The introduction of a financial sector is not without its flaws. If returns in the financial sector are higher than on new production, a portion of money balances will be drained to circulate solely for speculative purposes.
Financial speculation includes options and futures, arbitrage, and takeover trading.
In a credit production economy, with speculation, the money supply can flow into any of the four sectors. As speculation increases, the flow of money through the financial sector for productive purposes decreases, income velocity falls, and income and new output decline. On a two-dimensional plane, income and output, productive finance, hoarding, and speculation are represented by ellipses, remolding themselves from narrow and horizontal to narrow and vertical as money flows out of new production and into hoarding and speculation.