Self liquidating arbitrage
It only makes sense to go out and see if there is a discount code you might be able to use.
A discussion of this interplay is outside the scope of this paper.There is a subtle logical error here which leads to an obviously absurd conclusion. No one proposition is false, but in the progression from proposition to proposition we changed the sense of the key concept.The result is an unsupported conclusion, where one thinks one has proved it.To answer the question of how the gold interest rate is established today, we must look at who the actors are and the mechanics of what they do.Remember, we are not interested in floating abstractions such as definitions that do not refer to reality and the acting man.We cannot assume all characteristics of one thing that fits into our definition apply to other things that also fit into our definition.
Suppose we define currency as “a unit of exchange.” OK, the dollar is a unit of exchange. Can we assume that all other currencies are printed in green? Can we assume that all other currencies have a rate of interest? Are all rates in all currencies equivalent in all regards, regardless of how they are arrived at?
It is not in dispute that, in some contexts, gold is a currency.
There are certainly transactions that take place today in which goods are exchanged for gold.
It has spiked to dizzying heights, and it is now collapsing into the black hole of zero.
If one wished to make assumptions, there is some reason to expect that the rate of interest in dollars should be higher during the rising cycle, especially as it spikes upwards, and lower during the falling cycle.
Does this fact allow us, without further consideration and without context, to conclude that therefore gold backwardation is simply when the interest rate is higher in gold than in dollars? I have presented my theories of how the rate of interest is set in irredeemable currency and how it is set under the gold standard. The mechanisms are quite different and there is no reason to expect the spread between the rates to remain consistent, nor to expect any particular relationship between them.