What is the importance of the stock market in America today?

[Randolph]

Do we need a stock market if corporations are capable of getting private investors? Purely theoretical question....

[Robert S]

The stock market today is still one of the most important sources for companies to raise money. This allows businesses to go public, or raise additional capital for expansion. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison d'être of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity.

[Ceasar Rodney]

The stock markets provide financing required by large business to establish and expand their enterprises. This provides employment, a community tax base, and other auxilary benefits.

The other side of the equation is also interesting. An enormous supply of money comes from retirement plans. As the number of American within sight of retirement increases and a prosperous economy allows them to invest, they need a place to put their money. So stock market participation, direct and indirect, keeps getting larger. If there was no stock market more money would be invested into property (driving up home prices) and into commodities like precious metals (an unstable and ugly thought).

The stock market also provides a buffer to international trade which allows financial give and take that is preferable to trade wars and other hostile acts.