Friday, December 30, 2011

Currency trading another parasitic capitalist activity

The spokespersons for capital are constantly telling us how efficient the so-called free market is.  But it depends on how one judge’s efficiency. Capitalism has revolutionized the productive forces for sure and that has produced great advances but along with it great waste.  If it comes to the issue of food, capitalism is not very efficient; it refuses to feed billions of people on the planet. Food is a commodity like everything else in a capitalist economy and if you don’t have the money to pay for food or its not profitable to produce it then people starve.

Production under capitalism then is very wasteful as well as harmful to the environment.  The massive pollution that is a by-product of an unplanned economic system based on profit is not very efficient either.  Not only that, the cost of cleaning up after capitalist production is not considered in the numbers when they prepare the books.  The cost of trying to repair the poisoned rivers, plastic laden oceans and polluted air is borne by the taxpayers, by society as a whole.  Then there are the diseases, illnesses and numerous cancers that are the product of chemicals they use in production that find their way in to the soil and oceans----these are not considered in the costs.

But another incredible example of waste and inefficiency is parasitic economic activity of all types.  The FOREX or foreign exchange market is the worlds largest market about $4 trillion a day is exchanged there.  The reason the FX market exists, or should exist in a capitalist economy, is to facilitate the exchange of one currency into another. For example, as businesses exchange goods and services and companies from different nations merge, currencies have to be traded at a ratio that makes the deals worthwhile and creates a certain amount of stability in commerce. But only about 20% of the activity on this exchange falls in to this category with about 80% of the trades simply speculating on the rise or fall of a currency in relation to other currencies.

And reputable estimates claim that fully 95% of the participants in this market are speculators that include large multinationals, investment banks, hedge funds and professional traders.

The Financial Times reports today that, Central banks in countries that have attracted people trying to seek shelter in their currency have sent a firm message: only a limited number of investors are welcome here.  That has left investors hunting for havens outside the US dollar, which has attracted huge inflows this year from those looking for somewhere liquid to park their cash.”   The Forex market is where they appear to be headed.

The Forex market is not regulated and there are no structures or governing body, no judicial panels or forum that can arbitrate disputes, “Self regulation provides very effective control over the market.” one source informs us confidently.
Yes, we can certainly rely on hedge find managers, bankers and corporate chieftains to self regulate their profit taking in the interests of all of us, just like we could rely on their government officials to regulate the housing market, financial institutions and, oh yes, the safety rules for deep sea drilling.

One site above describes the activity of this $4 trillion a day market (it trades 24 hours a day) in this way:
“The FX market is different from other markets in some other key ways that are sure to raise eyebrows. Think that the EUR/USD is going to spiral downward? Feel free to short the pair at will. There is no uptick rule in FX as there is in stocks. There are also no limits on the size of your position (as there are in futures); so, in theory, you could sell $100 billion worth of currency if you had the capital to do it. If your biggest Japanese client, who also happens to golf with the governor of the Bank of Japan tells you on the golf course that BOJ is planning to raise rates at its next meeting, you could go right ahead and buy as much yen as you like. No one will ever prosecute you for insider trading should your bet pay off. There is no such thing as insider trading in FX; in fact, European economic data, such as German employment figures, are often leaked days before they are officially released.”

You can imagine the fraud and thievery rampant here; the havoc this parasitic activity can cause to national economies, interests rates, world trade, food prices and human existence in general; explains:
“Currency speculation can have serious consequences on a national currency and accordingly on a country's economy. While a major benefit of speculation is an increase in liquidity (more units of currency are used in transactions rather than reserves), speculation can also devalue or inflate a currency to the point at which a country’s stock market and overall economy starts to follow suit. Heavy trading in a currency creates “artificial demand”, and can increase the prices of goods beyond an inflation-adjusted level. Some major crises occurred when Brazil devalued its currency in 1999. For countries with fixed exchange rates, currency speculation can lead to a major crisis, as was seen in several Asian countries in 1997, and in both Brazil and Argentina in 1999.”

The waste and inefficiency of the market economy is staggering.  The misery, death and ecological destruction that are inherent in a system of production based on profit cannot be eradicated within the framework of such a system.  Capitalism, the blind and unplanned production of human needs for profit cannot be made human or environmentally friendly; it cannot be reformed.  The poverty, war, hunger and ecological destruction we are witnessing on an unprecedented scale is not an act of nature or the product of what the mouthpieces of capital tell us is an inherently selfish and greedy “human nature”.

The only natural thing about these developments is that they are natural to capitalism. It’s the way the system works.

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