Jesus - you are delusional (or just that ignorant about the world of real trading). First, bond trading is NOT a a gentlemen's club. There are hundreds of dealers -from the big primaries or little regional brokers operating out of small suite; Everyone trades bonds. Everyone. Pension funds. Asset Managers. Hedge Funds. It's one of the most popular, liquid, and heavily traded markets in the world. The volume of bonds traded dwarfs anything done in the HFT world. In fact, bonds were a profit center of banks before HFT became one. There's a reason why every bank piled into making markets in bonds in the late 90's, early 2000s. As for, "Billions of new paper each month in the US alone. It does not add up with the output of the economy." - it doesn't add up because it doesn't have to. You are on a trading website. You understand margin and leverage, don't you? That's what deficit spending is. It's also COMPLETELY IRRELEVANT to HFT, which is not particularly leverage intensive. Again, you don't like deficits - fair enough; But you are conflating monetary policy, bond trading, with HFT. That's just silly.
In the 'good old days' you had to pay a one-eighth spread minimum. Twelve and a half cents. Nowadays spreads are one cent, I can hit the offer with a limit order and nine times out of ten get filled no problem, in a reasonably liquid issue. If HFT taking a cent here or there is the price you pay, it's still well worth it. Not my problem if it means Joe Floor Trader can't live off front-running orders in the pits anymore because that function is now performed by a computer, operating at much higher speeds and thinner margins. Events like the Flash Crash have much deeper causes (for starters, an ongoing government campaign to sustain equity prices at perilously overextended levels).
It is illegal in securities law but not enforced. Back to basics: this is exchange between two willing market participants. Nobody has any obligation to buy or sell. MM or specialist is only intermediary who matches buyers and sellers. If there is no counterparty that you hold it until one comes along. Simple. HFT fulfills the role of the speculator who is willing to take the risk of temporary holding of unwanted excess of paper for their own profit. Just appreciate that. By the way I am retail and was paying 5c - 25c or more spread plus outrageous broker fee. Now it is virtually 0. If somebody shaves cent here or there it is fine with me.
Deficits are facts. Nothing to like or dislike. So you saying that monetary policy (currency related), bond trading (also currency related), equity trading, derivatives, HFT, futures, options, physical commodities are completely separate and unrelated markets that have absolutely nothing to do with each other. What is arbitrage? Lehman and others was all about leverage and margin. It always works the same way.
No. What I'm saying is that HFT is not directly related to the grand macro relationship that flows through all things. It exists in its own very world of market micro-structures. (Have you actually ever seen a HFT strategy?) The original premise stated by juniorcfa was that central banks are directly related to HFT. I'm saying that it's not. You are the one who keeps arguing that there's some channel through which central bank action directly impacts HFT. I argue that there's isn't one. If you want to weaken your argument to that central bank's action eventually has some impact on HFT just as central bank's action will eventually have some impact on the profitability of the shake shack in front of CSFB, then fine. And much like the shake shack in front of CSFB, it's entirely irrelevant to central banks. (Why can't you dislike deficits? Why can't you dislike a fact? Shit smells <- that's a fact. You are allowed to not like the smell of shit, you know)
Disagreements are good. HFT is about pushing all the paper through the funnel. There is more and more of it each and every day. There are more active players as a function of paper production and global demographics. The source and main facilitator of this are central banks. This is about numbers. If the Fed balance sheet was billions few years ago and now is trillions than this liquidity is impacting HFT. These are simple laws of physics like say gravity. They are indirectly managing the markets through regional Fed offices mainly NY. If you look at the history of markets say from LTCM onward that role of he Fed in the markets become more substantial and HFT is part of the game. It does not mean that Ben is gambling by hitting the buttons but the prime dealers are doing it for him and he is feeding them money. And do not forget ECB-Fed-Jap triangle. As always in the markets nothing seems what it really is. I have programming background plus experience in programming data feeds and specific hardware technologies plus sufficient knowledge in math, statistics and physics to be able to understand HFT technology. That is why I am not scared by HFT. The way it is going we better start talking about JFT (Jigga Frequency Trading). People are going to miss HFT like they miss talking to the broker over the phone now.
His bet on FB pretty much prove that point. I don't think it got anything to do with a publicity stunt or him throwing money away [intentionally].