|
The ^free^ trade of financial derivatives.Equally as destructive as free-trade economics is in in trading physical products is the free (unrestrained) trade in financial derivatives (which is gambling). The gambling structures are also an aspect of conservatism. This statement may seem irrational, for derivatives are always traded aggressively. Notwithstanding this, they represent a drain on the financial resources that are needed to advance the infrastructures for wealth-creating production. Traditionally stocks and bonds represented share claims on the profits of investment into productive processes. This type of investment still exists, although much of its value has become fictitious. The derivatives financial instrument, on the other hand, does nothing to facilitate or enhance production, but is a gambling contract soled at a marginal fee that binds parties to the buying and selling of commodities, stocks, bonds, and currencies at a future date for a predetermined price. If the actual price at the future date comes in favorable in relationship to the predetermined date, a profit is made, and if not, a loss is generated. The marginal fee is usually so low that an 'investor' can control typically 40 times the value of shares and commodities (and their profits), than a direct investment would yield. Of course, this type of 'investment' doesn't have to have anything real attached to it. One can buy contracts based on future values of indexes, or future interest rates, and other occurrences in the financial markets. The sums of money that flow into these fictitious capital markets is huge. The current notional value of instruments in this market ranges between $40-100 trillion (world wide). The influx of money that supports the gambling fever - which produces nothing for society in terms of improved living or increased productive capacities for creating a living - is so huge that it imposes an investment drain on the productive economy. It has been argued that this game is a zero-sum product, so that for every loser there is a winner. This is is true superficially. But it is also true that the vast resources that are sloshing around in this system have become unavailable to the productive economy which is thereby penalized. In fact, the banking system has become so deeply committed to derivatives that commercial lending has fallen into the background and is done more and more reluctantly. The banks, in turn, are carrying exposures to derivatives contracts in the order of, typically, 40 times their equity. They literally bet the bank on the derivatives market and will be bankrupted many times over if the market goes against them. In this type of unfunded exposure, if an upset occurs, the banking system goes belly up and everything connected to it, like businesses and pension funds, etc. will go the same way. What is being set up here, apart from an enormous drain on investment resources, is a conservative shock-wave that has the potential to take the whole house down. Once this shockwave begins to move, and all the fictitious value is stripped out of the system that has bloated it, there may not be much left that can hold back total anarchy on the human plain. Another ugly facet of the face of conservatism is the current practice of interest rate manipulation by the regulatory bodies. These interventions are designed to choke off economic growth in order to curb inflationary pressures. The aim of this practice is to prevent the development of the human potential. The goal that these regulators work towards, is to maintain a zero growth state in order to maintain the value of accumulated, so-called wealth. The result is that the real wealth-producing processes - the productive processes of the nation, that are needed to raise civilization to a higher level - are constantly stifled. The fact is, that inflation is a symptom of a fundamentally sick financial structure. It peaks poorly of a society if it aims to address fundamental problems, such as inflation, with Band-Aid measures, rather than through affecting a healing of the disease. The economists are liars who say that inflation is the result of too much money being into circulation. The opposite is true. The massive financing of infrastructures and industrial redevelopment that is needed throughout the world, is deflationary, for this investment produces a proportionately greater economic output in physical goods, so that the price for goods actually drops. Inflation develops only when the expansion of money goes into financial aggregates that produce nothing, or for the settling of debt, which is the same. When money is pumped into the markets while the physical economy starves, inflation develops, because there is more money chasing after fewer physical goods, thus prices rise sharply. By this type of inflation, huge inflationary bubbles are created, like the real estate 'boom' (bubble) that drove prices to the stratosphere generating enormous profits for the rich, and a flood of debt and bankruptcies as the bubble bursts. This cycle can never occur in a wealth-creating, continuously expanding, productive economy. || - page index - || - chapter index - || - Exit - ||
|
