(10-15-2010, 06:49 PM)Zenda Wrote: How would that be a problem?
You tell me. Or, rather, you already did:
Quote:The value of 'real' money is guaranteed by authorities, as you say, but the value of 'phantom' money is only promised by its users. Real money cannot be issued by just anyone, while phantom money can simply be created by inventing something abstract and assigning it a value, which is 'backed' mostly by already owned phantom wealth, and only for a small percentage by real wealth. Such 'sophisticated' methods typically require a constant influx of new capital, like any other pyramid scheme, so the total amount of phantom money needs to grow. This is what mostly drives the divergence, imo.
Quote:Wiki says it's quite a bit more.
You appear to be going with what wiki calls the "common" as opposed to the "academic" usage. My own opinion (admittedly, as an academic) is that the "common" usage is incorrect - it is only arbitrage (risk-free trading) if you make certain (wrong) assumptions about statistics and the movement of prices. Specifically, by underestimating tail risk, they assume that large losses are 1 in a bazillion (basically impossible) when in fact they are much more frequent. That's not real arbitrage, it's a massively risky bet disguised as arbitrage.
However, even so, they are dealing in actual commodities, or actual debt, or actual contractual obligations. There is nothing fictitious about what they are doing, except of course the fiction that they have eliminated risk.
-Jester