- 1. Adam Smith (http://www.humanities.mq.edu.au/Ockham/y6402.html )wrote
about the above title a long time ago (1757). He talked about invisible
hands which were instrumental in growing the wealth of nations.
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- 2. In the latest financial crisis in the United States
the invisible hands certainly played a big role. It took the form of abuses
of the banking, monetary and financial system.
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- 3. Pushed out of the international market place by the
cheaper and better manufactured goods of the East Asian countries the West
turned towards the financial system in order to enrich themselves. The
opportunities for abuses were abundant.
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- 4. They discovered that banks could create money out
of thin air; without Government control (free market) any amount of loans
of non-existent money could be given by the banks; the sale of commodities
need not involve the commodities at all. It is the same with selling shares
and currencies; having physical possession is not necessary. Sell and buy
imaginary shares and make tons of profit.
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- 5. Their fertile brain soon gave birth to hedge funds,
short selling, leveraged purchases, junk bonds, currency trade, free markets
etc etc.
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- 6. All these systems promised great wealth to speculators
and manipulators without the need to produce or possess anything. Better
still they need not employ substantial number of workers who may make demands
and threaten business with industrial action.
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- 7. A good example is the trade in commodities. Without
possession of the physical commodity, a speculator may sell huge quantities
of it. The effect of this dumping is to depress the price of the commodity.
When the price reached a low level the sellers would buy the commodity
to deliver to the buyers that they had sold to earlier at a higher price.
Thus without ever touching or seeing, much less possessing the commodity,
the manipulators would make handsome profits. They call this short selling
and the public is persuaded that this is fair trade.
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- 8. Individuals cannot do this. The amount of money involved
is too big. So funds were set up and managed by smart people.
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- 9. The fate of the real producers is not the concern
of these fund managers. As the price of the commodity become depressed
the producer countries and their people would suffer.
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- 10. If the producer country bought the non-existent commodity
from the speculators at the low prices for future delivery, and if at the
delivery date the speculators could not deliver the commodity, they would
be forced to buy the physical commodity at prices higher than they had
sold. They would lose money. This is as it should be. But no. Their market
controllers would save them by declaring that they need not honour their
contracts.
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- 11. This was what happened when tin prices were depressed
through the short selling of non-existent tin by the speculators. In desperation
Malaysia bought the tin knowing that the sellers had no physical tin, whereas
Malaysia had. When the delivery date arrived the sellers would be forced
to buy physical tin from Malaysia at Malaysian prices in order to deliver.
The price of the physical (real) tin would of course be higher. The sellers
would lose money having to purchase at the higher prices in order to deliver
to the buyers (Malaysia) at the lower prices.
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- 12. When the short sellers faced this threat of losing
a lot of money from their short selling price depressing activities, the
London Metal Exchange which controlled the market ruled that the sellers
need not honour their contract to deliver physical tin, allegedly because
the purchasers were trying to corner the market.
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- 13. Clearly the players in the financial market are protected.
They can make tons of money selling non-existent commodities but they need
not deliver if they have no physical commodities.
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- 14. And so the financial market expanded until it became
much bigger than the real market. The trade in currencies for example is
twenty times bigger than total world trade. Hedge funds, through mysterious
investments pay as much as 30% to their investors. Pyramid schemes gave
huge returns and banks calculate their earnings on the amount of money
they lent out, whether the borrowers were able to pay or not.
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- 15. There were numerous schemes which gave huge profits
to the investors, far more than investments in the production of goods
and services.
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- 16. With these financial schemes the wealth of these
developed countries and their rich investors appeared to grow at a high
rate every year and the people appeared to have the capacity to buy unlimited
amounts of imported goods. These countries were apparently the locomotives
of growth for the whole world.
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- 17. Then the balloons bursts.
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- 18. The wealth of the West, acquired through the financial
market is not real wealth. Their Per Capita and GDP figure are not based
on reality. Their money also has a bloated value, guaranteed by no reserves
or gold. (Their money is truly fiat money).
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- 19. Their Governments were forced to bail out their banks
and companies with trillions of dollars. It can be said that their Presidents
and Prime Ministers are all responsible for the trillions of dollars lost
by their countries.
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- 20. I am waiting for a good unemployed journalist to
investigate and write a book on these leaders who presided over the trillion-dollar
losses by their countries.
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