replying here due to nesting:

It makes no difference whether an arb trader connects the markets in a single order or whether he recycles the same steem over and over. I hope this isn't your point of contention. Any selling he's doing in one place, he is buying the same amount somewhere else. The net sell or buy pressure from an arb trader is zero. If he's selling 10k Steem on Bittrex, hes buying 10k steem on Poloniex.

YES... thats exactly my point of contention.

What youre saying, that the sell orders on the one exchange and the buy orders on the other negate each other, is absolutely whats supposed to happen. And on bittrex and polinex, for example, it works exactly like that.. thats why theyre not dragging each other down.

But theres something about the internal market that makes it not work the same way. Partt of it is because theyre not really the same trades on the internal market (theyre direct sbd-steem conversions)

That is to say, on the internal market, they must move in opposition to each other, but on the exchanges they can move independently. So for example, on the external market, the price of steem can increase without the price of SBD decreasing, and on the internal market it can't because they trade directly.

TBH, i feel like there is a term for this on the tip of my tounge that i just can't remember. It fucked up the price of silver once too thats why they had to create silver certs.

I think anyone buying at market A is foolish because market B evidently will always have the better price.
Market B sellers would also be foolish to continue selling on B when they can get a better price selling on A.

RIght, so lets say market A is the external market, and market B is the internal market. When price started to go up on the external market, there is always a better price on the internal market. So everyone wants to sell on the external market and buy on the internal market. This will cause the price on "A" to go down until there is no longer a price difference. Which is exactly what im saying is happening.

What devilry is this!? : )
what is the market without the individuals voluntarily setting their own price. This flaw is pretty wild.

The thing is, individuals can voluntarily set their own price. Just not in the same currency. So for example, lets say we start at the 2:1 ratio i describe in my post in the internal market. Then the price goes up on the external market. This creates buy pressure for steem on the internal market. So lets say all that buying steem raises the external market price to 2.5:1

That doesnt actually change the bitcoin price of steem.