‘Hedging’ used to be a way reducing the risk of selling or buying.
Farmers waiting for their harvest to come in are uncertain what price
per bushel they will get at the market: will they get a price that makes
them a profit and a living for next year or will they be made
destitute? To reduce that risk, hedge companies offer to buy the
harvest in advance at a fixed price. The farmer is guaranteed a price
and income whatever the price per bushel at the time of going to
market. The hedge fund takes the risk that it can make a profit by
buying the harvest at a price below the eventual market price. In this
way, ‘hedging’ can smooth out the volatility in prices, often very high
in agricultural and mineral sectors.
But in financial markets, hedging and hedge funds take on a whole new
function. It has become a game, with billions of other people’s money
at stake, turning the market for goods and services into a casino for
financial betting. In my previous post,
<https://thenextrecession.wordpress.com/2021/01/25/covid-and-fictitious-capital/>I
explained how what Marx and Engels called ‘fictitious capital’ (stocks
and bonds) and their supposed value bore little relation to the real
value of underlying earnings and assets of companies.
https://thenextrecession.wordpress.com/2021/01/28/stop-the-game-i-want-to-get-off/
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