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Monday, April 4, 2011

Why does this make me nervous?

The latest quarterly economic report is out. Damn but I love reading these tomes of fiduciary largess! Still, some of it makes me nervous - even after I read it a third or fourth time for clarity's sake. Take this passage about the PLEX market for instance:
"However, due to its complex function and potential impact on the velocity of money supply, the Central Bank might intervene in the PLEX market in order to curb inflation or avoid sudden deflation in the EVE economy. All such action would not be announced beforehand and only limited information would become public in the quarter after actions have been taken. These actions would aim at stabilization of the PLEX market and do not have a specific price target for PLEX or a specific inflation target for prices in EVE."
Okay, so whenever I see deflation my heart shutters and whenever I see inflation my heart flutters. Tachycardia aside, that's just the capitalist in me. However, when I see the casual promise of market intervention, I worry.

I get that PLEX can be a very difficult commodity to manage. In fact, it is probably the only true commodity in EVE. And as with all commodities, it's price can fluctuate wildly. About the only thing I can't see evident in the PLEX market is gross speculation. That is a good thing since gross speculation is an abhorrent bastardization of supply and demand fundamentals that can only bring ruination for the masses. Yeah, a bit over the top there wasn't I? Nevertheless, I am not certain that by this announcement, CCP hasn't thrown the doors wide open for gross speculation.

The secrecy provisions outlined above come into clearer focus though when this worry rears its ugly head. They have at least have considered this problem. If they announce a market intervention they tip their hand to the speculators and the market lurches one way or the other. Unfortunately they have not thought this out enough moves in advance.

I don't need their announcement to speculate. All I need is for them to say after the fact, like they say they will, that they intervened. They don't even have to tell me what they did. I'll see what they did because I'll have watched the market the entire time. I'll see whatever trigger they used to prompt intervention. Once I know a trigger, I can anticipate an intervention when those conditions arise again and take advantage of them to the detriment of everyone else.

Yeah, it's a lot like forecasting the weather, but that's what speculators do. And they get damned good at it. If CCP intervenes in the PLEX market, they won't even have to make an announcement. They very act of intervention will not go unnoticed. The speculators will gather their information and when they reach a comfort zone THEY WILL SPECULATE.

"So what?" you ask. "What's the worst that can happen?" That's a good question. I'm not certain what is the worst that could happen. I do see a possibility where CCP's very efforts to promote stability actually do the opposite. As they react, the speculators react, CPP counter-reacts, the speculators do the same and on, and on, and on with the PLEX market getting so out of whack that nothing can stop it from crashing the economy... or at least the fear that it will crash. That is perhaps the biggest danger.

The Great Depression didn't begin with a Wall Street crash as many believe. The Great Depression began when people lost faith in the solvency of banks. General fear caused a run on the banks that quickly devolved into panic when people discovered the banks didn't keep ALL their money in the vault. To anyone who understood how banking worked this was not a surprise. To the ignorant it was shocking. When you only keep 10% of your deposits on hand, only 1 out of 10 customers needs be ignorant and demanding a full withdrawal. When they all demand their money, you are out of business.

Well, this certainly has wandered a bit. It is also a bunch of "what ifs" and "maybes" with a healthy dose of "reactionary knee jerk" to boot. I admit that. I suppose, in the end, we all have to trust that CCP and Dr. EyjoG know what their doing. To determine if they do, go and read the latest quarterly financial result for yourself. You will find it here.

Fly careful.

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