Financial Crisis 14 May 2010

Financial Crisis 14 May 2010
Andre Willers
14 May 2010

Synopsis:
Wealth grew faster than the number of monetary units . Misguided monetary policies created huge vacuoles of monetary demand . These are being filled in by a series of burps , called crises . See discussion in Appendix A .

Discussion :

A Salute to Angela Merkel .
On Sunday , 9th of May 2010 , she saved hundreds of millions of lives .
She forced the German cabinet to bail out Greece , against 90% opposition .

Consequences if she had not :
Greece , then Spain , then Italy , then eastern European states would have seceded from the EU monetary union , and thus the EU . Europe would have been back in the early 1930's . A Failed State , fracturing on ethnic lines .

General warfare like the collapse of Yugoslavia would have followed within 2.5 years. While this would not have been in Russia's optimal interest , it would have no choice but to become involved . This would have dragged in the USA (there are still large USA garrisons in Germany) , and China .
A right mess .
WW 2.5

As an Ossie , she at least had learned enough from history not to repeat it .
A salute is definitely called for .

What will happen now ?
Very little . Stock markets will keep on rising .
Stock markets will keep on selling discounted future values a bit more enthusiastically as number of monetary units more closely match wealth .
The trillions were simply soaked up by the accumulated difference between wealth creation and monetary creation .

Big inflation has not happened after the trillions created in the USA burp .
See the gold price . The slight increase was created by uncertainty , not massive inflation .
There is still not enough monetary units to soak up the surplus wealth .
And as we go into the Singularity , wealth is being created at even higher rates .

India and Russia
There will probably be a smaller burp in India and Russia .

And China ?
There are no large vacuoles of monetary demand . By keeping the yuan tied to the dollar and encouraging capital inflow , there are sufficient number of monetary units to match wealth creation .
Internal property values show a tendency towards a bubble , but this is not a vacuole .
Maybe they read my blog .

Why are we in this mess ?

The failure of academia .
I'm afraid the mathematicians have to carry the can .Economic models are based on mathematical models . The latest disaster is called the Black-Scholes equations , the basis of hedge funds .The basis of this is that the highest order of randomness is flip a coin . Yet we know this is not true . See http://andreswhy.blogspot.com "Order of randomness" or "New Tools" .

The result was the collapse of Long Term Capital Management , which had to be bailed out . Losses were a modest 50 Trillion . Yet they still persisted in a failed model , because the short-term gains were great and long-term losses were guaranteed by big institutions or governments and they still thought it was right .

The system has decoupled into two streams since WWII .
1.Institutional : military-industrial complex , where most blue-sky research now take place . But they do not publish , leading to a fracture of society .
2.The best of mediocre academics with a viable idea go private (eg Craig Venter , Black-Schole) . A leaching effect .

This has already happened in fields like cryptology . British civil servants developed the basis of RSH encryption about a decade before the commercial model .

Both of these streams follow a budget-approach for allocating resources .
See http://andreswhy.blogspot.com "Fuehrer Prinzip:
Originality decreases .

Now you see why there has been no paradigm shift since Godel .
The system has been shoving inconvenient items under the carpet .
The resultant paradigm shift will be more like a revolutionary explosion . Sociological elements will be involved .

Andre
============================================


Appendix A.
See discussion below .
Financial Crisis 4April 2009
Andre Willers
4 Apr 2009

"A trillion here , a trillion there . Pretty soon we'll be talking real money ."
Or any money at all .

Post-Monetarism .
Money's only purpose is to serve as a one-to-one counter for real wealth .
Real wealth is measured according to the criteria set out in
http://andreswhy.blogspot.com "Financial Crisis 31 Jan 2009"
Mainly
It is to satisfy the human needs , weighted according to the Maslow hierarchy .
1.Air to breathe
2.Water to drink
3.Food to eat
4.Clothes
5.Shelter
6.Weapons
7.Novelty

Deflation .
This happens when real wealth increases faster than the growth of the monetary system .

This has been of real concern just before the present crisis .
In fact , it is the present crisis .

The system hunts for stability by creating money in futures .
It creates money by discounting future earnings .
The Central Banks are not creating money fast enough to keep up with the accounting demand .

Literally billions of people are hauling themselves up by the their bootstraps . Creating enormous wealth . The number of dollars , euros , yuan , etc in circulation is not sufficient to reflect the wealth . But the governments concerned try to limit the creation of new money , under outdated theories .
The system promptly bubbles up in futures , which are inherently more unstable than a currency .

Historical examples :
There are many . I will mention two :

1.British Empire circa 1880
A gold based trading empire in an industrial revolution created wealth faster than the discovery of new gold , until the South African goldfields . This created an explosion of wealth .

2.The 1929 crash .
Post-WWI created new wealth , but the monetary system did not keep pace . A bubble in futures (stock exchange) followed . In the ensuing collapse , wealth-creation was decreased . War , in other words .
But the system enforced balance .

And for now ?
The fear is that inflation might follow the creation of trillions of dollars .
The real problem is that they are too modest .

The point is that the excesses of futures transactions reflect a real shortage of money .
The system needs and will need a continuous creation of money just to keep up with the demand in real-wealth creation .

Look at the scale . The world economy is about 100 trillion a year . Wealth creation is about 10% per year . This can be summed , even for the last 10 years this gives a demand for money of about 100 trillion dollars . The money creation systems cannot keep up .

Can you see why we are talking about post-monetarism ?
Any conceivable command-and-control mechanism cannot hold .
It will , and has , fractured .

An example :
See
http://andreswhy.blogspot.com "Negative pressure : an important update"
If this technology is patented through the Danish embassy in Second Life , future income streams are irrevocably fractured . Linden dollars will become one of the hardest currencies on the planet .

How does this affect you right now ?
If you have any exposure to hedge-funds or futures , get out now . Immediately .
As far as I can see , the funds have been given an extraordinarily wide leeway , but they still have been using short-selling to panic the sheep .
I estimate their exposure to be about 10 trillion on the positive side . This will be dumped into the Market as the new measures come into effect .

The day of the unbridled hedge-fund , like the cheap car , is over .

After that , roughly 20 trillion a year for 5 years will have to be created just to wipe out the back-log .

But in the meantime , wealth-creation will be proceeding at an exponential pace .

Money will become increasingly fractured and meaningless .
New ways of accounting will develop .
I draw your attention to Denise Schmandt-Besserat "How writing came about" (ISBN 13 978 0 292 77704 0 .
She shows conclusively that writing developed out of accounting practices over a period of 4 000 years .

Similarly , new accounting practices for fractured systems will need new descriptive terms .

And so it goes .

Andre