Financial Crisis 2008 : Exchange Rates.

Financial Crisis 2008 : Exchange Rates.
Andre Willers
16 Oct 2008

Summation :

1 .Economies with different currencies and exchange rates are extremely lucrative in a real basic sense .
2.If the dominant share index growth (we will use the DOW) goes negative , the exchange rates will strongly track the DOW .
3.If the dominant share index growth goes positive , the exchange rates will weakly track the DOW rate .
4. Recovery rates of established economies after a downturn are faster because they use the emerging economies as a chaos (entropy) sink .

Discussion :

Examine the table in Appendix A carefully .
This is applicable to any system that is identifiable and follows at least the distributive
Axioms of Arithmatic .

Notice the breakeven diagonal line from bottom-left to top-right . This is the attractor in this phase-space .
Especially the top-right . As the DOW losses increase , the rand-exchange rate has to track it if no losses are to be sustained .

The systems all track zero losses as goals . Remember , not only do humans think this way , but their computer programs are written this way .

While this was written with rand-denominated fund like AllanGray GlobalOrbis FeederFund in mind , the argument is valid for a foreign investor as well . If there is little likelihood of a rand-exchange strengthening , he has to make a rand profit . Hence , he has to follow the above relationship between DOW and Rand-exchange .

The gain :
Jump through the positions in the table .
The feedback systems ensure that systems spend most of their time in positive return territory . Another way of putting it is that the chances of profit and loss are not equal.
That is not Beth(0) . Not classically random .

But even if it was beth(0) , there would still be a bias to profitability built into the fabric of the universe .

Look at the top left of the table (max 19% loss) to bottom right(21% gain) . The values around them show a similar bias .

This means , that even if you move at beth(0) random through the table , summing the values , you will still end up with a 66.66% gain . This is inherent in the mathematics of this universe. (That pesky third multiplicative term where two negatives multiply to form a positive value : God’s Thumb on the scale.)

This has tremendous significance to any socio-economic system . A 2%+ gain , century after century is a hell of a compound gain . But empires retard it , as there would be no significant exchange rates . Hence the decrease in populations at the height of isolated empires .Cf Roman Empire .

Sigh . So much for World Empire or Galactic Empire .
That 2%+ gap is just too much . No single empire could compete to unify them all .
The world compound growth since 1900 is but about 4% , half of which now seems systemic to multi-nationalism .

Things don’t look too good for compounds like the EU economic zone . They would be better off with fewer zones (eg France , Germany as Euro1 , etc . Not exactly back no national currencies , but more profitable than the present setup . This will probably evolve from the present strains on the system . China’s special Economic Zones are creating similar problems .

Social Capitalism can handle both problems . Divorce the short-term and long-term and connect them with futures (Socialism ) .

Recovery rates and Entropy Sinks :
Think of an entropy sink as the black-hole of all the failed ideas , irrecoverable debts both monetary and morally and generally all the bad things you would prefer to forget.
Also known to the particle-physics trade as symmetry-breaking .
To religionists as forgiveness .

Western civilizations are something of specialists in this .
The twentieth century alone saw the demise of numerous currencies , political systems , empires , countries , etc .
Not to mention the divorce rate .

The meme-machinery to do this has spread planet-wide .
The meme is to cut away and eliminate .
Hitler who ?

The Arms-trade
An interesting corollary is the Arms-Trade .
A real relic , a luxury that will be cut . An interesting form of reserve .

This is a toxic-meme dump site . The arms are merely a small part of it .
The ideal way would be to set up Special-Meme Zones , where persons with toxic memes can be relocated and eliminate themselves . Somalia is a good example .
In any case , the arms-trade is history .
An unlamented casualty of the present crisis .

The Critical Point .
One asks what was the cusp between a new future and a replay of WWII in this crisis ?
It was when Gordon Brown convinced the other states to use investment in the share-capital of banks to save them . This automatically limited the state’s involvement in recovery process .
The temptation to use protectionist legislation was severely limited .
( In the Big Depression of the 1930’s, it was the protectionist cure that killed the system . Like SARS )

All credit to Gordon Brown .

This model has numerous other applications .

Andre

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Appendix A

Table of % change in Rand Value of Rand-Denominated Foreign Funds
Andre Willers . 16 Oct 2008
See discussion in "Exchange Rates"

Formulae :
V(0)=N*R(0)*DOW(0) where V is rand value , N is number of units , R is rands a $ will buy , DOW in US
V(1)=N*{ R(0)+dR }*{ DOW(0)+dDow } where d-prefix means change
{dV / V(0)} = {dR / R(0)} + {dDOW / DOW(0)} + {dR / R(0) * dDOW / DOW(0) }

Match every row j with every column I
The sum= 2 * (x^2) , where 0<=x<=1
Integrate dV : Value gained = 2 * 1/3 * (1)^3 = 2/3 of Base value .
The Base value is then 1/3 of total Value (ie the the reserve) .
See "Infinite Probes"

PercValueChange
= percExchangeRatechange + percDOWchange + (percExchangeRatechange * percDOWchange)/100


Table of % change in Rand Value of Rand-Denominated Foreign Funds
PercValueChange
DOW
Change in Exchange rate : %Increase in Rands one Dollar will buy .
Shares% -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
-10 -19 -18 -17 -16 -15 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -6 -5 -4 -3 -2 -1
-9 -18 -17 -16 -15 -14 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -4 -3 -2 -1 0.1
-8 -17 -16 -15 -14 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -2 -1 0 1.2
-7 -16 -15 -14 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 -0 0 1 2.3
-6 -15 -14 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 -0 1 2 2 3.4
-5 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 -0 1 2 3 4 4.5
-4 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 -0 1 2 3 4 5 5.6
-3 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 -0 1 2 3 4 5 6 6.7
-2 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 -0 1 2 3 4 5 6 7 7.8
-1 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 -0 1 2 3 4 5 6 7 8 8.9
0 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
1 -9.1 -8 -7 -6 -5 -4 -3 -2 -1 -0 1 2 3 4 5 6 7 8 9 10 11
2 -8.2 -7 -6 -5 -4 -3 -2 -1 -0 1 2 3 4 5 6 7 8 9 10 11 12
3 -7.3 -6 -5 -4 -3 -2 -1 -0 1 2 3 4 5 6 7 8 9 10 11 12 13
4 -6.4 -5 -4 -3 -2 -1 -0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
5 -5.5 -4 -3 -2 -1 -0 1 2 3 4 5 6.1 7 8 9 10 11 12 13 14 16
6 -4.6 -4 -2 -1 -0 1 2 3 4 5 6 7.1 8 9 10 11 12 13 14 16 17
7 -3.7 -3 -2 -0 1 2 3 4 5 6 7 8.1 9 10 11 12 13 14 16 17 18
8 -2.8 -2 -1 0 2 3 4 5 6 7 8 9.1 10 11 12 13 14 16 17 18 19
9 -1.9 -1 0 1 2 4 5 6 7 8 9 10 11 12 13 14 16 17 18 19 20
10 -1 0.1 1 2 3 5 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21