Wednesday, April 29, 2009

CURRENCY TRADING


As posted by Dr. Mahathir Mohamad at Che Det on April 28, 2009 9:59 AM

(This is the third instalment in a series on the trends that led to the present financial crisis)

1. Currency trading is another non-real contributor to the wealth of the rich countries. The trading again involves non-existent money. Banks would lend as much as 30 times the amount of investors' money held by the traders. The loan is again made up of bank created money. So also would be the investors' money if they borrowed from the banks.

2. The huge borrowings by the currency traders enable them to manipulate the market; pushing the value of the currency up or down. When the value of the currency changes the traders make a profit. Since the currency traders control trillions of dollars, their profits would be huge, and so would the dividends paid to the investors.

3. The trade in currency is estimated to be 20 times bigger than total world trade. The earnings per dollar invested would be higher than the dividends from production and trading in goods and provision of services. The investors and traders would therefore earn far more than what they would expect if they were to invest only the money they really have.

4. Individuals cannot borrow 30 times more than the money they have in order to invest. But currency traders can. Hence the investors' preference to invest with the currency traders.

5. The trade in currency is not in order to finance business or trade. It is for gambling on the appreciation or depression of the particular currency. Either way the bettor (trader) would make a profit. Since the profit is from 30 times more than the investors' money, both the traders and the investors would make far more than if they trade in the real amount invested.

6. The profits earned by the traders and the investors would one way or another go into the calculation of the GDP and per capita income of the country.