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There are no valid ‘Prices’ without real money!

March 2, 2016

What we use today to determine our ‘prices’ is our imagination, algorithms, and computer software. Our ‘prices’ today are units of imagination emerging from mostly computer trading (algorithms and electronic software). The history of ‘prices’ is what we need to understand if we desire to comprehend why today’s ‘prices’ distort all monetary transactions and confuse all trading. There can be no ‘real’ prices unless people calculate ‘value’ via some material money unit. Silver is material and so is gold. Paper notes are material and so are metal coins. But cyber digits in the computer screen (what we use today, mostly) are not material items. This makes today’s ‘prices’ imaginary and mostly meaningless for exchange, trade, negotiation, and measurement.

Look at this ‘tick’ chart and the prices which emerge from our computer trading strategies. Is this real ‘price discovery’? Crude is now around $34 and excess supply is sitting in ships at the dock!

Historically, prices emerge from trading in a marketplace with physical/material currencies. I think up a ‘value’ for an object (say a chair)  which I desire to purchase and then I offer a material money unit (say one ounce of silver minted into a coin or its equivalent in a paper unit) as my initial offer. Prices emerge via negotiation and then become reference points for other customers in the marketplace. Valid ‘prices’ can not emerge without some type of money unit to use while negotiating. Today, we do not have a valid money unit. Our money is mostly within the computer screen and algorithms and electronic software determine most prices (artificially). People are not creating most of our ‘prices’. This is why we now live with huge distortions and deceptions in our marketplace.

Traders watch ‘price discovery’ on their computer screens. Algorithms create most of our ‘prices’ today! Is this valid? Can supply and demand work when ‘prices’ emerge artificially at the speed of light via fake money units?

The concept of ‘price discovery’ is mostly a myth and a fantasy today and huge distortions exist in all our markets. What should be the ‘price’ of a barrel of crude oil can now be manipulated within the computer screen by trading strategies. Algorithms (programmed with internal instructions) can create distorted ‘prices’ and confuse and deceive the traders in our marketplaces. This is a huge problem within economics today. Price discovery is not valid or real as our ‘prices’ are not being created by real people using real money. Think about the digits in your computer screen. Where do they come from? Who inputs these digits? Are algorithms and software creating artificial ‘prices’ and then these units are applied to a product (say a barrel of crude oil)?

Tons of crude oil sits on our ships waiting to be unloaded. Excess supply now has no place to be stored on-site! Yet the price of crude often goes up even as supply grows into an excess! Is this real ‘price discovery’?

Our New York Federal Reserve Bank, 33 Liberty Street, N.Y., has some 500 computer traders working on the 8th and 9th floor of this building. They can trade any product or asset in the global marketplace. Some traders now use algorithms to do their trading (now at the speed of light). This is called High Frequency Trading. Prices emerge from all this trading by our computers and algorithms are used to enter a trade and accept a trade. Are algorithms the same as trading with real people? I don’t think so! Algorithms are programmed instructions which operate independently of a real person. All this artificial trading via algorithms and programmed software distorts and manipulates ‘prices’ and confuses and deceives the real people within our marketplace.

Simon Potter and his 500 computer traders can manipulate ‘price discovery’ via their trading strategies on the 8th and 9th floor of the New York Fed. All this can be done to confuse, deceive, and manipulate our trading markets! Is this Capitalism? Central Banks have UNLIMITED digits for this type of computer manipulation!

Think about what is occurring today within our machine driven trading markets. We have NO real price discovery and a product like crude oil could be in excess supply and yet the ‘electronic’ price of a barrel of crude could be going up. Supply and demand does not work in our new world of computer driven markets. Algorithms and math create our prices and these programs operate independently of real people (human traders with real/valid money to trade). Our problem today is our MONEY and our Currencies. We have no real money and we have no real currencies. We trade within our imagination and all our markets are now distorted and a fantasy. Think and learn. Enjoy! I am:

P.S. The Baltic Dry Index is at 332 today. What does this show about world trade? Trade is not growing and general deflation has emerged worldwide. Interest rates fluctuate from day to day and we now witness our Central Banks creating ‘negative’ interest rates (Sweden, Denmark, Japan, Switzerland, and we could soon see this trend in the Eurozone and the United States)! All our markets are distorted today due to our computer driven markets!


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