So....
S&P and Moody's lowered the US valuation. Or bond rating. Or everyone's personal spiritual meaning in the world. Or something like that.
My question is - who cares?
Apparently a lot of people. Stock markets around the world are down; our own stock market is not doing so well. Bond sales (interestingly) are up, in spite of the downgrade, which is probably due to the notion that in order to keep people buying said bonds the US will have to increase its yield (they'll pay out more in interest). Which means we'll end up paying more for everything. Which also means that small businesses may continue to have a difficult time obtaining loans for purchases from computers to delivery vans to office space. Which will further exacerbate the financial shakiness of this quasi-recovery.
What to do?
Gold is up - over $1700/ounce. I was thinking about my wedding ring - the one my wife got me when we were married. It's not pure gold, obviously, something like 14 k. But let's just assume that there's an ounce of gold in it. The $400 she paid 15 years ago would seem a good investment.
There's a problem with gold as an investment, though. It's a dead end. You buy gold (or more usually gold certificates - bullion is notoriously difficult to hold on to: see the Italian Job. Of course, you could get some of those super souped-up Minis...) but that's where your investment ends. Sure, there are active gold mines, and people are searching for the soft yellow metal all over the world. But gold doesn't create subsidiaries, doesn't feed anyone, and doesn't put money back into the economy. It's just gold. You buy it and it sits on a shelf. I think that this may be contributing to the continuance of the recession, the way that people holing up money under their mattress does.
You see, when you borrow - or lend, if you're lucky and have the means - you're enabling someone to use money to go out and get something done. This is particularly valuable in terms of research and development, where new things are being invented to satisfy needs. But if you hold on to your money, hoping to weather the storm, then trouble ensues because that money is no longer available to be put to use... If enough people pull out their money from the system, the conditions exacerbate themselves to the point where no investment really looks good. Enter the Great Depression. Or great recession. Or whatever.
The problem with the economy is not a lack of funding, but a lack of confidence in the system.
S&P and Moody's downgrade reflects the inherent instability and lack of confidence in our system.
The value of the bonds did not change overnight because there is some intrinsic value loss - it's not like milk where the expiration date has been reached and it is no longer of significant value. It changed because people made up their own minds that it did. At a very real but psychological level, the economy is just a head game. A company's stock is only as valuable as people will pay for it. The same is true with bonds, with bond ratings, etc. It's all just so much psychology.
Personally, if I had the means, now would seem a prime time to invest. Because people are going to shake off the slight head cold they have now and get after it. I might wait a week or two, but then I'd jump in. Into the deep end.
S&P and Moody's lowered the US valuation. Or bond rating. Or everyone's personal spiritual meaning in the world. Or something like that.
My question is - who cares?
Apparently a lot of people. Stock markets around the world are down; our own stock market is not doing so well. Bond sales (interestingly) are up, in spite of the downgrade, which is probably due to the notion that in order to keep people buying said bonds the US will have to increase its yield (they'll pay out more in interest). Which means we'll end up paying more for everything. Which also means that small businesses may continue to have a difficult time obtaining loans for purchases from computers to delivery vans to office space. Which will further exacerbate the financial shakiness of this quasi-recovery.
What to do?
Gold is up - over $1700/ounce. I was thinking about my wedding ring - the one my wife got me when we were married. It's not pure gold, obviously, something like 14 k. But let's just assume that there's an ounce of gold in it. The $400 she paid 15 years ago would seem a good investment.
There's a problem with gold as an investment, though. It's a dead end. You buy gold (or more usually gold certificates - bullion is notoriously difficult to hold on to: see the Italian Job. Of course, you could get some of those super souped-up Minis...) but that's where your investment ends. Sure, there are active gold mines, and people are searching for the soft yellow metal all over the world. But gold doesn't create subsidiaries, doesn't feed anyone, and doesn't put money back into the economy. It's just gold. You buy it and it sits on a shelf. I think that this may be contributing to the continuance of the recession, the way that people holing up money under their mattress does.
You see, when you borrow - or lend, if you're lucky and have the means - you're enabling someone to use money to go out and get something done. This is particularly valuable in terms of research and development, where new things are being invented to satisfy needs. But if you hold on to your money, hoping to weather the storm, then trouble ensues because that money is no longer available to be put to use... If enough people pull out their money from the system, the conditions exacerbate themselves to the point where no investment really looks good. Enter the Great Depression. Or great recession. Or whatever.
The problem with the economy is not a lack of funding, but a lack of confidence in the system.
S&P and Moody's downgrade reflects the inherent instability and lack of confidence in our system.
The value of the bonds did not change overnight because there is some intrinsic value loss - it's not like milk where the expiration date has been reached and it is no longer of significant value. It changed because people made up their own minds that it did. At a very real but psychological level, the economy is just a head game. A company's stock is only as valuable as people will pay for it. The same is true with bonds, with bond ratings, etc. It's all just so much psychology.
Personally, if I had the means, now would seem a prime time to invest. Because people are going to shake off the slight head cold they have now and get after it. I might wait a week or two, but then I'd jump in. Into the deep end.
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