Friday, March 18, 2016

Derivative Economy ... for Derivatives

One of the more striking outcomes of a derivative "valuation system" is the outgrowth of derivative industries which support it.

We all know of the rise of high frequency trading algos which outrun or front run slower (traditional retail) speculation. There is a great deal of capital devoted to the construction, maintenance, programming and powering of HFT systems. This creates economic activity which is devoted to the propagation of systems which seek to "out-game" competing systems for profit.

We take for granted that the capital expenditure and economic activity involved in this process does not cure a disease, feed people, improve transportation, create a practical good or service or impact our physical world in any tangible way. I mention this simply to illustrate an example of how our physical world differs from our derivative world, and how our derivative valuation system helps to drive a derivative economy to support it.

To some extent, that same valuation system allows Monsanto (for example) to create and distribute derivative foods. Our derivative valuation system creates a moral dilemma that allows GMO to continue, even though it will probably cause serious health issues among the worlds poorer populations (who must eat more cheaply produced food) up to and including a decline in their numbers. Eugenics? In the meantime, those who profit from this activity can afford to eat more expensive organic foods, free from Roundup.

True, the GMO product is still "food" in the 3-dimensional sense, but a derivative of organic food, with artificial properties. I've taken some liberty in the analogy, but if we could somehow survive on food devoid of matter or substance at all ... I suspect it's invention would be heralded as an innovation of great import, and many would embrace it fully.

Witness the early "crowding out" of our physical world by our derivative world more fully in the realm of financialization and crypto-currencies. Even in China, the worlds traditional industrial center (last bastion?) of physical labor producing 3 dimensional (physical) items for physical use, we see massive amounts of capital devoted to the derivative industry of "bitcoin mining".

So here again, as in past posts, we humans have come into a world where bridges and roads may collapse through neglect (not in the "right" neighborhoods of course) while the comfortable invest time and labor into a derivative economy for profit. A true "Hunger Games" type reality.

Again it is our global valuation system - the way people all over the world value their time, their labor, their money, their relationships, their morality, their virtue, their world, each other and just about everything else - that allows for this type of derivative world to exist.

We adopt all aspects of our valuation system through our chosen money. I know, it sounds too simple. People are so complex. Really? We put a value on everything in our world, and we use our money to denominate it, from apples to cars to housing to jobs.

When our money is issued by decree, at the stroke of a mouse click, see how our system of values change. See how we value each other, see how we judge worth.

See our world change from the "real" to the "derivative" in all its implications, from physical to spiritual, moral and beyond. I posted the video above because it illustrates so eerily to those of us who remember sound(er) money, sounder investing and sounder times, the progression of our derivative valuation system.

I predict this cannot go on forever. While technology has improved efficiencies such that developing countries have no want for basic needs, and can venture forth into our derivative economy for a time, there are trade-offs. It cannot last. To some extent, certain nations see this appeal to reality, and reason for change.

And when you look at the world this way, the statement that "derivative claims will be paid in derivatives" takes on an entirely more vast scale. Such is the price the world pays for a derivative, fiat valuation system as it's global standard. Those who oppose its grip on stagnation, at this present stage of its decline, recognize that the stagnation is not only financial, but moral and spiritual.

Our valuation system must be anchored to something more solid than the greed of men. Look at the presidential nominees of that system's authors to see the shallowness of image over substance, of "greed is good" and hate as our moral compass.

If you do not think that fiat money, and the love of its promise is at the root of the world's moral crisis today, think some more. If you do not think that gold is the anchor that our central banks and sovereigns hold in reserve for that awakening, give it time.

Your thoughts will change as necessity commands.


  1. ... Give it time." Ah but when? How much time? It sometimes feels like this oppressive charade will go on forever.

  2. It well could outlive me, and you as well. Perhaps even our children. We can only hope that history will repeat itself, when time allows.

    Thoughts will change as necessity commands.

  3. @PDW : the answer is "now". The key is that not everybody can recognize it at the same time. This recognition is something relative to YOUR conscience, not to an universal, given fact.
    If YOU can't recognize it at this time, it doesn't mean it does not exist. It means you have to study more in order to recognize it.

    If you can read french, you might find a lot of interest in reading this serie about the western spiritual crisis:

  4. Ahh Bruno, good to hear from you. An interesting answer, and one which I agree with. What takes time is for the impact of change to reach our lives, and it will no doubt reach some sooner, and more dramatically, than others. Perhaps "slowly at first, then all at once?"

    By coincidence, my latest post asks the questions which your series may treat. I will reflect upon it "in time" ...