9. How to blow a ballon bigger (7/29/05)

If the paper value of the whole stock in maket is 20 t (trillion), then there may be only 1 t stock is active in trading. The rest stock is inactive (sleeping stock). Because some owners hold it to control the company; some owners hold it as long term investment. (mostly the people hold it as retirement investment)

Only a little fund can change the whole value. When there is 1.1 trillion investment fund entering the market and caused a 10% increase on 1 t stock, the rest sleeping stock(19 t) felt their asset increased by 10% too. That's how a baloon is multiplied by 19 times.

So there are two ways to increase stock market value.
1. To increase the investment fund in the stock market. This is what government has done to push the pension fund, 401(k) fund into the stock market. And Bush is doing now to put S.S. fund to the market.

2. To reduce the stock for sell also can raise the stock price.

When the money supply is 1 t. But the supply of stock for selling increased to 2 t, then there will be a 50% drop of price.(1t fund/2t is 0.5) Original $1.00 share can only get $0.50. If the stock for selling reduced to 0.5 t. Then the price will double. $1.00 share can sell for $2.00. A 100% increase. (1t fund/0.5t is 2) Reduce the quantity of stock for selling is a more effective way to boost the price.

This is why Bush's plan allow the privatization fund heritable. Old people would have sold the pension stock because it's foolish not to spend it before their death. Now they will think, "if I have no necessity to sell it, whatever happen to me, my son will have it." The inactive stock will go on sleeping. There will be a significant quantity of stock avoid to be sold in the market.

While a small amount of investment fund (say, 1t) support a fantacy of a big treasure ballon (say, 20t), interest group hope more people sleep on the paper stock to go on with their dream. So it will make them easy to blow the ballon bigger.

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