Friday, August 21, 2009

Financial Crisis 21 Aug 2009

Financial Crisis 21 Aug 2009
Andre Willers
21 Aug 2009

Synopsis :
Hyper-stimulation of real wealth creation through stochastic resonance will be an interesting challenge .

Discussion :
See previous posts in "Financial Crisis xxxxx"
The classical financial crisis is over (and has been since Oct 2008 , when food prices stabilized .)

Stochastic resonance :
It is easiest seen by way of analogy :
Imagine the ruins of a city submerged just below calm sea level . It is difficult to find out the nature of it through inspection . But introduce waves , ie turbulence/chaos and portions are revealed . We photo these and patch them together . Pretty soon , we have good picture .

Similarly , funding for basic research before the crisis was calm and orderly . Nothing surprising was allowed to disturb the serene waters . But underneath …

The chaos of the crisis and the enormous amounts of capital injected sloshes around in the system in truly unpredictable , chaotic ways .

Stochastic resonance .
The Internet and journals functions as a memory of the of the flashes .

Technology :
The effect will be an explosion of both technology and new basic principles .
In our analogy , the underlying structures become visible in the chaotic process .

We have seen the equivalent in previous turbulent episodes in the past . Indeed , some think this is the function of turbulent episodes .
Humans get bored , then rock the cradle .
Maybe learn something .

Remember that money in human terms is a futures contract spread over real and virtual entities . No matter how large the present stimulus is , the impact can be simply spread over the flood-plains of the future and virtual persona of companies .

Watershed for short-term gains .
This means a defeat for the philosophy of short-term gains . The Quarterly report .

In hindsight , the emphasis on short-term gains increasingly appears to be a rear-guard action to protect the convertability of capital into income .

Do not be surprised if severe limitations are placed on the ability to convert capital growth into income . The effect of this will be to ring-fence capital stimuli and prevent Cost-of-living inflation (especially food) .

This is inevitable if present Western systems wish to survive .

Stochastic Deflation .
The rate of wealth creation is not the same on all financial dimensions . We already see this effect vis-à-vis electronics and mechanics . The old ways get devalued .
Why walk when you can teleport ?
Why play the piano if you can get any music ?
And so it goes .
France in the early 1700's and Britain in the late 1800's spring to mind .

The net effect is the creation of entities like MicroSoft . Stabilizing niches .
The niches are usually self-defined (not vertically integrated) .
The present term is "core-business" .
Usually used by companies in decline . (Cf Anglo-American)

Systemic Shock .
This is minimized by having small units of value (dollars , etc) . This enables small entities to grow , filling niches that cushions systemic shock as waves of changes propagate through the system .

Small businesses (like Microsoft) cushion the shock by making things as expensive as usual . Real low costs are disguised , until a major concatenation of shock fronts (like 2008) hits .

Note : the systemic shock of real low costs will continue . So get used to continual financial stimulus packages . This is exactly equivalent to a two-tier system of capital and interest . Spain tried it in the 1500's and went bankrupt .

This time the gold is from innovation , but it is doubtful if anybody has learned anything . The old Roman Republic foundered on the same rock .

The question is : can the rate of innovation (ie wealth creation) exceed the exponential rate of wealth consumption ?

The long term answer is yes (otherwise we would not be here) .
The short term answer is also yes , hence we are heading into the singularity .

The shocks to the system of low costs will diminish in severity , until it rivals the price fluctuations of salt .

Chips , anyone ?


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