Here I go over again the real problem behind derivatives addiction. And that is the systematic corruption of our financial markets. This entry is cleaned up from Ozrisk and if you are having trouble understanding this and like issues I’d go directly to the thread and read all my posts there.
Our society has slipped into stunning vulnerability and we have become addicted to painfully counterproductive activities:
“Well you can stop your dishonesty right now Edney. Its only going to clue the laity in as to the pandemic of dishonesty that has hit your industry. Because at no time have I ever said anything about banning that particular bookie operation.
But now that you bring it up we can say that futures would probably never have developed in a private 100% backed commodity monetary system. Nor in a fiat 100% backed system that had been in a state of “growth-deflation” for several prior decades. They are useless in the wider social context and ought to be thought of as a bookie operation. Or an extension the casino industry.
Its easy to see how an individual firm can afford itself cover from taking out some futures. In the wider context this is counterproductive. Particularly as the futures provider will have to be subsidised and bailed out when things go haywire.
Supposing you are a in a properly functioning market without any ponzi-schemes going on. Supposing you are an airline company that is worrying about the price of fuel sky-rocketing. Well this is most unusual. Since in a properly functioning ponzi-free market the price of fuel would not lurch about in the first place. These unstable prices are, in part, the result of ponzi-schemes buggering our price system.
But putting that aside, we imagine that this airline buys a lot of fuel at todays prices as a hedge. And the casino operation of futures is available, but in a casino somewhere, and the airline doesn’t go in for it. Instead it buys the fuel. There are honest speculators out there. And people who store fuel. In this case, even though the airline buys the extra fuel at arms length its act of buying is not merely a bookie operation. But leads to extra fuel being stored.
This additional source of demand for fuel increases the return to THE PRODUCER (a fellow oddly left out of the thief-economics your type tend to adhere to) and allows him to ramp up production and reinvestment into his capital goods. But it also increases the return to the supplier of a substitute product. Perhaps not where the one airline is involved but in the wider context.
Thus the act of the company insuring itself has a fallout, and he accidentally aids in insuring the wider society. All this is thrown into reverse in the wider context of the ponzi-society, whose ponzi-practices have enslaved it to bookie-operations.
Now we take the same airline and send him to the parallel-universe where ponzi-ism rules. Its like Captain Kirk meeting an evil version of himself. This is our world and the fuel prices lurch all about the place. So the airline MUST take out a futures contract. He has no choice. Particularly as in this world people do business with more debts and lower cash balances and therefore are utterly dependent on insurance of one form or another.
So he takes out his futures contract. And he gets the right end of the contract. The futures contract pays him out and delivers the fuel out of current production. The rest of us therefore must bid for our fuel out of the same. There is no additional source of supply in the form of stored fuel. In the interim no societal adaptation has taken place. We are hurt more than he is covered. The derivatives loser in this contract is a subsidised institution that is one step closer to bailout. The risk hasn’t gone at all its been transferred to the public. The entire system is as dysfunctional and we are all liquidity junkies only kept alive with a new shot of credit expansion.
Why do you think that derivatives have ballooned up to 1000 trillion outstanding by some estimates? They are the junk to the fractional-reserve-everything junkie. This is a very weak system the fractional-reservists have given us. And its time to clean it all up. Because we are a vulnerable society so long as this idiocy continues and you guys pat yourselves on the back and delude yourselves into thinking that your salaries match your societal performance.”