An Easily Understandable Explanation of the Derivatives Markets

Heidi is the proprietor of a bar in Detroit.

She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers’ freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi’s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank’s corporate headquarters, Expert Traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from the Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers.

Now, do you understand?

Predictions of the Year 2000
from The Ladies Home Journal of December 1900

The Ladies Home Journal from December 1900, which contained a fascinating article by John Elfreth Watkins, Jr. “What May Happen in the Next Hundred Years”.

Mr. Watkins wrote: “These prophecies will seem strange, almost impossible. Yet, they have come from the most learned and conservative minds in America. To the wisest and most careful men in our greatest institutions of science and learning I have gone, asking each in his turn to forecast for me what, in his opinion, will have been wrought in his own field of investigation before the dawn of 2001 – a century from now. These opinions I have carefully transcribed.”

During the Year 2000, we included Mr. Watkins research in our feature articles. We invite you to comment on these predictions, whether they have been realized in some way or how they can never be accomplished! In any event, we know you’ll enjoy these entries.

Prediction #1: There will probably be from 350,000,000 to 500,000,000 people in America and its possessions by the lapse of another century. Nicaragua will ask for admission to our Union after the completion of the great canal. Mexico will be next. Europe, seeking more territory to the south of us, will cause many of the South and Central American republics to be voted into the Union by their own people.”

Prediction #2: The American will be taller by from one to two inches. His increase of stature will result from better health, due to vast reforms in medicine, sanitation, food and athletics. He will live fifty years instead of thirty-five as at present – for he will reside in the suburbs. The city house will practically be no more. Building in blocks will be illegal. The trip from suburban home to office will require a few minutes only. A penny will pay the fare.

Prediction #3: Gymnastics will begin in the nursery, where toys and games will be designed to strengthen the muscles. Exercise will be compulsory in the schools. Every school, college and community will have a complete gymnasium. All cities will have public gymnasiums. A man or woman unable to walk ten miles at a stretch will be regarded as a weakling.

Prediction #4:  There Will Be No Street Cars in Our Large Cities. All hurry traffic will be below or high above ground when brought within city limits. In most cities it will be confined to broad subways or tunnels, well lighted and well ventilated, or to high trestles with “moving-sidewalk” stairways leading to the top. These underground or overhead streets will teem with capacious automobile passenger coaches and freight with cushioned wheels. Subways or trestles will be reserved for express trains.  Cities, therefore, will be free from all noises.

Prediction #5:  Trains will run two miles a minute, normally; express trains one hundred and fifty miles an hour. To go from New York to San Francisco will take a day and a night by fast express.  There will be cigar-shaped electric locomotives hauling long trains of cars. Cars will, like houses, be artificially cooled. Along the railroads there will be no smoke, no cinders, because coal will neither be carried nor burned. There will be no stops for water. Passengers will travel through hot or dusty country regions with windows down.

Prediction #6:  Automobiles will be cheaper than horses are today. Farmers will own automobile hay-wagons, automobile truck-wagons, plows, harrows and hay-rakes. A one-pound motor in one of these vehicles will do the work of a pair of horses or more. Children will ride in automobile sleighs in winter. Automobiles will have been substituted for every horse vehicle now known. There will be, as already exist today, automobile hearses, automobile police patrols, automobile ambulances, automobile street sweepers. The horse in harness will be as scarce, if, indeed, not even scarcer, then as the yoked ox is today.

Prediction #7:  There will be air-ships, but they will not successfully compete with surface cars and water vessels for passenger or freight traffic. They will be maintained as deadly war-vessels by all military nations. Some will transport men and goods. Others will be used by scientists making observations at great heights above the earth.

Prediction #8:  Aerial War-Ships and Forts on Wheels. Giant guns will shoot twenty-five miles or more, and will hurl anywhere within such a radius shells exploding and destroying whole cities. Such guns will be armed by aid of compasses when used on land or sea, and telescopes when directed from great heights. Fleets of air-ships, hiding themselves with dense, smoky mists, thrown off by themselves as they move, will float over cities, fortifications, camps or fleets. They will surprise foes below by hurling upon them deadly thunderbolts. These aerial war-ships will necessitate bomb-proof forts, protected by great steel plates over their tops as well as at their sides. Huge forts on wheels will dash across open spaces at the speed of express trains of to-day. They will make what are now known as cavalry charges. Great automobile plows will dig deep entrenchments as fast as soldiers can occupy them. Rifles will use silent cartridges. Submarine boats submerged for days will be capable of wiping a whole navy off the face of the deep. Balloons and flying machines will carry telescopes of one-hundred-mile vision with camera attachments, photographing an enemy within that radius. These photographs as distinct and large as if taken from across the street, will be lowered to the commanding officer in charge of troops below.

Prediction #9:  Photographs will be telegraphed from any distance. If there be a battle in China a hundred years hence snapshots of its most striking events will be published in the newspapers an hour later. Even to-day photographs are being telegraphed over short distances.  Photographs will reproduce all of Nature’s colors.

Prediction #10:  Man will See Around the World. Persons and things of all kinds will be brought within focus of cameras connected electrically with screens at opposite ends of circuits, thousands of miles at a span. American audiences in their theatres will view upon huge curtains before them the coronations of kings in Europe or the progress of battles in the Orient. The instrument bringing these distant scenes to the very doors of people will be connected with a giant telephone apparatus transmitting each incidental sound in its appropriate place. Thus the guns of a distant battle will be heard to boom when seen to blaze, and thus the lips of a remote actor or singer will be heard to utter words or music when seen to move.

Prediction #11: No Mosquitoes nor Flies.  Insect screens will be unnecessary.  Mosquitoes, house-flies and roaches will have been practically exterminated.  Boards of health will have destroyed all mosquito haunts and breeding-grounds, drained all stagnant pools, filled in all swamp-lands, and chemically treated all still-water streams.  The extermination of the horse and its stable will reduce the house-fly.

Prediction #12:  Peas as Large as Beets.  Peas and beans will be as large as beets are to-day.  Sugar cane will produce twice as much sugar as the sugar beet now does.  Cane will once more be the chief source of our sugar supply.  The milkweed will have been developed into a rubber plant.  Cheap native rubber will be harvested by machinery all over this country.  Plants will be made proof against disease microbes just as readily as man is to-day against smallpox.  The soil will be kept enriched by plants which take their nutrition from the air and give fertility to the earth.

Prediction #13:  Strawberries as Large as Apples will be eaten by our great-great-grandchildren for their Christmas dinners a hundred years hence.  Raspberries and blackberries will be as large.  One will suffice for the fruit course of each person.  Strawberries and cranberries will be grown upon tall bushes.  Cranberries, gooseberries and currants will be as large as oranges.  One cantaloupe will supply an entire family.  Melons, cherries, grapes, plums, apples, pears, peaches and all berries will be seedless.  Figs will be cultivated over the entire United States.

Prediction #14:  Black, Blue and Green Roses.  Roses will be as large as cabbage heads.  Violets will grow to the size of orchids.  A pansy will be as large in diameter as a sunflower.  A century ago the pansy measured but half an inch across its face.  There will be black, blue and green roses.  It will be possible to grow any flower in any color and to transfer the perfume of a scented flower to another which is odorless.  Then may the pansy be given the perfume of the violet.

Prediction #15:  No Foods will be Exposed.  Storekeepers who expose food to air breathed out by patrons or to the atmosphere of the busy streets will be arrested with those who sell stale or adulterated produce.  Liquid-air refrigerators will keep great quantities of food fresh for long intervals.

Prediction #16: There will be No C, X or Q in our every-day alphabet. They will be abandoned because unnecessary. Spelling by sound will have been adopted, first by the newspapers. English will be a language of condensed words expressing condensed ideas, and will be more extensively spoken than any other. Russian will rank second.

Prediction #17: How Children will be Taught. A university education will be free to every man and woman. Several great national universities will have been established. Children will study a simple English grammar adapted to simplified English, and not copied after the Latin. Time will be saved by grouping like studies. Poor students will be given free board, free clothing and free books if ambitious and actually unable to meet their school and college expenses. Medical inspectors regularly visiting the public schools will furnish poor children free eyeglasses, free dentistry and free medical attention of every kind. The very poor will, when necessary, get free rides to and from school and free lunches between sessions. In vacation time poor children will be taken on trips to various parts of the world. Etiquette and housekeeping will be important studies in the public schools.

Prediction #18: Telephones Around the World. Wireless telephone and telegraph circuits will span the world. A husband in the middle of the Atlantic will be able to converse with his wife sitting in her boudoir in Chicago. We will be able to telephone to China quite as readily as we now talk from New York to Brooklyn. By an automatic signal they will connect with any circuit in their locality without the intervention of a “hello girl”.

Prediction #19:  Grand Opera will be telephoned to private homes, and will sound as harmonious as though enjoyed from a theatre box. Automatic instruments reproducing original airs exactly will bring the best music to the families of the untalented. Great musicians gathered in one enclosure in New York will, by manipulating electric keys, produce at the same time music from instruments arranged in theatres or halls in San Francisco or New Orleans, for instance. Thus will great bands and orchestras give long-distance concerts. In great cities there will be public opera-houses whose singers and musicians are paid from funds endowed by philanthropists and by the government. The piano will be capable of changing its tone from cheerful to sad. Many devises will add to the emotional effect of music.

Prediction #20: Coal will not be used for heating or cooking. It will be scarce, but not entirely exhausted. The earth’s hard coal will last until the year 2050 or 2100; its soft-coal mines until 2200 or 2300. Meanwhile both kinds of coal will have become more and more expensive. Man will have found electricity manufactured by waterpower to be much cheaper. Every river or creek with any suitable fall will be equipped with water-motors, turning dynamos, making electricity. Along the seacoast will be numerous reservoirs continually filled by waves and tides washing in. Out of these the water will be constantly falling over revolving wheels. All of our restless waters, fresh and salt, will thus be harnessed to do the work which Niagara is doing today: making electricity for heat, light and fuel.

Prediction #21: Hot and Cold Air from Spigots. Hot or cold air will be turned on from spigots to regulate the temperature of a house as we now turn on hot or cold water from spigots to regulate the temperature of the bath. Central plants will supply this cool air and heat to city houses in the same way as now our gas or electricity is furnished. Rising early to build the furnace fire will be a task of the olden times. Homes will have no chimneys, because no smoke will be created within their walls.

Prediction #22: Store Purchases by Tube. Pneumatic tubes, instead of store wagons, will deliver packages and bundles. These tubes will collect, deliver and transport mail over certain distances, perhaps for hundreds of miles. They will at first connect with the private houses of the wealthy; then with all homes. Great business establishments will extend them to stations, similar to our branch post-offices of today, whence fast automobile vehicles will distribute purchases from house to house.

Prediction #23: Ready-cooked meals will be bought from establishments similar to our bakeries of today. They will purchase materials in tremendous wholesale quantities and sell the cooked foods at a price much lower than the cost of individual cooking. Food will be served hot or cold to private houses in pneumatic tubes or automobile wagons. The meal being over, the dishes used will be packed and returned to the cooking establishments where they will be washed. Such wholesale cookery will be done in electric laboratories rather than in kitchens. These laboratories will be equipped with electric stoves, and all sorts of electric devices, such as coffee-grinders, egg-beaters, stirrers, shakers, parers, meat-choppers, meat-saws, potato-mashers, lemon-squeezers, dish-washers, dish-dryers and the like. All such utensils will be washed in chemicals fatal to disease microbes. Having one’s own cook and purchasing one’s own food will be an extravagance.

Prediction #24: Vegetables Grown by Electricity. Winter will be turned into summer and night into day by the farmer. In cold weather he will place heat-conducting electric wires under the soil of his garden and thus warm his growing plants. He will also grow large gardens under glass. At night his vegetables will be bathed in powerful electric light, serving, like sunlight, to hasten their growth. Electric currents applied to the soil will make valuable plants grow larger and faster, and will kill troublesome weeds. Rays of colored light will hasten the growth of many plants. Electricity applied to garden seeds will make them sprout and develop unusually early.

Prediction #25: Oranges will grow in Philadelphia. Fast-flying refrigerators on land and sea will bring delicious fruits from the tropics and southern temperate zone within a few days. The farmers of South America, South Africa, Australia and the South Sea Islands, whose seasons are directly opposite to ours, will thus supply us in winter with fresh summer foods, which cannot be grown here. Scientist will have discovered how to raise here many fruits now confined to much hotter or colder climates. Delicious oranges will be grown in the suburbs of Philadelphia. Cantaloupes and other summer fruits will be of such a hardy nature that they can be stored through the winter as potatoes are now.

Prediction #26: Strawberries as large as apples will be eaten by our great great grandchildren for their Christmas dinners a hundred years hence. Raspberries and blackberries will be as large. One will suffice for the fruit course of each person. Strawberries and cranberries will be grown upon tall bushes. Cranberries, gooseberries and currants will be as large as oranges. One cantaloupe will supply an entire family. Melons, cherries, grapes, plums, apples, pears, peaches and all berries will be seedless. Figs will be cultivated over the entire United States.

Prediction #27: Few drugs will be swallowed or taken into the stomach unless needed for the direct treatment of that organ itself. Drugs needed by the lungs, for instance, will be applied directly to those organs through the skin and flesh. They will be carried with the electric current applied without pain to the outside skin of the body. Microscopes will lay bare the vital organs, through the living flesh, of men and animals. The living body will to all medical purposes be transparent. Not only will it be possible for a physician to actually see a living, throbbing heart inside the chest, but he will be able to magnify and photograph any part of it. This work will be done with rays of invisible light.

Prediction #28: There will be no wild animals except in menageries. Rats and mice will have been exterminated. The horse will have become practically extinct. A few of high breed will be kept by the rich for racing, hunting and exercise. The automobile will have driven out the horse. Cattle and sheep will have no horns. They will be unable to run faster than the fattened hog of today. A century ago the wild hog could outrun a horse. Food animals will be bred to expend practically all of their life energy in producing meat, milk, wool and other by-products. Horns, bones, muscles and lungs will have been neglected.

Prediction #29: To England in Two Days. Fast electric ships, crossing the ocean at more than a mile a minute, will go from New York to Liverpool in two days. The bodies of these ships will be built above the waves. They will be supported upon runners, somewhat like those of the sleigh. These runners will be very buoyant. Upon their under sides will be apertures expelling jets of air. In this way a film of air will be kept between them and the water’s surface. This film, together with the small surface of the runners, will reduce friction against the waves to the smallest possible degree. Propellers turned by electricity will screw themselves through both the water beneath and the air above. Ships with cabins artificially cooled will be entirely fireproof. In storm they will dive below the water and there await fair weather.

PhDs have been searching for a solution to the plastic waste problem, and this 16 year old finds the answer.

That was Daniel’s question which he put to the test by a very simple and clever process of immersing ground plastic in a yeast solution that encourages microbial growth, and then isolating the most productive organisms.

On October 14th 2009, Lord Christopher Monckton, a noted climate change expert, gave a presentation at Bethel College in St. Paul, MN in which he issued a dire warning regarding the United Nations Climate Change Treaty which is scheduled to be signed in Copenhagen in December 2009.

With the Dole Comes Control
by Jacob G. Hornberger

Those who are complaining that government officials shouldn’t be controlling what companies pay their executives need to be reminded of an important point: He who pays the piper calls the tune. Or to put it another way, those who go on the dole are inevitably going to be controlled by the government. With the dole comes control.

Sure, it’s theoretically possible for government to just dole out money to people or companies, with no strings attached. But how likely is that? With few exceptions (Ron Paul being one of them), government attracts people who have a thirst for power, a thirst for controlling the lives of other people. And offering people a dole, especially when they’re desperate, is a perfect way to impose control on the recipients. Take our money and accept our conditions.

What does such control over the citizenry mean? It means a loss of liberty. The more a person is controlled by government, the less liberty he has. That’s why socialism — which ultimately involves total control over economic activity — entails a loss of liberty. More control equals less freedom.

Moreover, the principle applies not only to the recipient but also to everyone else. The reason is because in order to get the money to provide the dole, the government must tax people. With the income tax, the government wields the power to take whatever percentage of people’s income it wants to fund whatever amount of dole it wishes to provide.

This lesson of dole-control, unfortunately, is one that Americans are forgetting in the health-care debate. The government is promising to provide people with free or subsidized health care. But with that “benefit” comes massively greater control over the lives of the people. Government-provided health care equals significantly less individual freedom.

The irony is that oftentimes it’s the government that produces the conditions that cause people to surrender their freedom in return for the welfare dole. This is especially true in the health-care arena, where such socialist and interventionist programs as Medicare, Medicaid, licensure, and regulation have produced the health-care crisis.

Yet, rather than pull those things out by their root through repeal, government officials use the adverse consequences of those things to induce people to surrender more freedom in return for more government “benefits.” As things get worse, which they will because that’s what socialism and interventionism do, the “benefits” will grow, along with the control. At the end of this road lies total control, that is, a total loss of freedom.

I can’t help but think of the slaves in the Old South. Consider the benefits they were provided. They received free housing, food, clothing, health care, and education (i.e., on the job vocational training.) Moreover, they were provided with guaranteed employment.

What could be better than all that? Ironically, when a master wished to reward his slave for some extraordinary act, he would grant him his freedom, which meant that the former slave was now entirely on his own — i.e., no more free benefits and no more guaranteed job. How cruel!

In principle, people living under a welfare state are no different from those slaves on the plantations. As the federal government continues to expand its benefits, its control over the people expands as well. That dole and control increasingly produce a dependent, frightened, weak citizenry that looks to the government to take care of them and provide for them, especially as conditions continue to get worse. The road begins with socialistic and interventionist programs. It ends with complete socialism, complete control, and complete loss of freedom.

What is so badly needed in America is a moral revolution, a spiritual revolution, and an economic revolution, one in which people reject socialism and interventionism in all their forms and manifestations and restore their faith in God, freedom, free markets, and themselves.

Jacob Hornberger is founder and president of The Future of Freedom Foundation.

Kseniya Simonova – Sand Animation (Ukraine’s Got Talent, Final) PART2

Faith and Freedom
by Jacob G. Hornberger

The Harrison, Arkansas, Daily Times reports that FedEx has covered the $11,000 bill for an air ambulance to take 7-year-old Jada Harper from Houston to her home in Arkansas. The girl has terminal cancer and is expected to die within a few months. Since the ailing girl could not have survived ground transportation, an air ambulance was the only viable option, but the family was too poor to afford it.

Now, let’s assume that the federal government had a program to address this particular need and that the girl had been transported home as part of that program.

What would statists say if a libertarian were to come along and propose that the program be abolished?

They would say, “You hate the poor and the needy! Without this program, this little girl would never have gotten home to die with her family.”

But this story of this little girl and Fed Ex is precisely what happens in a free society and in a free market. While freedom provides no guarantees as to how people will choose to use their own money, the fact is that most people in society are willing to help others when they perceive an urgent need.

Moreover, it would seem self-evident that the more money people have, the more willing they would be to donate money. The less money they have, the less they’re able to help others.

The big problem facing our nation is both economic and psychological in nature.

On the economic side, the federal government is taxing people to an ever-growing extent, leaving them with less money to give away to charity. The taxes are either direct, as through the IRS, or indirect, as through monetary debasement (i.e., inflation, manifested by rising prices) at the hands of the Federal Reserve. The less people are left with, the less they are able to donate to worthy causes.

The psychological problem is that the American people have quite simply lost faith in themselves, in freedom and free markets, and in God. They simply cannot bring themselves to believe that they would survive and prosper without a paternalistic Caesar coercively providing for their retirement, health care, job loss, food subsidies, and children’s education.

The two prime examples of where these economic and psychological problems coalesce are Social Security and Medicare. All that Americans want to consider is “reform, reform, reform” of these programs. Repeal is simply not part of the debate lexicon. The thought of repealing these socialist programs strikes more fear in the hearts of the American people than that which strikes a heroin addict at the thought of losing his drug.

“How would people survive without Social Security and Medicare? Old people would be dying in the streets! You must hate senior citizens! You just want them all to die!”

But the fact is that free human beings are remarkably resilient. If Social Security and Medicare (and all other socialistic welfare-state programs) were repealed today, everyone would not only be fine, they would be better off.

For one thing, the younger generations would have an immediate and significant pay raise, given that they would no longer be burdened by the heavy taxes that fund these immoral, corrupt, and wasteful programs.

Second, many old people are wealthyf enough to handle their own retirement and health care needs.

Third, doctors and insurance companies would immediately come up with ingenious ways to handle people’s health-care needs at reasonable costs.

Fourth, older people would feel better about themselves knowing that they had lifted the enormous state-imposed tax-and-inflation burden on their children’s and grandchildren’s generations.

Fifth, the private sector would come up with ways to help those people who truly need help, just as it has with 7-year-old Jada Harper.

What is needed in America most of all at this juncture of our lives is a restoration not only of economic liberty and free markets but also a restoration of faith in ourselves, in freedom, and in God.

This YouTube video will blow you away. Bob Munden claims to be the fastest gun to ever live. He specializes in quick drawing with a revolver. And he claims to hold 18 world records.

Can he back up all that big talk? You better believe it. I’ve never seen anyone do anything this fast. He uses a specially made gun and holster. But no gear alone can produce these results. This made my jaw drop.