The Role of Stock Market Speculation: DEVELOPMENT -part 3-
The economist and Nobel laureate in economics James Tobin points out that the $ 1.3 trillion exchanged every day in the financial market, few are related to productive capital, passing the savings from one country to another investment. Currently the developed world shifts to the “developing” some 200 billion dollars annually.
Most of these transactions are speculative money markets that have no direct link with the desirable investment flows. It is not productive capital that is the only capital these countries need.
The stock exchanges are markets where corporate finance, this is possible from the issuance of bonds and equities. The Bonds are loans that must be repaid at a fixed date by paying a certain interest in the use of money, so called fixed income securities. An Action is a title of ownership of a company, which is divided proportionally according to the number of shares to shareholders, the benefits in this case are not guaranteed, why are called equities. Put very simply, the bag is a place where companies can go to get a loan (obligation) or to get partners (action).
Up to this point is called the Primary Market or Issuance, and serves to channel savings into investment. So far there is no speculation.
The problem arises from the secondary market, or renegotiation, within which are sheltered speculative transactions. By the fact that the more sought is a more price increases, stem mass purchases to drive up the prices of certain types of shares and then sell them once they have gained more value. Here too there is a profit without contribution to society. When you artificially raise the price of shares (whether this is intentional or not) does not increase the wealth of society. What’s more, when the stock price is well above the replacement value of capital invested (in company), real earnings can only go down and the more this fall, the greater the dependence on speculative profit going to come the bag.
Speculation can be seen through the explosive growth that has been observed in equity markets. As an example, we can cite the contributions of the New York Stock Exchange, they rose only by 25% between 1965 and 1984 (when economic growth was still high) between 1985 and 1999 (when economic growth tended to stagnate, under 3.% per year) the stock prices did in 1100%. What is being shared?
Because the pace of economic growth is incomparably lower than the rate of growth in stock prices, earnings expectations can only come from the redistribution of existing wealth. The future money invested in this process can not be anything other than “virtual money”.
credit to: Lic. Eyelin Bello Caballero, MSc. Yaicel Rangel Díaz and MSc.Eimyn Rizo Lorenzo
Source: www.gestiopolis.com/finanzas-contaduria/especulaciones-en-los-mercados-financieros.htm
image source: www.getoutofdodge.net/wp-content/uploads/2008/12/stock_market_down.jpg