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No, what I'm describing has nothing to do with fixed or variable costs. What I'm saying is that when you separate the action (fixing roof, hooking up with comp

by kqr 4y ago

No, what I'm describing has nothing to do with fixed or variable costs. What I'm saying is that when you separate the action (fixing roof, hooking up with computer) from the payment, you're in debt, you're creating an implicit loan. If you then clear this debt not by opposing transactions but with just the minimal set of transactions (similar to ring clearing after a poker game) then you have allowed transactions with far more money than any party actually produced cash for. That is financial leverage. That is exactly what happens in future markets, too. You don't need cash corresponding to the full value of a 5000 bu wheat contract to buy one. All you need is enough to cover the mark-to-market payments and then a little safety buffer. It's all an implicit loan until the contract expires. If you offset it, you continue to transact in way more money than you put in. Financial leverage!

JumpCrisscross 4y ago
> what I'm describing has nothing to do with fixed or variable costs I linked to an admittedly terrible Wikipedia article. What you're describing involves leveraging working capital, a form of operational leverage. Every business does this. Restaurants are operationally levered--they serve you food before you pay. In your example, services were rendered in anticipation of payment. None of this is financial leverage. > offset it, you continue to transact in way more money than you put in This is netting. The loan is explicit in a way distinct from operating leverage. These differences are meaningful in both how we measure the phenomena as well as the law.
- kqr 4y ago
  Right but you pay the restaurant the full price of the meal in cash. The amount of cash circulated exactly equals the market price of the services provided. I'm not saying that's financial leverage. Financial leverage happens if you and the restaurant would begin to clear debts in ways that mean you can enter into business for larger amounts than the cash you can pony up.

by kqr 4y ago

JumpCrisscross 4y ago

> what I'm describing has nothing to do with fixed or variable costs I linked to an admittedly terrible Wikipedia article. What you're describing involves leveraging working capital, a form of operational leverage. Every business does this. Restaurants are operationally levered--they serve you food before you pay. In your example, services were rendered in anticipation of payment. None of this is financial leverage. > offset it, you continue to transact in way more money than you put in This is netting. The loan is explicit in a way distinct from operating leverage. These differences are meaningful in both how we measure the phenomena as well as the law.

kqr 4y ago
Right but you pay the restaurant the full price of the meal in cash. The amount of cash circulated exactly equals the market price of the services provided. I'm not saying that's financial leverage. Financial leverage happens if you and the restaurant would begin to clear debts in ways that mean you can enter into business for larger amounts than the cash you can pony up.