Stockmarket fine though. What a joke.
1. Economy is fine, their stocks end up growing in $$$ terms. Hence high price.
2. Economy tanks, US prints new dollars to pay off loans, US dollar loses lots of its value, but because the company stocks are denominated in dollars, the stocks are still worth a lot of dollars.
Oil trading is a negligible component of dollar demand [1]. The petrodollar hypothesis is a debunked myth.
The origin is Bretton Woods [1]. This was the international system set at the end of World War II, when the U.S. was a global nuclear hegemon and the largest developed country with a homeland unmarred by conflict.
It retains the role due to a confluence of the America's relative political stability (as in no revolutions), commitment to open financial markets, deep and complex financial markets and, most critically, massive consumer base.
American consumers spend dollars globally. That leaves U.S. dollar scattered in various merchants' accounts. They can swap those dollars to their local currency, which incurs a fee. Or they can hold it to spend later. If they're holding it, they--or their bank--will invest it to produce yield. That creates demand for dollar-denominated investments, which, in turn, makes it easier to raise capital in dollars. That confluence underwrites a financial system that offers more products, for cheaper, and in more variety, in U.S. dollars than in any other currency.
Plainly put, America's post-war position put the U.S. dollar in the lead just as computing advances increased the global financial system's connectivity and complexity. It's a story of network effects.
It's best to use terms like the Fed, the US government and US corporations rather than "the US". They're all different.
The possible scenarios investors see are much more varied and nuanced than the two options you've outlined.
While it's true that the top 5% owns a disproportionate amount of stocks, that's just a function of the wealth distribution. If everyone in the US had half of their personal wealth in the stock market, the top 5% would still own a large % of the stock market just by virtue of what it means to be in the "top 5%" today. This fact doesn't change the fact that a stock market crash would still be devastating to the middle American that owns stocks (directly or indirectly).
In fact, when the stock market crashes, it's median stock holders that are the worst off, because the wealthiest stock owners will still largely remain millionaires even if the stock market plunged.
But its negligible ownership stake, during the pandemic we have seen the multiple single day market swings that more than erase the collective holdings of 80% of investors. Moreover, 1% of investors own more than 33% of the market and the top 10% own >80% of the US stock market, that type of top heavy system is always bound to topple.
Yes, and that was addressed immediately in the next paragraph:
> While it's true that the top 5% owns a disproportionate amount of stocks, that's just a function of the wealth distribution. If everyone in the US had half of their personal wealth in the stock market, the top 5% would still own a large % of the stock market just by virtue of what it means to be in the "top 5%" today. This fact doesn't change the fact that a stock market crash would still be devastating to the middle American that owns stocks (directly or indirectly).
> In fact, when the stock market crashes, it's median stock holders that are the worst off, because the wealthiest stock owners will still largely remain millionaires even if the stock market plunged.
54% of Americans owning at least one share isn't especially meaningful. Giving the stock market a boost doesn't help people with one share. It helps people who have the majority of their net worth tied up in it. Those people are deliberately left out of that statistic.
A stock market crash doesn't affect the median citizen the worst. The median citizen has more % of their wealth in housing than the stock market (what they do have, which isn't an awful lot) .
In percentage terms its the ultra wealthy who get fucked. And it's them who got bailed out. And it's them who love that 54% statistic.
Moreover the stock market is inversely correlated with wages as a % of GDP (money that doesn't go into wages goes into profits, which pushes up stock prices) . If wages go up and the stock market goes down that DEFINITELY helps the median citizen.
I provided that context in the elucidation:
> While it's true that the top 5% owns a disproportionate amount of stocks, that's just a function of the wealth distribution. If everyone in the US had half of their personal wealth in the stock market, the top 5% would still own a large % of the stock market just by virtue of what it means to be in the "top 5%" today. This fact doesn't change the fact that a stock market crash would still be devastating to the middle American that owns stocks (directly or indirectly).
> In fact, when the stock market crashes, it's median stock holders that are the worst off, because the wealthiest stock owners will still largely remain millionaires even if the stock market plunged.
Just because the top 5% owns a highly concentrated amount of the stock market by nominal value, does not mean that the median American is immune to shocks in the stock market, and arguably the latter is impacted more adversely than the former.
> Moreover the stock market is inversely correlated with wages as a % of GDP. If wages go up and the stock market goes down that DEFINITELY helps the median citizen.
Stock market being inversely correlated with wages as a % of GDP does not imply that when the stock market falls, wages will rise, there is 0 evidence of that having ever happened in history. When the stock market falls, unemployment increases, so average wages fall.
The reason why a healthy stock market inversely correlates with wages as a % of GDP is because stock market increase as a % of GDP can be much higher than wages as a % of GDP. You can't take that observation then conclude that if you tank the stock market, wages will magically rise. As a % of GDP, they may stay the same, but that's just because GDP dramatically falls.
Yeah but they don't do they? If you wanted to "contextualize" you could have used a statistic along these lines (not that it's true) instead of arguing that 54% of Americans own at least one $4 share so they might get fucked by a stock market collapse.
In the public sector, 83% of workers participate in a workplace retirement plan.
The median earner doesn't own "1 stock", they indirectly hold stock through 401(k)s, IRAs, company-provided pensions, or government-provided pensions. The vast majority of your pension plans are managed and administered by institutional investors.
If you are a median earner, and your defined contribution plan tanks, you will absolutely be worse off than the multi-hundred millionaire whose net worth still remains in the millions even if their ownership in the stock market falls by 90%.
http://www.pensionrights.org/publications/statistic/how-many...
https://finance.zacks.com/effects-stock-market-pension-funds...
Sounds like a free market isn't good for the Free Market. A crashed stock market would create opportunity for new investors to invest during this historic downturn...instead during this historic downturn the market is being artificially supported (at record high prices nonetheless) so no new investors will enter.
Free market economics asides, I could imagine the bourgeois and bourgeoise running around during the French Revolution telling the plebs how revolutions and guillotines aren't good for the economy.
Since then i've come to believe that lives are tied to market prices so it's more complicated. You can let it crash and create opportunity for new investor, you can also watch someone drown and create a new spot at the pool. ...it gets complicated.
If they try to do this indefinitely, and just keep printing money to inflate asset prices no matter the consequences, then eventually they will cause the value of the dollar to fall, which will cause international organizations to reduce their dependence on the dollar, which will cause the value of the dollar to fall more, and so on until we lose our position as the reserve currency. There is no free lunch. All this short term thinking eventually has a cost.