With stock markets plummeting, where has the money gone?

From New York to Tokyo, via London, Frankfurt and Paris, investors were gripped by another roller-coaster ride of turbulent trade last week.

Across the globe, equity markets have now slumped by 30-50 percent since the same stage of 2007, as confidence has been ravaged by the collapse of the U.S. subprime housing sector and the subsequent credit crunch.

Economists say markets have suffered massive “paper” losses that do not relate to the disappearance of cash — but instead to a dramatic drop in value.

“When we say that trillions of dollars have been lost, this is a miswording,” said economics professor John Sloman at the University of Bristol.

“What we should say is: trillions of dollars of value have been wiped off from the stock market’s value, which is totally different,” he told AFP.

“It’s not money, it is value, which is basically the price (that) people are ready to pay at one time.”

Robert Shiller, professor of economics at Yale University in the United States, drew a comparison with the drop in the price of a house.

“Suppose one day you ask a real estate agent to estimate the value of your house if it were to be sold,” Shiller told AFP.

“The next day you ask a second real estate agent to estimate the value of your house, and the second agent gives you an estimated value that is 10 percent lower.

“Have you lost any money? Certainly not, the currency notes in your pocket have not changed, nor have any of your bank accounts.

“But you would be poorer, in a very real sense. It is just the same with the stock market. Nobody loses any ‘money’ in the strict definition of that term, but they have lost value.”

However, speculative investors can get their fingers burned when they dabble in fiercely volatile stock markets.

Some traders buy poorly performing stocks when they bet that shares have “bottomed out” or hit their lowest point — in the hope of selling them after a sharp rally in order to make a profit.

But traders can be left nursing losses if the acquired shares fall even further.

“If you need to sell these assets, and the value of your assets has come down ... you can lose money compared to the prices you had to pay for these assets,” Sloman said.

He added: “You have got to distinguish assets, like stocks or houses, from cash.

“The cash has not gone but the value of assets — paper (stocks) or physical (houses) — have come down because they depend on supply and demand. It doesn’t mean that money has disappeared.”

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