27 August 2010

No Pain Only Gain

I do agree that a rescue was needed, else asset values would probably find valuations which equal a depression. Arguably we may be in a depression, but one which contains the seeds of a mighty surge upwards and the regeneration of the US economy.

The point is a depression may be the way the economic system acquires new ways to grow, as some have speculated. The difference this time is the use of sophisticated dynamic systemic engineering methods to alleviate the pain. The question this blog has asked is, are these methods disturbing the gain.

The government is arguably trying to avoid a re-run of 1974, which resulted in a decade of malaise. The problem is the restoration of liquidity then resulted in a series of economic processes which resulted in the present crisis, as some argue convincingly.

One comparison between now and the 70s, is that is where the new economic strength of America was born. Those mighty PC computer companies, arose then, from the creative cauldron of Xerox PARC. The present companies are being born or growing in the Internet itself, more or less.

It could be argued that keeping a money flow of liquidity cushioned America from that process, where the new begins in the death of the old. That seems to be a feature of systemic change, the chaotic shocks to the system. It is how a system without intentionality re-writes itself. Sufficient structure is preserved, but much is destroyed (like a less destructive big bang, assuming information can be carried through a singularity).

Basically the government is trying something different, instead of cushioning the economy (this does not work the system shocks become more severe, like the crisis) it *seems* to be trying to re-program the system. When I write about conduits I marvel at the financial engineering which put them there.

Now whether this is intentional or not I do not know. The problem is that there are probably mechanism within the program known as the market for rewriting attempts to re-write it. This blog has noted what seems to be structural adaptation in the forex market. This is what the recent slide back down might indicate, the decay of the conduit and the revaluation of assets seems to have origins in forex.

How does one deal with this ? One needs to be adaptive, because these kinds of processes are usually and seem in this case, to be adaptive. Perhaps what is what the Fed was doing today. During the crisis and after the crisis, the Fed was adaptive and impressive, perhaps it needs to do this again.

The point is the tone and sense of confidence today is like the way it was in the crisis, and this more than anything is what the market needs. Avoidance of the despair is worth trillions, literally and causes no problems to the system at all.

© 2010 Guy Barry - All Rights Reserved.