be achieved by harping against the stock market itself. (maxkeiser.com/tag/stock-market-crash)

8.) Gar Alperovitz calls to "democratize the ownership of our economy"--such as with a "public option" in health care--and that "worker ownership, including worker cooperatives, can and should be encouraged through federal policy initiatives." These are not new ideas but typical socialist ideas similar to those of Bernie Sanders. I like most of these ideas. However, how can we possibly "democratize the economy" if we do not greatly reduce the size and influence of stock markets? Conversely, if we do reduce the size of stock markets, then sustainability can be achieved without convincing Americans to become socialists. I admit that it may be equally improbable to convince Americans to reduce stock markets as to become socialists. However, my opinion is that reducing stock markets--or at least reducing the tax incentives to invest in stock markets--is clearly the more logical priority.

On the other hand, I am delighted by the following Alperovitz quote. This seems almost identical to some of my own writings, except being better-written:

"""So long as large private corporations must meet stock market demands for ever-greater (often quarterly) profit increases, they must “grow or die.” This dynamic is diametrically opposed to the need to slow or halt overall growth and resource use in general. And it also runs directly contrary to the need to control carbon emissions in particular. Additionally, corporate political power commonly acts as a powerful obstacle to progress on other vital ecological issues—as we have seen in the United States with the failed climate change legislation and continued efforts to discredit climate change science.""" (garalperovitz.com/2015/05/need-new-economic-system) (humansandnature.org/economy-gar-alperovltz)

Nonetheless, I am befuddled by the following incongruities:

• A "stock market corporation" is officially labeled a "public corporation" but Alperovitz calls them "private." I suspect his use of "private" means "not government-owned"? If so, this is probably insignificant. But if not, I might be misunderstanding the paragraph?

• Much more importantly--Alperovitz apparently fails to go on to say that, therefore, we must phase-out stock markets!

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