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Thread: Economics

  1. #21
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    Quote Originally Posted by Jack@European_Parts View Post
    I am for free trade that is legitimate, not a creative math problem to bilk or make fees based on volatility or speculation to upset an infrastructure.

    All CDO and derivatives really have no value to maintaining a fair and balanced market.
    This is especially if they can be so corrupt that they can't be policed, no one understands them or is accountable and fuck man...... the tax payer must bail out mass financial institutions or companies & what because it was creative?......................
    Jack: Let me pose a scenario and allow me to ask for your opinion -please

    Suppose that an entrepreneur wants to invest in a new gas-fired generator on the west coast of America. It doesn't matter where the generator is sited, but for the sake of this scenario let's say that this investor has approval to site the power station in the great State of Nevada to capture the growing demand in California.

    To build this power station (which is a stonking huge CAPEX expenditure), the investment must be financially geared, which means that the investor will supply some of her own equity (the best investors in my experience have always been women!) and the rest of the money will be provided by another party (let's say for simplicity, that this is a Bank).

    So here's how the conversation with the Bank likely will proceed:


    Investor - I would like you to loan me X Million dollars for Y years to build my power station

    Bank - hmm............. that's a lot of money, what collateral will you provide?

    Investor - well I will put in Z million dollars of my own money

    Bank
    - hmmm....... good and how can you guarantee that the business will be viable over the Y years and that you won't go into chapter 13?

    Investor
    - Well, I have made a forward projection of electricity prices on the Californian Spot marker over the period of the loan and I think that the power station will make sufficient income to pay the loan

    Bank - hmmm............No deal! Electricity spot prices are the most volatile of any commodity in any market, we need a far better assurance than your forward price projection for a loan of this timeframe and size. We want to be sure that you can make regular loan repayments - we don't like businesses with volatile income streams and high market risk exposures!!

    Investor - OK how about this as a water-tight, rock-solid assurance that the new power station will make a known and constant revenue of the Y years period of the loan - I have signed a deal with a buyer (counterparty) to pay me $XX for every megawatt that the plant generates over the entire Y years?

    Bank - hmmm............ well $XX/ mwhr over Y years is more than enough to pay back our loan - but how are you going to insulate the power station from price volatility in the spot market?

    Investor - The counterparty and I will sign a swap-deal where the contract price will be $XX/mwhr and the term will be Y years

    Bank
    - OK we can see how the risks in the market will be managed, we are confortable that the power station will have a regular income stream that aligns with the loan repayment conditions - the loan is approved!

    This is the value of CFDs - they provide surety of price for a known period. They therefore mitigate price risk for those participants that have off-market risk investment profiles that are not suited to price volatility. Of course for those market participants that view market risk as a positive (ain't nothing wrong with that) , outright price risk exposure is always an option!!


    Don
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  2. #22
    Verified VCDS User vreihen's Avatar
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    Quote Originally Posted by PetrolDave View Post
    (and in the UK this year current issue 1 coins will become worthless after October)
    Did I miss something? Are they changing to paper currency for the Pound coin?????

  3. #23
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    Quote Originally Posted by PetrolDave View Post
    "Money" is nothing more than a promise to pay by the bank issuing the money (notes, coins, WHY). UK bank notes have written on them "I promise to pay the bearer on demand the sum of nnn pounds", which IMHO says that the note is nothing more nor less than an IOU.

    That's fine if the bank is solvent and able to meet the promise on the IOU, but if there is any doubt about that (as there has been with several banks worldwide over recent years) or as has happened in India recently a decision by the bank that it will no longer honour its IOUs (and in the UK this year current issue 1 coins will become worthless after October) then possession of the actual commodity becomes the safer position.
    Dave: True, but you are referring to the "Value" of money - not the notion that money has no "intrinsic utility" (if my understanding of Uwe's term is correct).

    But as to the issue of "value", the scenario that you pose works in exactly the same way for any traded commodity - the "value" of the commodity is only applicable at the time that it is traded and the buyer's and the seller's risk is exactly the same as your scenario if the Banks go bankrupt because the entire economy will tank and the worth of the commodity (like the value of cash) will fall dramatically!!. Money and commodities suffer similarly when the underlying economic circumstances are no longer viable. I guess that commodities may have a different value in another country's markets, but I'm not sure that this is guaranteed in today's global markets!
    Don

    don
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  4. #24
    Verified VCDS User PetrolDave's Avatar
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    Quote Originally Posted by vreihen View Post
    Did I miss something? Are they changing to paper currency for the Pound coin?????
    No, they're issuing a new style 12 sided dual metal 1 coin in March
    http://www.royalmint.com/newonepoundcoin

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  6. #25
    Verified VCDS User PetrolDave's Avatar
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    Quote Originally Posted by DV52 View Post
    Dave: True, but you are referring to the "Value" of money - not the notion that money has no "intrinsic utility" (if my understanding of Uwe's term is correct).

    But as to the issue of "value", the scenario that you pose works in exactly the same way for any traded commodity - the "value" of the commodity is only applicable at the time that it is traded and the buyer's and the seller's risk is exactly the same as your scenario if the Banks go bankrupt because the entire economy will tank and the worth of the commodity (like the value of cash) will fall dramatically!!. Money and commodities suffer similarly when the underlying economic circumstances are no longer viable. I guess that commodities may have a different value in another country's markets, but I'm not sure that this is guaranteed in today's global markets!
    But unlike the scenarios I quoted of worthless money the commodity will almost certainly have some value to the holder, as there is likely still to be need for the commodity even in the event of a total financial collapse and a return to a barter based system.

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  8. #26
    Verified VCDS User vreihen's Avatar
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    Quote Originally Posted by PetrolDave View Post
    No, they're issuing a new style 12 sided dual metal 1 coin in March
    http://www.royalmint.com/newonepoundcoin


    That coin is sooooooooooo ugly that it must have been designed by bureaucrats.....

  9. #27
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    Quote Originally Posted by vreihen View Post


    That coin is sooooooooooo ugly that it must have been designed by bureaucrats.....
    vreihen: I'm not sure that I agree!

    The new UK 1 coin looks far better than our dodecahedron-like coin - notwithstanding that ours is only worth a fraction of the UK coin and ours has the same monarch's head on one side (Mrs Windsor looks somewhat younger on our coins)!! No offense Dave, but I'm a fervent believer that an Australian republic is long overdue!

    Don
    Last edited by DV52; 01-10-2017 at 07:29 AM.
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  11. #28
    Verified VCDS User vreihen's Avatar
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    Quote Originally Posted by DV52 View Post
    vreihen: I'm not sure that I agree!
    To each his own. Reading the description of the reverse's image, it sounds like it was designed by committee even though it apparently was not.

    The only "ugly" coin that I would put up with is a few of these if someone is handing them out:






    No offense Dave, but I'm a fervent believer that an Australian republic is long overdue!
    I think that the USA provided a pretty good instruction manual for other British territories to break free of the crown. All that you need to do is pick up those guns that you forfeited to your government.....

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  13. #29
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    Who remembers when "Money" was backed up by gold in the Reserve???

    Actually, I don't, but that was the last time that "Money" had any real value assigned to it.

    Now it's just a number on a computer somewhere (or possibly more than one place ) and relies entirely on peoples faith that the system isn't corrupt.

    GOOD LUCK WITH THAT!

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  15. #30
    Verified VCDS User vreihen's Avatar
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    Quote Originally Posted by NZDubNurd View Post
    Who remembers when "Money" was backed up by gold in the Reserve???
    http://www.theonion.com/audio/fort-k...ash4gold-13750

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