Where did the money go? 2.8 trillion have been lost since the baal out.

This is concise and clearly illustrates how prices get determined in the stock market or commodities market. It is also the basis for prices in general. Gary North always says that it is not production costs that determine price, but the buyers. I will be using articles like this rather than a textbook to teach my daughters and son economic principles. Textbooks are made for the big purchaser, which is the govt in some form, and they never are critical of the one who gives them the money. They are not stupid. They give the buyer what he wants! This is from Lew Rockwell


Where Did the Wealth Go?
by Michael S. Rozeff

….Crude oil, which was $140 a barrel in July, is $63 in October. Silver, which was $20 an ounce in March, is now $9. A recent inquiry read "Why have crude oil prices...dropped so drastically in such a short and seemingly random period of time?"

What was once wealth is no longer wealth. Where did the wealth go? Why does it disappear so quickly? Why does it disappear when it disappears?....
The general answer to these questions is "supply and demand." This is not very illuminating. For stocks, the supplies are fixed. IBM has virtually the same number of shares outstanding in October, 2008 as it did two months earlier, which is 1.35 billion, but the price no longer is $130 a share. It is $82. A drop of $48 a share on 1.35 billion shares is a tidy sum: $64.8 billion, to be exact.

What became of the wealth? For every share sold, one was bought. But they were bought and sold at declining prices. The house that was bought at $350,000 that cannot now be sold at $275,000 is still there. It is just that the price has fallen.

Stock market wealth has fallen because stock prices have fallen. Why have stock prices fallen? They have not fallen because there has been a shift in supply. There are still the same number of shares of IBM as there were before. There are the same number of houses. The houses do not even have to change hands for their prices to fall.

The fact is that sellers could not find anyone willing to buy IBM shares at $130. The sellers could have refused to sell at any price less than $130, but they did not. Their urgency to sell exceeded the urgency of buyers to buy, so that the sellers gave in and sold at a lower price. And this happened all the way down.

Why? Why have buyers only been willing to take stocks at lower prices and why have sellers been more willing to sell them at lower prices? It is this process that is recording or reflecting the wealth losses. And it is these transactions "at the margin" that determine total market values and wealth. Those who are not trading could have traded, but they did not. Their inaction ratifies the transaction prices of those that do choose to trade…..