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Old 02-18-2002, 02:35 PM
Posts: n/a
Default What they are doing is reflecting reality!!

Nothing is free-floating, their raid trades have to reflect reality, someone has to come in behind them to take a handoff of their positions.

If there's a marble careening around a sink, it will find that drain on its own, sooner or later.

They are just mine-sweeping and, if there are no buried contingent cascades to trigger, the raiders will go broke.

It's like, if you heard about all these butterflies that froze and fell out of the sky in Mexico recently. Two years from now, there will be twice as many butterflies, and they'll be frostproof. Or, if not, screw 'em, organic molecules will find some other structures in which to live.

You see, a person may be able to borrow money to buy a stock, and get lucky if he doesn't get a margin call for 10 years. But what he is doing - implicitly in the price he is willing and able to pay because he is borrowing - is lying to the system. His transaction doesn't tell the system, the manufacturers of stock, the venture capitalists, "I can afford stock, unless it falls below 20, then I don't want any." He is telling them, much more simply, "I can afford stock" - and then the entire economy is being steered on that basis. Price-implicit messages are simple. Speculators detect unpriced risks, and price them in.

The only problem occurs when you try to repatriate durable, or long-term assets. Because you first have to convert them to currency, which gives you a claim on a short-term good. So all you want is to have your foreign real estate priced in US dollars, and yet you are forced to find a counter-party willing to do a duration swap, meaning willing to give you the opportunity to trade your buildings for his apples, not just for other buildings.

Just because an apple costs $1.00 and an orange costs $1.00 doesn't mean you can transform one into another, not unless you have a counter-party willing to do the opposite swap. If everyone wants to do the same swap in the same direction, it takes a lot of friction to tear up orange trees in Florida, sell the land to build condos, and use teh proceeds to plant apple trees and hire pickers in Washington.

This higher cost process is called a "transformation." Swaps are unlimited until counter-parties run out. Transformations are unlimited until the universe burns out, but are costly and time-consuimg. Moreover, when you simply decide whether to buy apples or oranges on a gvien day, currency conceals from you which is taking place, a swap or a transformation.

Any currency that seems to tell you you can change fluidly from apples into oranges, or from long-duration assets into short-duration assts, is lying. This is why, when people see the prices of two things are correlated - and so they buy the cheap one when they fall out of synch, assuming they can substitute the expensive one later in an even swap - they run into trouble!

You end up with everyone stuck on the cheap side, with no way to get back, at the same time as manufacturers churn out more to meet their "demand"! And meanwhile, the expensive good is temporarily, artificially cheaper than it should be, so manufacturers don't know to make more. All speculators do is burst this bubble the second it gets big enough to show a profit, and no sooner!

Anyway, that's all currency bands do, is tell implicit lies about the convertibility of one thing into another, when no physical process which could back up that convertibility actually exists.

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