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> Yeah, that's a nice fairy tale. It isn't true though. It's criminally untrue. I can't eat volatile grain, nor hedged grain. I just eat grain. At a price I can

> Yeah, that's a nice fairy tale. It isn't true though. It's criminally untrue. I can't eat volatile grain, nor hedged grain. I just eat grain. At a price I can afford, today and tomorrow, not bankrupting me in the process. I think you two are talking about different things. The comment you're responding to is talking about the price discovery and liquidity facilitated through trading. You're (correct me if I'm wrong) talking about how physical commodities are treated as abstractions, which doesn't help e.g. a farmer. But it does help producers of commodities - they can hedge against (for example) crop failures. And it helps consumers by driving down the price and making the price more predictable. Futures in particular are very helpful for producers. This is obviously not a perfect process. But I think it's really unfair to call it a fairy tale, or to say that traders are manipulating the price. In an abstract or purely literal sense they are; but in the malicious, legal sense of markets they are not (at least not in the aggregate). With respect, your last paragraph sounds like an oft-repeated narrative about the financial industry which - though it has kernels of truth - does not charitably reflect the full picture. Finance is not an unmitigated good, but comments like yours which present it as an unmitigated bad are also off the mark.

BurnGpuBurn 8y ago
This is the whole problem in a nutshell. People spinning a fairy tale about "price discovery" or "liquidity" or "abstractions" like it represents something real, and not something specifically so because of how we implemented our financial system, or terminology specifically invented to create that system. Posing those things as separate, saying "price discovery" and "liquidity" are different from "how physical commodities are treated as abstractions" is just muddying the waters. They're part of the same slang of the system. The farmer doesn't care if somebody plays Farmville and treats in game abstractions as though they were his real physical produce. Who cares. But the farmer does care when a lot of people trade in what he produces, and all those traders act like they're playing f-ing Farmville with virtual goods. In reality that trading influences the price the farmer gets paid and the price the consumer has to pay. Big time. Tell me again how it's just an abstraction. The supermarket doesn't accept my abstract money unfortunately. That farmer worked hard for that grain you know, why do you think it's suddenly morally okay if you tell yourself nice stories about "liquidity" and "abstractions" and "price discovery" while you just want to make a buck on the farmers grain without putting in the labour yourself. I don't give a hoot that you tell yourself that you're trading in an abstraction of grain to make yourself feel good about your actions. I just see the price of grain go up and my family going hungry, despite the fact that traders keep telling themselves it's all "funny goods that don't really exist" > But it does help producers of commodities - they can hedge against (for example) crop failures. I can see how it does, but honestly, that's one of the worst solutions to that problem. I think crop failure is a problem for everyone not just the farmer (we all have to eat, right?), so a solution that involves everyone instead of letting the farmer fend for himself would be preferable, because when the guy needs to fend for himself he'll fall prey to someone offering him a very volatile, hedged, and abstract "solution" to his problems. A simple granary (sized to community) and enough cash to resow next year is usually enough. No virtual, hedged, liquid or funny stuff needed. It's as old as the hills as well, failing crops have been dealt with by humanity successfully in many civilizations through out history. Without a financial system that requires the farmer to bet on the price of grain next year, I might add. With respect, your last paragraph sounds like you get tired of the argument, but, respectfully, you don't give me any reason not to believe "finance" in it's current form is one of the most evil thing humanity has ever come up with.
- JoshuaDavid 8y ago
  Note: I am not a finance person, so please correct me if I'm misunderstanding something. My understanding is that in futures markets, you make money by predicting what the price of something will be at a time in the future. Let's say you know of a new battery technology that is much more efficient than anything we have today. Let's further say that this type of battery uses a lot of copper. You think that this will massively increase the amount of copper needed. In this case, you buy a future (enter a contract) saying you will buy 250,000 tons of copper in January 2020 for $3.20 / lb (which is considerably higher than the price of copper today). Someone with a copper mine can take the other side of that contract and expand their operation (buy equipment, hire workers), knowing that in January of 2020 they will be able to sell that copper at a higher price, and expand their operations. If the price of copper goes up, in 2020 you buy all of that copper from the mine, resell it, and make a ton of money. The owner of the mine makes a modest profit. If the price of copper goes down, in 2020 _you still have to buy all of that copper from the mine_, and you lose a ton of money. The owner of the mine makes a modest profit. You will only enter into such a contract if you have (or think you have) information that the person you are making a contract with does not have, thus allowing them to act on that information sooner and without risk. If your information is wrong, you are the person who loses out, not the person you contracted with, so you're taking on all of the risk for some of the possible benefits. > A simple granary (sized to community) and enough cash to resow next year is usually enough. No virtual, hedged, liquid or funny stuff needed. It's as old as the hills as well, failing crops have been dealt with by humanity successfully in many civilizations through out history. Without a financial system that requires the farmer to bet on the price of grain next year, I might add. If you know that the crops are likely to fail, you can buy futures in grain. It's the ultimate "put your money where your mouth is". If you buy grain futures, you are saying "There will be a crop failure. Plant more grain. I will cover the downside if I'm wrong." Thus you make the crop failure less impactful by prompting action earlier. I agree that a simple granary is _usually_ enough. But a simple granary plus a futures market will be enough even more often.
- rebuilder 8y ago
  Are you saying the financial system is why we've moved away from subsistence farming, and that this is a bad thing? I'm having a hard time figuring out what, exactly, the world you'd prefer would look like.

BurnGpuBurn 8y ago

This is the whole problem in a nutshell. People spinning a fairy tale about "price discovery" or "liquidity" or "abstractions" like it represents something real, and not something specifically so because of how we implemented our financial system, or terminology specifically invented to create that system. Posing those things as separate, saying "price discovery" and "liquidity" are different from "how physical commodities are treated as abstractions" is just muddying the waters. They're part of the same slang of the system. The farmer doesn't care if somebody plays Farmville and treats in game abstractions as though they were his real physical produce. Who cares. But the farmer does care when a lot of people trade in what he produces, and all those traders act like they're playing f-ing Farmville with virtual goods. In reality that trading influences the price the farmer gets paid and the price the consumer has to pay. Big time. Tell me again how it's just an abstraction. The supermarket doesn't accept my abstract money unfortunately. That farmer worked hard for that grain you know, why do you think it's suddenly morally okay if you tell yourself nice stories about "liquidity" and "abstractions" and "price discovery" while you just want to make a buck on the farmers grain without putting in the labour yourself. I don't give a hoot that you tell yourself that you're trading in an abstraction of grain to make yourself feel good about your actions. I just see the price of grain go up and my family going hungry, despite the fact that traders keep telling themselves it's all "funny goods that don't really exist" > But it does help producers of commodities - they can hedge against (for example) crop failures. I can see how it does, but honestly, that's one of the worst solutions to that problem. I think crop failure is a problem for everyone not just the farmer (we all have to eat, right?), so a solution that involves everyone instead of letting the farmer fend for himself would be preferable, because when the guy needs to fend for himself he'll fall prey to someone offering him a very volatile, hedged, and abstract "solution" to his problems. A simple granary (sized to community) and enough cash to resow next year is usually enough. No virtual, hedged, liquid or funny stuff needed. It's as old as the hills as well, failing crops have been dealt with by humanity successfully in many civilizations through out history. Without a financial system that requires the farmer to bet on the price of grain next year, I might add. With respect, your last paragraph sounds like you get tired of the argument, but, respectfully, you don't give me any reason not to believe "finance" in it's current form is one of the most evil thing humanity has ever come up with.

JoshuaDavid 8y ago
Note: I am not a finance person, so please correct me if I'm misunderstanding something. My understanding is that in futures markets, you make money by predicting what the price of something will be at a time in the future. Let's say you know of a new battery technology that is much more efficient than anything we have today. Let's further say that this type of battery uses a lot of copper. You think that this will massively increase the amount of copper needed. In this case, you buy a future (enter a contract) saying you will buy 250,000 tons of copper in January 2020 for $3.20 / lb (which is considerably higher than the price of copper today). Someone with a copper mine can take the other side of that contract and expand their operation (buy equipment, hire workers), knowing that in January of 2020 they will be able to sell that copper at a higher price, and expand their operations. If the price of copper goes up, in 2020 you buy all of that copper from the mine, resell it, and make a ton of money. The owner of the mine makes a modest profit. If the price of copper goes down, in 2020 _you still have to buy all of that copper from the mine_, and you lose a ton of money. The owner of the mine makes a modest profit. You will only enter into such a contract if you have (or think you have) information that the person you are making a contract with does not have, thus allowing them to act on that information sooner and without risk. If your information is wrong, you are the person who loses out, not the person you contracted with, so you're taking on all of the risk for some of the possible benefits. > A simple granary (sized to community) and enough cash to resow next year is usually enough. No virtual, hedged, liquid or funny stuff needed. It's as old as the hills as well, failing crops have been dealt with by humanity successfully in many civilizations through out history. Without a financial system that requires the farmer to bet on the price of grain next year, I might add. If you know that the crops are likely to fail, you can buy futures in grain. It's the ultimate "put your money where your mouth is". If you buy grain futures, you are saying "There will be a crop failure. Plant more grain. I will cover the downside if I'm wrong." Thus you make the crop failure less impactful by prompting action earlier. I agree that a simple granary is _usually_ enough. But a simple granary plus a futures market will be enough even more often.
rebuilder 8y ago
Are you saying the financial system is why we've moved away from subsistence farming, and that this is a bad thing? I'm having a hard time figuring out what, exactly, the world you'd prefer would look like.