This is probably one of the scariest articles to appear on The Conversation.

In a world filled with debt, Australia’s economy has become totally dependant on iron ore and coal prices, and if coal prices were to drop to year 2000 levels, Australia would be totally bankrupt, and could be placed in the same basket as Portugal, Italy, Greece, and Spain, and numerous other countries now heavily in debt.

We now find iron ore prices are being manipulated by speculators.

Added to this is also the strong possibility that China is “cooking the books”, as its reported exports to other countries no longer seem to match the reported imports by the other countries.

So everything appears to be dependant on speculators, and whether or not China is being honest when stating its exports are again increasing.

Actually, Futures trading was born in Feudal Japan with the Samurai. It was created to meet the needs of the Samurai who were often settled in rice and as a result of bad harvest needed a way to guarantee payment.

It was also a way to lock in a price. The traded futures market in rice back then was also several times the physical market.

Today futures (and options) are still used for that purpose. It is true there are traders who speculate using futures and options - but there are people and organisations on the other end of these contracts that use them to manage price fluctuations that can become unpredictable for commodites that can have large variances in availability and supply. For example it enables a supplier to guarantee a minimum price in the event the market falls - or a customer can ensure their price does not get higher than a certain level - which is useful for budgeting

For shares options can be used to increase income on a share (e.g. by selling covered calls - a call being the right but not the oblication to buy at a set price) and to protect against losses (by purchasing puts - a put being the right but not the oblication to sell at a set price).

It is a little simplistic to simply damn these instruments as purely speculative - although there is no doubt they are used that way by some traders - just like shares can be.

The really scary part is our second rate country managers(politicians) have steered Australia into a bleak future if the price of rocks declines. Indeed, we now hold the status of being a 'one trick pony' under their so-called good management. Rock sellers, up to our eyebrows in debt, with no hope of paying it if rock sales decline. As a substitute for the zero sum their MMRT will actually deliver, Canberra's attention has turned to selling other hard assets to rake in some much needed cash to fund their big spending schemes - Selling rural land in particular, is one of their great new business paradigms - Food producing land, which is rapidly going the same way as our supposed mineral wealth, where more than 80% of it now lies in foreign hands. So it goes with the food chain - it being sold off to foreign entities for a bag of cash in the here-and-now. Ergo, in the years to come we will be facing hyper inflated food prices, because we won't own much of our food chain.

As for the health of China(our savior) - well their inner sanctum simply produces a lovely set of figures the speculative world wants - however, few have been watching some of the useful indicators of real health - One of them being the amount of electricity consumed to produce goods, in their supposedly robust economy. China appears to be on the brink of some really big drama, yet very little analysis of their travails makes its way to Australia.

As for the relative strength of the $Aust compared to the weak $US, well it too is a flawed indicator, especially if the Japanese YEN is plotted against it. - Weak currencies make us look good, and naturally the Canberra set take advantage of our ignorance - However, against a real store of wealth, say the price of Gold - our $Aust isn't all that hot.

What is lacking in the price of Iron Ore conversation, is the simple fact that rocks are priced in $US (a wobbly currency) thus there will be an inverse relationship in the price of rocks(hard assets) - Indeed, not dissimilar to the price of Gold(traditionally priced in $US). Notably the big Okker(BHP) a 26% Australian owned company, reports to its shareholders in $US

Given that some of the paper shufflers on Wall St speculate the price of Gold going to $5000 in due course - one wonders where the price of Iron Ore will land. In short, bits of paper with George Washington's face printed on them, are not all that valid a measure these days.

I suppose this has resulted from the erroneous attack on speculators. As the article highlights they serve a vital role in stabilising the price, by buying when other demand is low and selling when other demand is high. This smoothing action is most effective when the individual speculator is most correct in his forecasts and therefore makes the best profit. Thus when the speculator profits everyone else also gains from a stabilised price which makes production decisions easier and therefore cheaper.