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CDS, Bond Speculation, and the Marginal Utility of Debt

Warning: unsupported opinion follows.  I am not a financial professional.  I am trying to prod thinking, including my own.  DYODD.

In this paper,

Satyajit Das describes negative basis CDS trades thus:
"In a negative basis transaction commonly undertaken by investors including insurance companies, the investor purchases a bond issued by the reference entity and hedges the credit risk by buying protection on the issuer using a CDS contract. The transaction is designed to lock in a positive margin between the earnings on the bond and CDS fees. Negative basis trades exploit market inefficiencies in the pricing of credit risk between bond and CDS markets."

By locking in a positive return, the traders are engaging in risk-free bond speculation.  An interesting parallel argument has been presented by Antal Fekete, in which he ties risk-free bond speculation to the regime of falling interest rates, and goes on to decry the destruction of capital that occurs in a regime of falling interest rates.  I suggest reading the entire article.

Fekete also takes pains to point out the link between risk-free bond speculation and Nixon's decision to take the U.S. off the gold standard:

"We have to take into account bond speculation, a permanent fixture on the monetary firmament since 1971 when the U.S. government defaulted on its gold obligations to foreign governments and central banks. (There was no bond speculation before, for reasons having to do with the lack of sufficient variation in the rate of interest, making such speculation unprofitable.)"

Think about this for a second.  Credit default swaps exist allegedly as a means to hedge bond risk, but in fact they primarily function as an adjunct to bond speculation.  This reinforces my view that CDS were merely a means to keep a failing fiat/credit game alive for a few more years.  They enabled ridiculous leverage, at least on paper, by hedging bad debt.  They did so in an entirely opaque manner, producing "profits" for the major trading desks, and then blowing up the entire financial system.

Here's an important question: if the world was on a gold standard, and bond speculation was unprofitable, would credit default swaps exist?

In the referenced article, Fekete also points out that the marginal utility of debt has been falling steadily for decades, and he makes this statement:

"Still, it took about 35 years before the capital of society was eroded and consumed through a steadily deteriorating marginal productivity of debt."

One of my main themes is the inviolability of mathematical reality.  I continue to assert that capital is real and cannot be printed.  I also assert that attempts to print capital dilute all then-existing capital.  Does this dilution of capital manifest itself as a falling marginal utility of debt?  Does the marginal utility of debt fall because the underlying capital contains less "real" component than earlier, less diluted capital?  If nothing else, the easy availability of "faux" fractional-reserve capital earns it less respect.  Why does it seem that diluting it renders it less able to cause production?