Posts Tagged ‘Financial Theory’

Consider this post in reference to the concept of derivatives.

I feel that if anyone wants to attempt any critique of the derivatives market in its entirety, one has to move past any continued emphasis on ‘casino capitalism’, as this is an oft repeated line which, whatever its merits or otherwise, has become an easy reply for those who favour such practices.

I believe one needs to concentrate on debunking the notion of risk management in order to effectively retort.

Many supporters of derivatives would rightly point to their use is not just to speculate with (as in Investment Banking), but as a valid means to manage risk, especially in Insurance, and it is this aspect which deserves further attention in my humble opinion

The above linked post brilliantly draws together the notion of colonising time as an integral commodity, matching any such physical asset, thereby shinning a much needed light on the important and neglected aspects of this discourse of, post colonialism and global racial financialisation.

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For anyone not familiar with the work of Ann Pettifor – one of the few to correctly call the coming of the financial crisis a number of years prior to it arriving, and one of the main proponents of the Jubilee 2000 campaign which cancelled a portion of third world debt – please search for her various articles, lectures and opinions online.

Associated with Keynesian economics and the Labour party, her views may be dismissed by some, however upon closer inspection, I was interested in her view on the creation of money, and what this meant for resolving the debt and economic problems facing the developing world.

She is principally part of the PRIME think tank/research group, which has a number of papers on its site proving an alternative voice on economic issues

The above lecture at the LSE discusses her latest book, ‘The Production of Money: How to Break the Power of Bankers’, and gives an insight into her theories.

What I wish to highlight, are the following;

  • The issue of commodity money, and how scarce resources should not be used as a basis of any monetary system
  • The recognition that a fiat monetary system, can and should be used for the benefit of the population – outside the control of private banks, but in the knowledge that an entirely man-made system should be used to achieve a level of prosperity in all societies
  • There are certainly many socialist aspects to these beliefs, such as exerting capital controls and spending money into existence in terms of health, education and social expenditure thus increasing national debt, however interest ideally should not be necessary when such a system is implemented
  • There are some similarities with what Positive Money are advocating, but it seems there are specific differences, as this discussion points out…

 

 

Depending on when you want to mark the start of what has become known as the Financial Crisis or even the Great Recession..(take your pick, or make one up), or as I would refer to it, the shit storm created from the exuberance of one generation thinking they can out do the folly of previous generations and become gods amoung men, see point 25 in the link below

I guess they’re not really the Masters of the Universe, they’re maybe not even smart people, perhaps closer to the opposite despite their highly valued creditials

This month marks a particular 10 year anniversary of one such start date of the crisis…we’ll get another 10 year anniversary next year if you miss this one, that one being the big one – when Lehmans went down.

This link¬†is similar to a number of articles circulating over this period around what went wrong and what has changed since then that will probably make it impossible to happen again….I won’t hold my breath

Whatever has happened, the most fundamental fact that should be lamented is that the world is more indebted than ever…national debts have ballooned, fiat currencies are more debased than ever and emergency interest rates are still prevalent.

This danger is ever present, waiting to fuel the next severe economic breakdown, because the greatest lesson from the fallout is that crashes of this extent will always happen, constantly…it’s just a matter of time and behaviour

I have linked here the latest article from Jim Rickards, touching on what he believes to be the next economic catastrophe. Note the quote below which illustrates his view of lessons not learned sufficiently from the causes of previous crises, and the disdain for perceived wisdom

The equilibrium and value-at-risk models used by banks will not foresee the new panic. Those models are junk science relying as they do on notions of efficient markets, normally distributed risk, continuous liquidity, and a future that resembles the past. None of those hypotheses match reality.

Advances in behavioural psychology have demolished the idea of efficient markets. The future does not resemble the past; it keeps getting worse

 

Another text exploring how an alternative system could, in theory function, although this is simply one interpretation. By G.A.Parvez

http://islamicdawn.com/wp-content/uploads/2015/01/The-Quranic-System-of-Sustenance-by-G-A-Parwez-Tolue-Islam-Trust.pdf

 

Please find here a resource which may prove useful in further deconstructing and exposing the economic system and its associated theory

The Principles of Economics – Some Lies My Teachers Told Me – Lawrence A Bolan

Dominic Frisby gives his insight into the effects of inflation and how those charged with controlling and measuring it, are failing on a number of counts – either intentionally or otherwise.

The most important part of this article is the fact that conventional measures such as CPI/RPI do not measure all the causes of inflation – the most important factor being the supply of money itself.

Research by Positive Money shows that only about 10 per cent of newly-created money has gone into the kind of consumer goods tracked by CPI. So all CPI does is measure the effects of about 10 per cent of money creation.

Positive Money’s research shows that 13 per cent of newly-created money has gone into real businesses that create jobs and boost economic growth; 37 per cent into financial markets and 40 per cent into residential and commercial property.

If you want to understand business/economic cycles – look at the what’s happening to the money in circulation, this will give the clearest view.