Wednesday, July 8, 2015

Our Modern Era of Unlimited Supply

At the risk of repeating a concept that appears to be misunderstood by many today who lament the "broken fundamentals" of our manipulated markets (prices falling as supplies run dry, etc..) perhaps a different take on the matter can provide some guidance.

We live in a modern era of "unlimited supply" such that no country, no group, no investor has want of anything in the real world today that cannot be acquired with paper money. Supplies of energy, shelter, food, medicine, labor, cars, boats, jets, land, etc... are all perceived to be in "unlimited supply" by anyone who can afford them, or who would bet on their price movements in the derivatives market.

True, there may be individuals in third world countries who are deprived of food, shelter and other necessities of life, but they do not have e-trade accounts on their smart phones, so their wants and needs do not impact our "manipulated" markets.

This state of affairs does result from the incredible technological advances of the modern era, which have insured an ample supply of all the necessities and comforts of life each class is accustomed to, such that there is no perceived "shortage" of anything trade-able in our global markets.

Because the perception of unlimited supply stems from real world experience, as described, the currency trading markets (in effect, all markets) supported by the TRULY unlimited supply of paper claims on price movements (and related events) have become truly enmeshed into the concept of an unlimited supply of the underlying real world assets, whatever they may be.

In such a market dynamic as described, the demand now is for paper currencies representing opinions and predictions about changes to the underlying assets, not the underlying assets themselves. In essence, markets today are moved purely by greed, not need.

Therefore, the supply and demand dynamic of markets past, is beyond irrelevant. Supply limitations can no longer impact markets, until such time that the actual supply of an underlying asset is truly exhausted. And our current deflationary / stagflationary effects upon real world demand of underlying assets helps prevent this condition.

War can have an "honest" impact on markets, if it's effects are global, destructive and destabilizing enough, such that real world supplies of essentials could impact an entire nation, or nations of market participants enough to truly create an essential supply shortage of items essential to survival.

A "run" on paper is always under way in the derivatives markets, and more and bigger runs are coming ... but remember that a run on paper only serves the element of greed, not need. We can socialize the losses from a run on paper, in order to protect the claims of the senior creditor.

When one sees the world through this lens, a greater understanding may take place. And that is enough, for one short post, to reflect upon, as we marvel at the inexplicable wealth redistribution in our manipulated markets to the top 1% who manage them through the derivative price control grid.

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