Leverage or not, leverage is just loans, trading should smooth the curve as long as good traders win, and bad traders lose their money and are no longer traders. Problem with QE/ZIRP is that bad traders' purses are constantly refilled with new money.
Leverage is a complex issue. There are several problems with leverage as it exists today.
1) Leverage in an opaque system disrupts the information transmission mechanisms of markets. In a system without leverage the current price represents what people are willing to trade. In such an environment a change in price conveys significant information a large price decline for example would indicate an excess supply or a expected drop in demand.
When we allow opaque leverage it allows large large players to create artificial market signals manipulating the price up and down. Other market players are forced to either act on such information and thus transfer wealth to the manipulator or completely discard short and medium term price information which is inefficient.
2) Our current markets do not self anneal to correct for the imbalances that result from point #1 above. You simply do not see large players moving to counter such manipulation. It is far more profitable for the whales to support each other. When someone acts against group interest they are punished.
This mafia like enforcement mechanism can best be seen in the example of Porsche which had the gall to directly challenge large financial player's who were massively and nakedly shorting Volkswagon. Porsche eventually controlled a 42.6 percent block of VW shares (and with options to purchase another 31.5 percent).
The problem was that these 31.5% did not really exist they were naked options sold by wall street. The massive size of these options highlights the extent of current market manipulation. When it became clear that wall street had been called on it's non existent options Volkswagon briefly became the most valuable company in the world.
3) When a player such as Porsche challenges the financial elite they are "dealt with" by whatever means necessary. Porsche should have made billions on those options and the individuals who sold them driven into bankruptcy. However, because Porsche had dared to challenge naked market manipulation that did not happen. Porsche was instead "dealt with" it was cut off from all bank funding driving it into insolvency. Its underlying position, however, was so profitable that it would have been able to obtain Arab investors. Behind the scenes dealings prevented that from happening as well. Porsche was forced to liquidate those options. The CEO and CFO of Porsche had to resign and still face bogus criminal charges that have dragged out for years now. They have been made into examples to dissuade anyone from trying something similar. A brief summary of the Porsche saga can be found in the link below.
http://www.automobilemag.com/features/news/0911_porsche_and_volkswagen_what_happened/In an environment such as ours where leverage is obviously facilitating further corruption it is very difficult to show that its theoretical benefits of optimal price discovery, hedging, and marketplace harmonization exist at all. Such benefits likely do exist in a transparent system. Perhaps blockchain technology will enable us to realize these gains.
TPTB where we often seem to diverge is in the area of coercion. In my opinion some of the very best of your writings was in your discussion on freedom of action.
Indeed with infinite degrees-of-freedom, no leverage would be needed, but this means there is no friction thus speed-of-light is infinte, thus we would cease to exist because the past and present would collapse into an infinitesimal point.
The removal (or realistically minimization) of coercion from society does not equal infinite degrees-of-freedom which is impossible. However, the call for maximization of degrees-of-freedom is fundamentally a call for balance not anarchy. Coercion is synonymous with reductions in degrees-of-freedom and coercion arises naturally from the extremes of both ordered and chaotic systems. This is largely unrelated to leverage.
Rather then try to battle against leverage which is admittedly a mixed bag it would probably be more efficient to work towards abolishing fiat.
Do you even know what you mean by fiat? Do you mean fractional reserve banking or do you mean legal tender laws?
You can't ban fractional reserve banking, as it is a natural feature of society. It will spontaneously create itself, as it did in the 1800s in the USA with private banks doing it. The Catholic church banned usury in the Middle Ages and that enslaved the people in a Dark Age.
The Catholic church banned usury during the First Council of Nicaea 325 AD in response to the excesses of debt and currency debasement in the Roman Empire. It was an understandable if knee-jerk reaction to what was occurring in the Roman Monetary System at the time.
Obviously this did not help them much and probably made things worse so I would not dispute that this was a failed solution.
I am not opposed to fractional reserve provided the institution conducting it is both transparent and not backstopped by any form of collective guarantee.
That far from the situation we have today. By Fiat I am referring to any form of currency that is created without cost and who's acceptance is enforced through coercion and violence.
Debt-based systems inherently and progressively restrict the freedom of action of economic participants. Leverage simply accelerates the process. Debt-based systems are used to enslave the vulnerable majority.
All forms of coercion, including those that arise naturally from chaotic systems, reduce degrees-of-freedom and overall fitness.
Ignorant bullshit and incorrect!
Please substitute (Centralized debt-based systems) in the sentence above as it was unclear in its original form. Do we still disagree? If so we can explore the issue further.
I will leave as an exercise in macro economics math for you as to how banning usury leads to societal collapse, Dark Age, megadeath, and warlordism (feudalism).
Hint: friction can never be 0, and friction causes acceleration and deceleration (i.e. gravity).
I am not opposed to usury. I am opposed to the use of coercion to enforce usury which is an enslavement mechanism. We used to have a system where one could easily declare bankruptcy and start over with the only consequence being a loss of whatever collateral was put up to secure the loan. That was a good system. Allow usury for economic efficiency but let the lender beware.
@thaaanos Your link looks interesting but it is a bit long so I will have to watch it later.
