Posted by: graemebird | October 22, 2008

Parallel Ponzi-Universe.

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.”



  1. Graeme,

    What have you got against derivatives. How will farmers mitigate risk when insurance contracts are too risky to issue?

    What do you think the welfare losses would be for society if primary producers couldn’t hedge, nor airlines etc?

    How on earth do derivatives contracts transfer risk to society?

    You reckon oil futures only exist because of the monetary system we have? Did fractional reserve give us Hurricane Katrina, the violence in Nigeria, the Israel-Iran standoff or political strikes in Scotland?

    You would have to be illucid to say such things.

    Can you name a market where you can go naked in a position with a contingent liability you don’t need to back up with a cash margin or a countervailing trade?

  2. I didn’t say that futures ought to be banned. That was Edney lying, Soon reinforcing the lie, and you tripping over the lie.

    But re-read what I wrote to try and figure out why we are addicted to derivatives and why they are self-defeating from a wider societal point of view.

    In the case of the farmer we may be talking about perishable goods. And he might indeed take up derivatives in a free market. But the more sound insurance that doesn’t cascade all over the place, is that insurance which involves the storage of real gooda.

    High cash balances under commodity money or contracts that lead to the purchase and storage of goods. Not always possible in farming I’ll grant you that.

  3. No these lurches in prices we see are definitely part of fractional reserve on cash, shares and pretty much everything the now corrupted capital markets can pyramid on.

    That is quite clear from the theory of speculation. Speculation is meant to specifically smooth out prices. But see how many speculators there are out there. See how much money many of them make. And yet they are a total failure at fulfilling that assigned theoretical economic role. So no the wild price surges are definitely about ponzi-everything world. We are talking about a virtual reality economy. A sort of hologram. An illusion. A system of delayed-reality.

    Take the oil price last year for example. There was good industry information. The price ought to have risen a little above 100 and stayed there. Instead it surged all the way to 145USD and dropped back down to 70.

    Speculators asleep on the job? No way. They were more active then ever. Earning gross revenues higher than at any time. And yet they failed in terms of the theoretical economic role. They may have even made things worse. Now the oil price is going to go very high again since the hologram ends when the inventories run out.

    There seems to be this endless pretense with you guys that you can have all this socialist and fiat money interventionism and it doesn’t affect the basic nature of the price system. This appears to be a mania of sorts. But the free market assumptions can only hold for a free market. And the ponzi-instability could not be more obvious and is directly implicated in the 1000 trillion (TRILLION) in outstanding derivatives.

  4. The speculator is supposed to smooth out the exogenous factors. He brings in a secondary source of both demand and supply so that all the shocks are smoothed out. His supply and demand sits (in this case) above the underlying supply and demand so that the industry has stable earnings and can keep reinvesting with confidence. The consequent augmented supply and demand is far more elastic than the underlying supply and demand.

    Thats the theory. But clearly it isn’t working and for very understandable reasons. As a class the speculators are utter failures when viewed in their relation to that economic theory.

  5. Notice that this sits in very well with a point Terje often make and which his investigations tend to confirm. And that is that since the tie to gold was severed commodity markets have become more unstable. This will be increasingly the case and not just in commodities.

  6. How on earth can a speculator smooth out unpredictable political crises of unknown durations and the implications of an unknown potential conflict?

    Speculators sure do smooth things out in the long run. This doesn’t mean the short run will be smooth. Discontinuity in the short run is not evidence of a “ponzi banking scheme” you lunatic.


    Now the two of you have got to learn this stuff. And no you are wrong Edney. Increased sophistication would mean increased stability via better distribution of knowledge. More industry experts for the speculator to get information from.

    Get a fucking textbook and learn stuff.

    Its not hard to see where the instability is coming from. Its coming from pyramiding on remotely tradeable items.

  8. For fucksakes Mark. You”ve got everything totally wrong. In a free market, ponzi-free-free market speculators smooth things IN THE SHORT RUN. You dope.

    Don’t just make things up. The speculator cannot affect the long run except insofar as he makes things that much more efficient and improves capital markets.

    HE AFFECTS THE SHORT RUN YOU DOPE. He smooths out the short run. Or he used to. He used to in times when pyramiding didn’t destabilize everything.

  9. Fucking Mark can you just fucking learn your material? You just embarrassing me. I’m going to have to go back and wipe your stuff and sometimes even when you are not lying.

  10. And that is that since the tie to gold was severed commodity markets have become more unstable. This will be increasingly the case and not just in commodities.

    Bullshit. commodity prices were also very volatile.

  11. Take it up with Terje.

    They were unstable when money pyramiding was getting out of hand. They would not be unstable if we had 100% backed multi-commodities and we had built up over decades an infrastructure of storing a lot of gear.

  12. I can certainly think of when some commodities were unstable. Like with oil when Rockerfeller was putting together his trust. But these were times of quite serious monetary instability. And oil is such a bulk item there wasn’t much room for the storage and speculator duo.

  13. Given that the forces of Ponzi Money rule the roost in parliament how are you going to eliminate fractional reserve?
    The Greens might have the bottle and the will to try – they stay out of bed with vested interests – but they’re socialists and probably spent about ten minutes thinking about this kind of thing their whole lives. If that.

  14. People are catching on. You know you have the idea of referred pain. Where the person knows he’s hurting but he misdiagnosis where the root cause is. People blame usury. They suspect the banks are screwing them up but they blame the charging of interest rate. Or simple debt addiction. Or they fall for leftism generally.

    The idea at first is to defeat the idea that we might minimise the problem. Or that the free market, failthfully adhered to, would be good enough to discipline the problem. Then we win the case in the wider market.

    You see we HAVE TO win. Because the amount of damage that is done is simply astonishing.

  15. You’re making two assumptions –

    1. Is that people will understand and act sensibly. At lunch today I tried to explain to a dude why now isn’t the right time for a wage rise. He refused to understand what inflation is.

    2. That just because people in general know they’re being screwed that the political elite will submit to their will.

  16. No I expect them to act appallingly and in a self-serving fashion as well. But we have to win. Now that fractional reserve has white-anted our American friends and jumped species into all remote homogenised tradeable goods……………………… than we simply must win.

    Our system now leaves us in totally paper tiger mode if attacked. We get attacked and our money disappears and becomes valueless all at once. We would be utterly helpless and on our own turf. So here are a people who like going to the far side of the world just because we don’t want to be left out of any stoush thats going on. And our ponzi-system would leave us utterly defenseless at home.

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