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posted: 12/27/2012 5:00 AM

Money in stocks doesn't help economy

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Obviously, my son (Fence Post, Dec. 2) and I have very different ideas about the political and economic policies that are needed to push this country back onto a positive path. We are fortunate enough to be able to carry on some rather lively discussions without once resorting to calling each other socialists, anarchists and the other terms of endearment that so many of the letters in this column freely throw about.

However, the very details that my son presents in "correcting" my view of the immediate value to the economy by the stock market actually supports the basic view that I presented: Money within the stock market is of no immediate use to our economy. It is only when it leaves the stock market and is spent that it stimulates the economy.

His mention of a company issuing stock and expanding their business is the perfect example. If they issued the stock and did not spend the money, then they in fact would negatively impact the economy since they are removing money from circulation. If, however, they built a plant, bought machinery or even bought a company (the benefit of which is actually questionable) with the proceeds they are spending money and stimulating the consumer chain of economics.

So no matter what the internal movement of stocks within the markets is, while that money is inside the market it does not stimulate the economy until it exits the markets regardless of the cause for that cash moving out of the market.

James Prescott Sr.


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