What is a Carry Trade?

April 9, 2013 — carry trade, financial literacy, money

High finance is very easy to understand. The fact that everyone avoids understanding it makes it very easy to take advantage of the financial ignorance of the population. Bernie Maddoff you do not have to be, in order to screw your neighbor and your society out of maximum profit. Buy/borrow/die is all one has to do to benefit from the magic vanishing value of the currency everyone uses. Taxation avoidance, both legal and shady, is the province of those who already have their money in hand. Taxation without even a shabby lobbyist for representation is the fate of those who must claim earned income from jobs.

A carry trade is a calculated risk. The problem is that now the general public does not seem to know how to calculate risk, also known as random acts of unexpected circumstances. We hear the words risk-reward and carry trade, but think this is something that has nothing to do with us and our finances. This banker jargon is for people who wheel and deal, not for borrowers who pay interest on almost everything they buy during their lives. While occupying Wall Street may be symbolic, society would benefit by knowing how Wall Street profits while the population withers financially. If you carry credit card debt while your banker is free to gamble/borrow/invest in carry trades, you will come out as the big looser.

Do you ever wonder why carrying debt at a high interest rate all the time seems natural and unavoidable? Do you simply accept the idea that everything you buy is charged to the future, when presumably it will be so much easier to pay?

The Federal Reserve has become the banker of bankers. Now it is possible to predict with some certainty that interest rates will be kept at nothing for a long time. The certainty itself reduces risk for anyone who wants to gamble with money. Knowing how this will effect your own personal finances may be the single most valuable concept you have learned since you learned to count.