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IPFS News Link • Stock Market

(Re)Destroying The Myth Of "Cash On The Sidelines"

• https://www.zerohedge.com by Tyler Durden

One of the most prevalent myths that seemingly will not die is that of "cash on the sidelines."

We have tried to debunk this inane thinking previously, as Clifford Asness wrote:

"There are no sidelines. Those saying this seem to envision a seller of stocks moving her money to cash and awaiting a chance to return. But they always ignore that this seller sold to somebody, who presumably moved a precisely equal amount of cash off the sidelines."

And now, John Hussman takes the debunking to a whole new level in his latest Market Comment,

As I observed early in the global financial crisis, you're going to see a lot of chatter about "cash on the sidelines" in the months and years ahead. That's because the Federal Reserve is creating a mountain of the stuff. The moment the Federal Reserve creates base money (currency and bank reserves) to purchase some asset, the base money it creates must be held by someone in the economy, at every moment in time, until it's retired. A dollar of base money is just another type of "security." A given holder of cash can try to get rid of it by buying other pieces of paper like stock shares or bond certificates, but the seller of the stocks or bonds immediately becomes the new holder of the cash.


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