Why are we seeing all this speculation?

The extraordinary growth of speculation began in 1971, when Richard Nixon removed the link between the dollar and gold. Bernard Lietaer was one of the few to originally understand and profit mightily from the newly unregulated market, as he recounts in "Credentials of a Flying Fish" 

In the eighties  Margaret Thatcher and Ronald Reagan deregulated the financial markets, and the Baker Plan  extended this deregulation to sixteen developing countries. The deregulation permitted a much wider group of players to trade in the currency markets.

Michael Durbin, author of  “All About High-Frequency Trading," is quoted in the New York Times (Jan 2011) as saying that most of the industry is legitimate and benefits investors, but " the rules need to be strengthened to curb some disturbing practices....markets are there for capital formation and long-term investment, not for gaming.” In fact, gaming has long since overtaken the markets, with great increases in  volatility. This is contrary to what was expected and hoped for by the original deregulators, who really did believe that "the invisible hand of the market" would encourage stability. Stability is the enemy of traders, whose profits come from fluctuations.

On one hand,  technological change (computers and the internet)  has led in some ways to a fairer market. To-day, broker's commissions are often negligible, one can execute a trade from a mobile anywhere on the planet, and much more information is available about companies to anyone who cares to read. 

On the other hand, no one, including the regulators, knows how to manage the unparalleled speed, volume and volatility of these markets. Speaking in December 2010, Bart Chilton, a member of the futures trading commission, addressed the advent of what he called "Star Trek gee-whiz high frequency trading. technology.... one of the most game-changing and tumultuous shifts we have ever seen in financial markets.” 

The Welsh economist Glyn Davies researched 5000 years of monetary history for his 1994 book, A History Of Money From Ancient Times To The Present Day. He concluded that there had been only two truly "game-changing" developments.  At the end of the Middle Ages, the printing of paper money superceded the minting of  coin, and banks took over  the privilege of  issuing money from monarchs. Today, with the development of electronic transfer of funds, a great battle is underway to control these new forms of money. Banks have become computerized telecoms, while telecoms, credit card processors, and internet merchants have discovered they can offer the same services as banks. Nobody knows what the consequences will be.

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