Thursday, May 15, 2008

Markets , Money and Lies .

Markets , Money and Lies .
Andre Willers
15 May 2008

Synopsis :
Money is a single-dimensional variable . This is it’s strength .
A market of any kind forces impossibly complicated and convoluted calculations in multiple dimensions down to one dimension , the transaction price .

A major casualty of this process are lies . Knowing untruths . The Offer-Bid process in the Market squeezes out lies if the Market is unbiased .

Markets used for Prediction .
Since human society and humans are about 67% lies , any reliable system that can squeeze out lies has a major advantage . It’s memes will propagate .
Note what happened to the Communist meme . The lies proliferated until the system crashed . Much like a computer virus .

So it is no wonder that it now being used to more accurately “predict” the outcome of precisely specified future events via a futures market .

A good summation
Is given in Scientific American of March 2008 P26 “When Markets beat the Polls” .
1. LC Clarke “The next Big Ideas: Placing bets on wisdom of employees” from the Sunday Times .
2. Popular Science magazine runs a futures market .
3. Others on the net :
Foresight Exchange , NewsFuture , Intrade , Avian Influenza Prediction Market , etc ,etc .

These markets have been running since 1988 .
See also “Information Markets:a new way of making decisions” at

Caution !
Wisdom is not being distilled . No new knowledge is being added . We only get rid of some of the lies . Since some people’s cherished truths are other people’s lies , a spectrum of values is possible and a liquid market is possible .

An example :
Company XYZ establishes a futures market to see whether a software project will launch on the specified date . It is open to anybody . Everybody in XYZ might know that the target is hopelessly unrealistic . If they can bet anonymously , the price will go down . Competitors might bid the price down and the Management might bid the price up . In other words , the normal human lies have entered the system .

By the way , this is what happened in the present futures crisis . Bonds are futures (the estimate of a series of future payments .) Any credit mechanism is . Once lies have infiltrated the system , the whole system locks up (as what is happening now)

A painful period of purging and squeezing-out of lies follows , feeding the whole mess through the mangle of the Market , involving a lot of bellowing and screaming .

Notice the importance of anonymity .
Money might be one-dimensional , but once the bidder or offerer is known , all the the money then becomes entangled in a quantum sense .

Market futures prediction for one .
Every investor knows the problem . Every day he has a different view on whether to hold , buy or sell . The books recommend a strategy .But this has the drawback of being inflexible .

He might as well use a futures market with one member .
Use real money . (Important : the mind sneers at monopoly money)
Every day , he reviews it . This way he squeezes out the lies he has been telling himself . New facts will also be incorporated .

Market futures prediction for the Family .
Use real money ($5 will do) .
Set a futures contract on a holiday at Disney Land on some future date and let her rip .
Of course , if you do not honor the implicit contract , they will have a learned a valuable lesson about commerce and lies . Unfortunately , this might also include the role of the courts in settling disputes .

Fair settlement of Disputes .
At present we know of two uncontestable fair mechanisms:
For Two : A cuts the cake and B chooses first .
For Three : A rather complicated system that only divorce attorneys understand

A Market futures system open only to interested parties could easily be developed to give all parties concerned an input into the decision making process . It has the added advantage that after being fine-tuned over thousands of civil cases , it might be used in more serious disputes .

The Software should be a bestseller .

Card game !
Call it “Unhappy Families” . Tolstoy approves .

Money and Time .
Money is one-dimensional . Time can be tacked onto it , usually through interest . The usual argument is opportunity cost and risk cost .
The union is forced .

Markets are quite efficient in squeezing out lies (ie getting a fair price ) in a single transaction not involving future payments .

Fast communication (also called globalization or Empire)
The highest risks (and hence the highest returns according to this model) are at the borders of the Empire .But fast communications ensures the same interest rates in the center of Empire as at the peripheries . But the center’s costs are always higher by definition . For the center to keep employment , it has to decrease costs (ie fire people) and increase productivity .

At the periphery , the armed forces of the Empire is used to lessen the risk at general taxpayers expense . The original high risk costs then goes into the pockets of the investors .

This is the driving force of Imperial expansion since money was invented . (The British and European Dutch and Rothschild groups plundered the American and African continents during the 19th and 20th centuries using this mechanism.)

Does this seem familiar ?

This has happened over and over again .

Early Christianity and Islam tried to break the cycle by banning interest .

It did not work because there is an underlying increase in real wealth . Humans keep on getting wealthier if left to their own resources . Without a mechanism to handle the wealth increase in terms of money , the system breaks down .

A classic example is the widespread famines , wars and depopulation in Europe circa 1530 , due to the influx of Spanish gold and silver (ie money) from the Americas.
Farmers grew cash-crops to sell for the inflated prices , neglecting basic food crops .
(Bio-fuel , anybody?)

What happens if the Empire cannot expand anymore?
The Empire has two choices :
Try to continue to expand by force of arms.
What we would call the Military-Industrial refuses to scale down .
The money-interests insist on a continuation of high returns . The marginal costs escalate (one way of recognizing an expansion limit .) The Military-Industrial complex sucks the life out the Civilian complex to maintain artificial returns on money .

In other words , direct taxes and indirect taxes(inflation) beggars the base of the whole system . Civil wars ensue as the system cannibalizes itself .
If there is heavy over-exposure to futures like the present US $460 trillion , the systems might hopefully collapse faster than civil war can commence .
The USSR collapsed in exactly this fashion .

An interesting aside is that the Roman Civil Wars can be described in these terms . They had already plundered all the easily available wealth . The Army had the wealth of the known-world . The only way the money-men could guarantee returns of 30% to 70% was by plundering from the conquerors . The money-men were about the same as today : salary slaves , with no interest in the owners .

The only wealth that could be obtained from the peripheries was by careful husbanding and trade . The returns on this could not have been above 5% .

Can you see the logic driving the system ?

Once again I have to take my hat off to Augustus . Gaius Julius Caesar must have realized the essence of the problem , hence his Gaul foray to broaden the base of Roman society .

But Augustus made it work by deliberately reigning in the Roman military machine (hence his insistence on a limited number of Legions) and by simply killing off all money-interests (senators and knights) and confiscating their assets .

In a sense it was a civil war , but where it belonged , amongst those who sent the troopies out to die for their pocketbook .

The wealth of the Roman Empire then came from trade , not conquest . The money system had to be satisfied with single-digit returns , instead of the double and triple digit returns it was used to .

Can you see how unusual this was ?
Capitalism is a good steed , but a bad master .

An example where expansion did try was the First World War . The trigger for the war was in China . France had been investing enormous amounts of capital in Russia . (Like Britain did in the US) . Germany had a deal with Peking for some industrial plants , which was torpedoed by a Russian offer of cheaper capital , funded from France . Germany’s expansion had been halted overseas (the British Fleet and Empire ) , in Russia (by the French) and now in China , the last really large economic unit . Their economic expansion had halted . The large returns of the 19th century could only be maintained by taking it from somebody else .

So the Germans tossed all the toys out of the cot .

Do not think that this is some conspiracy . This is simply large numbers of like-minded humans making similar decisions given the same conditions .

2. Maintain the empire .
This is quite difficult . The Chinese built and maintained the Great Wall mainly to maintain the Idea of Empire through succeeding millennia of growth and shrinkage . Especially shrinkage .

The Mythos : this is China . Look , there is the Wall .
It works even today .

Compare it to the Roman Empire , which had an equivalent system of borders . But Constantine the Great withdrew the legions to fortified posts (the Knights and Castles Defence) .

Both systems faced the same enemy : light horse with composite bows .

Militarily speaking , the Knights and Castles defense is superior . But culturally and Mythos-speaking you only have to look at the results . The Chinese Empire is still there , but the Roman Empire , even the Roman Catholic Empire , is gone .

Other examples are the British Empire , The Dutch , the Portuguese

To maintain or shrink , vested interests in the monetary complex have to be pacified or overthrown .

The Portuguese Empire in Mozambique and Angola is a good example . (Circa 1974 AD) . Rich families in Portugal had extremely large , profitable absentee land-holdings in these territories . These were maintained by Portuguese troops paid by the General Exchequer (ie the taxpayer) , who never saw a cent of these profits . The revolt then was from the Army (ie a Civil war , albeit a very short one )

The British Empire
The greatest Empire the world has ever known . Brought down in one year .By their revered leader , Winston Churchill , no less .
The US stripped the British empire of all it’s assets and , more importantly , reserves . It never recovered (as anyone familiar with Infinite Probes will know) . The move of the British Empire gold reserves to the US spelled the end of the British Empire . The gold would have made no appreciable difference on either side to a war of that nature , but it did after the war .

The US Empire .
The US military has been close to rebellion since Carter . The upper echelons might be in bed with the financial complex , but the Colonel level and lower gets no benefits , only orders that offend their sense of “doing it right “

The highest trained lions on the planet , barking at the orders of donkeys .

When Washington begged his officers with tears in his eyes in that tavern to obey such leaders , they were in no threat .

But today US forces , especially in the Middle-East , their lives hang by a thread .

Any time Iran closes the throat of Hormuz , the US forces are spit on the griddle . And once the nukes start to fly , they are toast . All 130 000 .

A financial collapse , closely followed by a military coup seems the highest probability after that . Wars of conquest against the handiest targets with something worth stealing is next . Probably accompanied by a communistic ideology if you are lucky . A theistic ideology would be bad . Make that very bad . Europe better watch out .England would be first .

It was interesting to see how the Warsaw-pact orders to mobilize and deploy in 1991 was short-circuited . Shevardnadze took the credit , but it was the guys in NSA that did it . Will they do the same for their own command-and-control systems ?

Half-a-loaf is better than none . The US has 300 million hard-working , tech savvy inhabitants . Do they need to rob by armed violence ? Is it easier to reform your system or become a person your mother always warned against ?

Andre .

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