Possible Worlds, Real Worlds and the Importance of Semantics to Economies...

[konkon]

Possible Worlds, Real Worlds and the Importance of Semantics to Economics (economies) and Other Disciplines

Pretty much what I’m saying here has been posted on Twitter previously, under my handle commandokon_9, and it runs along the lines of the accepted view I’ve held for a very long time (and in all types of disciplines, that won't be covered here).

Let’s start off with stating that a possible world can be any conceivable world, or ‘parts’ thereof (which is more usable, as ‘parts’ to possible worlds can be ‘connected’ to suit certain theories, objectives or other 'parts' etc). The real world, or what one can know of it (at t), and of course it varies between observations/people, is technically a possible world also. This is an important premise.

Now with semantics, most of the things we observe (etc) can be quantified in (hopefully) meaning and understanding, and conveyed for the same reasons and usefulness, practicality etc. But this can be in many circumstances, if not all, an evolving process, that has to have change, however small, as a requirement.

Just from these two paragraphs one can assume or conclude that a discipline like Economics or even Finance, would have evolving characteristics. I will elaborate on any of these points as I continue this post. But first, some connections to examples or more importantly to what I think is happening to ie monetary policy amongst other dynamics in our real world. A note, that most of this has been covered by me on Twitter, but I would also like to consolidate these thoughts here, and any feedback would be much appreciated.

The Federal Reserve has not just allowed-for more asset purchases to affect the real economy. The Fed, with the unprecedented levels of QEs and inclusive of the time and magnitude of the other QEs, has expanded notions of ‘money’ by helping make the concept of money 'elastic' in scope, extension and in application. What was once a more restrictive definition (to its then fullest extent and not just from some/a school of thought) or notion of ‘money’ (and this can include other terms like ‘capital’ etc), has become one with (much) less restrictiveness and quantifiable boundaries.

At the level which is important to you or I, this hasn’t changed as much as at the levels central banks, for example, are involved in or with. The cash in your wallet is still the same, although one may need more of it to buy a certain product, depending. I’m going to primarily focus on the higher order levels, of which central banks and co are the major players in.

I will also comment on why the Fed’s (less inclusive) attempt to boost the US economy with asset purchase programs, differs to the more holistic and (hopefully) successful attempt by Abe’s, the BOJ, industries (workers etc) attempt to boost their economy. The Japanese example is a unique one, given their circumstances of high productivity potential, their strengthening (over the decades) currency (which means that they can devalue it) and their across the board inclusive ethos to expand the Japanese economy. I don't believe in QEs without these specifics and without a high level of productivity and innovation.

At the heart of some of these assumptions is the notion that at that level, there is greater scope for manipulation (hopefully, in a positive way for the masses) of concepts like ‘money’ and the extension of them.

I will also state why innovation is so important to the development of one's economy and well being etc. And yes, the lack of innovation and productivity (in the real world; not talking about derivatives etc here) adds to the demise of one's economy. And I'm not saying that innovation through (controllable) derivatives initiatives adds to a demise. This is not necessarily the case over a stretch of time. But I do worry about many derivatives models. Not going into it here.

I have been a strong believer for a very long time that the lack of innovation is one of the key reasons why an economy does suffer over time, especially if that economy relies on innovation and developments.

There also has to be a displacement of fresh capital/debt into innovative and new areas to help prevent the flow of money from circulating into the same type of sets and classes in the real economy. If this doesn't happen then, with the unprecedented levels of asset purchase programs, prices of the same types of classes or sets can and in many instances will go higher. Some may call this an inflationary effect, if you're on the wrong side of the trade. Inflation is, to me, a relative concept and it does vary from circumstance to circumstance within a country.

Once again, all of this has been commented on by me on Twitter.

End of Part One ..

 

[konkon]

On why Japan’s push to devalue the yen is a positive move for Japan and the global economy.

This positive example of Japan will be linked to some of the points raised before, and I feel that it’s necessary to outline why this move, led by Abe and strengthened by a collective will to boost exports, production and (in Japan’s case) innovation, is a good one for Japan and the global economy, if they can pull it off.

The yen, from what I remember, was at around 200-300 to the USD quite a while back. There is room to move here, and although I’ve heard an ideal parameter would be at 100-110, I’d go even further than this, if it’s at all possible. Not to 300, but around 150 to the USD would be ideal for Japan, although some wouldn’t find a weaker yen ideal at all. Noted.

Abe and the BOJ would have a different agenda to the Fed; the Japanese cause would be about boosting their export driven economy, which is crucial to them. They would not be after a reserve currency or some form of exclusive and all-out world domination drive. This is a different agenda to the Fed's.

The Japanese would be very good at displacing theirs and the world’s flow of capital into areas and markets that aren’t heavily and overly bombarded with hoards of cash etc into limited and the usual classes or sets of products etc. There wouldn’t be just the case of fresh capital or dead money trying to find the usual types of 'homes'. This practice of circulating money into the usual types of places, and in certain circumstances from one financial product to the next, perhaps via other peripheries (without it hitting the real economy), doesn’t really spur job creation in the real economy over a period of time; just look at what’s happening in the EZ for example.

If, down the track, worse comes to worse on the global front and the fiat currency theory folk are right about the spiraling devaluation of currencies and a destruction of these types of currency models (and the need for a reset), then the Japanese example mentioned would mean that the production and innovation that came out of this whole process would not have been in vain, but would have been for free ! For free, considering if they are right about a doomsday fiat currency model anyway, then anything you've got to show for it or during a possible demise (if it happens), would be a net positive for the global economy. According to their thesis, it would go down this path anyway. So why not innovate to an unprecedented level or close to one, and get a head start before a next reset hits or is necessary.

In fact, I don't think a country would necessarily go down this (devaluation destruction) path, anytime soon, if they were able to increase production (in their own country) and strive for next generation innovations. Their currency would be able to be displaced across a broader range (in the real economy) and be utilized and swapped at sustainable levels. Perhaps it may still happen, but the devaluation destruction mechanism may have been slowed down to a manageable level. Other mechanisms could then take effect, as the concept of money, being somewhat redefined along the way, through elasticity in meaning, scope and extension (thanks to central bank experimentation), may allow for further manipulation in generally positive ways or for a greater good. It would still depend on a lot of factors, the key one being innovation and production, but the concept of money, being less obvious for one, may allow for further manipulation at that higher-order (ie central bank) level. A collaborative approach (government, central bank, industry, worker etc) from within one's own country would still need to suffice. The Japanese are leading the way with this collective drive and I hope they continue along this path, although there will be certain obstacles (perhaps from other central banks and/or market heavyweights).

Unfortunately, the Fed in the US doesn't have to worry as much (but they still do to some extent) about a collaborative approach for its own survival later and the USD being the reserve currency. It's able to force through USD swaps throughout the whole world, without the need for a strong middle class in the US. It can do this for now. But it does need to be a lot more inclusive for the US economy and I mean the real one in the US. It should do this in the same way the BOJ and Abe are attempting. An all inclusive one, where larger institutions don't turn their backs on the masses. This is one reason why I have been arguing for a more inclusive Federal Reserve in the US and for it to be taken over later if the same conditions suffice. Notice how Abe is taking control of this whole process or to the extent permitted to him? This is out of Obama's capable hands though (as it would have been for other US Presidents), as those that cling directly or from the periphery to the Federal Reserve and Treasury are some of the most powerful institutions/people around.

Most of this can be found on Twitter under my handle commandokon_9. It is hard to find the earlier stuff and it takes time to scan through much earlier tweets. But I do keep records for myself.

A while back I wrote about the elasticity in the concept of money may allow for duel interpretations of certain outcomes in the economy. Something like the state of an economy or some part of it being x and not x or appearing to be the case, at the same time. Odd, but I think there may be technical allowances for this. I would like to write about this. I do think it can allow for this as allowance is all that is needed. If true, then things like this may have to be looked at carefully so as to be able to manipulate 'things' in the right direction.

Anyway, I've got a lot to do, so see ya .. (for now)

 

[FlyingFox]

Interesting.

Personally I think you're missing one of the most important issues, that of demand. In particular that of lack of demand due to changes in population/demographics. The Japanese have openly said that they are "printing" to increase inflation to 2%; the devaluation of the yen is a nice side effect (if it actually happens).

Secondly, just putting more money into an economy is not the most efficient way to get innovation (or useful production). If events leading up to the GFC have taught us anything, it is this. If anything, having a currency disadvantage fosters innovation e.g Australia.

There are also other issues like punishing anyone who is saving, retirees etc

 

[konkon]

Interesting.

Personally I think you're missing one of the most important issues, that of demand. In particular that of lack of demand due to changes in population/demographics. The Japanese have openly said that they are "printing" to increase inflation to 2%; the devaluation of the yen is a nice side effect (if it actually happens).

Secondly, just putting more money into an economy is not the most efficient way to get innovation (or useful production). If events leading up to the GFC have taught us anything, it is this. If anything, having a currency disadvantage fosters innovation e.g Australia.

There are also other issues like punishing anyone who is saving, retirees etc

Demand can always be there on the global stage, and this is what I was referring to. The Japanese case which is a unique one (or one of the unique cases (ie south korea??)), considering their track record of innovating and producing. One has to start from this type of position. Also, the yen has strengthened greatly over the past two or so decades. There are voids for (global!) demand of all types of products and possible demand for products that haven't been or need to be developed, even if they are difficult to detect today or tomorrow. One (the Japanese, US etc) can produce and innovate (in stages) to then create demand. Look at what Apple and Samsung have done, for example.

The hopefully increase in competition for (even a higher percentage of newer) goods and services can regenerate the need to produce and innovate further. Abe has the right approach. The Japanese should go for broke. They have seen their economy decline for some time now. One may argue that an aggressive central bank has made sure of this over the years/decades. I'd also go as far as to say that one must separate a nation and its central bank, with these types of mandates. A real lazy and dumbass way of going about things. Affects one's own nation too. Not referring to Japan here.

Saving? With extremely low interest rates in Japan already? Well one can always put it to work. There's always the 'greater good' argument, applicable here I'd say.

Your second point is more applicable to the US as it's lost its manufacturing, innovation and production (outside of tech) prowess. Compare this to yesteryear and let me know if I'm wrong. The Japanese are still more than capable of producing and innovating. They have not been stripped of this as yet. An important base and condition to work with at this stage.

Thanks for the reply.

 

[konkon]

A possible Fed quagmire is one where it needs low interest rates for US multinationals to continue to increase investment across the whole world (notice how I didn’t say 'just the US', here?), through historically low yields, and buoyancy in stock markets, where there may be additional benefits that come through higher share prices and valuations; capital flows into equities can indirectly make corporate balance sheets a lot more attractive too which can increase incentives to grow those businesses (which is in itself a good thing), across US borders, as mentioned. But for low rates to continue, growth in the domestic economy would have to be subdued, also!

The Fed has said that it will continue its aggressive asset purchases programs until unemployment falls to well below 6.5% and(!) employment metrics, like participation rates are at certain levels (that unfortunately would be difficult to achieve, considering so many have fallen off the technical unemployment metric. Benefits cease after some time. The Fed will have to include these extended metrics in its decision making. I saw this as an intention to prolong QEs (if need be, of course)). It may just be an intention only.

I have a real problem with this, when large multinationals, banks, for example, aren’t doing enough to consolidate growth and production from within the US. I also see the Federal Reserve as too much of a non-inclusive system also. I don’t see how hard it can be for the largest and most powerful companies (and ones that can have a greater impact in the global economy, from the US, of course) not to push through much higher levels of domestic growth (and through increases in production) in the US. They have little trouble suring-up their own balance sheets and earnings, many of whom have done so through international exposure, of various sorts.

But let’s say this (a much higher production level to the one we've seen within the US) did happen a lot more rapidly, like it should, given the all-round strength in these US companies, institutions etc, then that would mean yields may and most likely would have to increase more rapidly and to much ‘normal’ historical levels, given an across the board, grass-roots and robust rebound within the US middle-classes. If it was to occur.

But that would mean that funding rates for the largest institutions would have to rise and the cost of borrowing for all concerned would shoot-up. This may slow down all kinds of large US institution/multinational (forced-thu) swaps (of all types), needed for increasing large US multinational/institutional interests across the globe.

Low yields and borrowing costs would or should continue to reinforce the (reserve currency) strength of the USD (no matter which low range it traded at). It may increase core and peripheral interests across the globe [perhaps one for the conspiracy theorists], and possibly allow certain groups to take greater (ie pivotal) control of various global economic systems [another one for them! I have a major problem with this when, no matter who seeks greater or pivotal control of any type of system, doesn’t want to innovate in the real world, and thus helps prevent other nations (and ironically the US) from innovating and producing at much higher levels, for their and the global economy].

One that has control of something can do as they please. Sometimes one's own net position can be strengthened relative to someone else's if those others are made to peddle backwards to some extent.

A recovery is way way too slow, considering. Surely we (they!) can do a lot more.

These were stated by me on Twitter, also.

 

[konkon]

It’s amazing that the two leading schools of thought, re ie monetary policy, believe that they each have exclusivity over such concepts. How much of it is mutually exclusive and to what extent are they talking about the same or the exact 'thing'? There are very good arguments for/on both sides, but I feel that they're not always on the right wave-length or referring to the exact same ‘thing’ or reference point. One can argue endlessly if what they are arguing about is also (conceptually, visually) 'wider'/'shorter', or the focal point behind their views actually varies at times and is not set; it can make hitting a mark very difficult. This would be more applicable to complex issues/concepts (etc), and let me know how many complex concepts, extensions actually stay constant; that would be needed(!) to ‘fit’ argument frameworks or the basis of an argument?! Especially in the case of ie higher-order associations re 'money', monetary policy etc.

A lot (not all) of classical reasoning on complex issues, tends to lack ongoing and(!) constant tracking of extension changes, and other variables (or systems) that go on to affect a, or what is considered(!) a, reference point to ie a concept that is being observed/studied. Also one may not be factoring in all that needs to be considered; all of which can(!) occur when formulating ideas around ie monetary policy. Furthermore, how far does one need/want/have to expand the scope of what they are arguing about or commenting on?! This one's been a pivotal basis for me for a very long time. May as well not wake up in the morning if I don't use either of these, especially this last one, when ie formulating complex ideas relating to x y z, or pretty much any complex notion, not bound by ie set principles, like they would be in many of the sciences etc. Can whatever that needs to be, be expanded (or 'shrunk') through whatever (ie conceptual, hypothetical, theoretical, real etc etc) means available?! A very important point too. I'm dealing primarily with semantics here. An ideal starting point for any discipline. But don't, as I don't like to, fall too far into the pigeon-holing 'mantra', where there has to be, by some ie assumed premise, a start-to-end assumed quantification, scope of what can get left out, included etc. On the issue of (some) central banks, intentional or not, some of these CBs are, to me, getting more involved with concept/extension 'shifting' and 'redefining' things along the way. It's probably good if one enjoys the 'easy/easier' money and whatever else comes along with that, but not so good if this starts to break-down over time, maybe because it just didn't end up making enough sense. Of course there could be (and are) other reasons for a possible breakdown.

I have a keen interest in knowing where, the highest historical levels of central bank shared debts (that we now have and are likely to be perpetuated) takes us later; this one's fascinating, at an academic level, and is very much unprecedented. To what extent is this process or the consequences resulting from this, manageable and even a keenly sought-out agenda by ie some central banks and anyone else for that matter? How will a much higher historical percentage of shared central bank debt play out and affect (reserve) currency statuses, even? What divisions might there be between the extremely well-off and others (others: that may include, many that are well-off too!)?

If something's going to shake & bake all types of markets later on, it'll be the fed's asset purchase, and the like, exit strategy, and, just as importantly I think, the anticipation of it later. There should be some very interesting, complex, heavily intentional trades around that time. Perhaps many major heavy-weight, global, repositioning trades, the likes of which we haven't seen, well, since around 2008 perhaps; there were some serious repositioning (ie carry) trades even in 2007. Perhaps even, with respect to this possible future, many divisions and escalations in reserve currency status alliances or sequential momentum bets along these lines. Maybe.

How about a smoother transformation into a basket of global range-trade currencies? I'm sure many are looking forward to something like this. But the unprecedented levels of shared debt by central banks may even provide an opening for some type of model, where if one major central bank player fails, the rest may go down along with it.

This unprecedented amount of debt-sharing central bank quagmire, has bugged me for some time. How does this one play-out? If one buys the currency war thesis, which has clearly been going on, from a low to a high degree and back again, for nearly a century, then one may (maybe??) have to assume that there won't be as much cooperation among some of the heavy-weight central banks, later on.

Will the USD continue to see more pegging and even range-pegging, even if unofficially not pegged or range-pegged, over time? I think that many behind the USD would want and continue to want to see this. The range-pegging itself seems to consolidate the USD's reserve currency status, and this doesn't necessarily need too much consent either.

Going back to the unprecedented levels of shared central bank debt, and the acceleration of it: this one can not be discounted at all when trying to work out what the future yields, with respect to central banks and of course pretty much everyone on the planet. One that has to be implemented in the premises to any argument about which direction we're taking.

 

[tinhat]

This doesn't address the monetary/currency questions you pose, but...

With regard to public debt, and without being a scholar of history, I have observed through the little reading I have done that, throughout the annals from antiquity, warfare and military spending are the primary thing that sends states broke.

To a large degree, although despite that they were at the forefront of technological innovation (and especially in the information technology revolution) during the American Century, the USA squandered a large part of their century on unnecessary military spending and futile wars.

To put the icing on the cake, and to see the American Century go out with a bang, George W. waged wars on several fronts AND cut taxation. In my view it was the most brazen raiding of the treasury of modern time. Now that is a sure fire recipe for bankrupting the state.