The first part of this essay would have been correct pre-2008. After that recession, there were no longer mega-rich entities looking for places to park their windfall national profits: i.e. Russian government, Chinese government, Saudi governments, etc. THese days, these governments cannot loan money to other governments and are not renewing their bonds when they come due. In other words, western governments no longer have those big lenders anymore, especially with low interest rates.

So where do western governments get their money to finance their deficits? Easy. They have created institutions of quantitative easing. These instutitions are an adjunct of the central banks. In essence, the institution creates money out of thin air and loans it back to the government. The government pays interest on the loan (a good reason to keep interest rates low) to the institution and someone promises it can pay the principle back.

Did I mention that institution of quantitative easing is also owned by the government? This makes the government both the lender and borrower of the same loan(s). Which then theorectically means that if the government defaults on its own loan payments in the future, it's no big deal. The government cannot take the government to court to pay its loans, right?

This has been going on since 2008. THe big lenders are no longer there. All the rules about bank reserves and factoring have probably been made redundant.

If we are to think along the lines of classical economics, we have to wonder at how this works. But this monetarist tool has been running since 2008. The wizards have managed to keep inflation low and the currencies credible. How long can they continue? I don't have an answer.

The second part of the essay takes a left turn that, to me, did not really relate to the first part. I remember reading an Economist essay about how all the derivatives helped keep share prices more constant. But with or without derivatives, share prices are still determined by their business fundamentals. To me, the derivatives are nothnig more than a profit center for the financial industry.