[krok]

Ok, I've done it. I told my children that I'm going to take them to McDonald's tomorrow evening. They see this promise as 100% good, as real as if they were actually holding the burger. The only difference from their point of view, is that if they were holding a physical burger now, by tomorrow evening it would be cold and bad to eat. The ones I have promised them are real burgers which are deliverable tomorrow evening, at the time we're going to want to eat them. So I've created two additional burgers owned by my children, in addition to all the physical burgers that currently exist, which are owned by either McDonald's, if they haven't been sold yet, or by customers if they have.

Does this mean that I've found an infinite supply of free burgers and should go into competition with McDonald's? No. Because I'm going to have to buy the burgers from McDonald's to supply to my children. They own two new paper burgers, but I'm short two burgers. So the net total world supply of burgers is unchanged.

[bal4591]

Well you're still flawed if you scale your argument. What if you take your argument, and scaled it up. What if you promised each kid 1 trillion burgers. Will you have access to 1 trillion burgers tomorrow? What if they take their future 1 trillion burgers and sell half. What if you walk into McDonalds to claim the 1 trillion burgers. Does McDonalds have 1 trillion burgers? No.

So you're saying it's okay to promise burgers as long as it's an amount that actually exists and McDonald's can fulfil it. So what you're saying is that you shouldn't sell things you can't possibly fulfil? Hence the argument against this kind of trading.

[Chris2048]

Most financial institutions need some kind of basis for a promise - something that "secures" the contract e.g. like a loan secured by an asset.

A regulated entity might have capital requirements which would limit the no of burgers promised to money held. Another might be a contract with mcdonalds for N burgers, or a warehouse full of burgers - shorted stocks require the lender to actually sell a stock, and the shorter to actually sell it (and buy it back later) but there will need to be security/"deposit" on the returning of the stock - there exist a risk that the lender will not get their stock back, which is part of the reason for the premium.

Since you/I are not regulated financial institutions, not may would trust us to deliver 1 trillion burgers on paper; so the flaw exists in "What if they take their future 1 trillion burgers and sell half" - sell to whom? They'd have to find someone willing to buy. "What if you walk into McDonalds to claim the 1 trillion burgers" - the "paper burger" is an agreement between you and some third-party, not mcdonalds. You couldn't pre-order items from one shop, and go to another store with you invoice and demand they fulfil it - your contract is not some general/official currency, there is no obligation to accept it.

> So you're saying it's okay to promise burgers as long as it's an amount that actually exists and McDonald's can fulfil it.

It's a promise that you will supply N burgers, so the criteria for ok-ness is that you can supply N burgers, that McDs can provide that many is necessary-but-not-sufficient alongside:

- you can pay for N burgers - you can transport N burgers (on time)

but when I say "ok", I mean from a "morality of making personal promises" perspective, not "financial promises/obligations made by a regulated financial institution" perspective. Individuals are not financial institutions, and financial institutions are regulated as such.