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The Science of Debt Dependent Saturation Macroeconomics

Terminal Quantum Fractal Progressions - Identifying the Wilshire's 11 October 2007 Secondary High

The Huffington Post prospectively 'published' the exact high day for the Wilshire; the world's highest valuation equity composite index.

The exact high for the Wilshire on October 11 2007 was prospectively predicted by the science of saturation macroeconomics. The science of saturation macroeconomics as defined by quantum fractal growth and decay of macroeconomic system's countervailing debt, on the one hand, and commodity and equity, on the other 'investment' instruments has now retrospectively indicated the final secondary high for the Wilshire.

Speculative money rotating from equity and commodity speculative instrument that flowed into global debt instruments driving the US ten year note, as way of a sovereign debt proxy, to its 150 year low at 2.04 percent on 18 December 2008 well matched the Wilshire's initial nodal low at 7400 on 21 December 2008. With the 150 year low long term interest, speculative money began flowing back into equities which had lateral growth and thereafter downward growth until 6 March 2009, completing a 7/16 week x/2-2.5x fractal sequence.

With the US central bank's counterfeiting 350 billion dollars in the short term treasury market to incrementally absorb short term US roll over debt that had insufficient real economy buyers, the US equity market and the entire global equity markets achieved growth valuations beyond that which would have occurred if competing short term debt instruments were placed on the existing capital market table.

Since 6 March 2009 the Wilshire completed a fractal sequence formed by the earlier 7/16 week first and second fractal series. A 7/16/19 week fractal series completed the first of two final fractal growth periods.

The 19 weeks of the 7/16/19 first fractal series were composed of a daily fractal series of 17/38/35 days :: x/2-2.5x/2x with a nonlinear drop seen on the minute unit charts on the 38th day of the second fractal.

The second fractal series is composed currently of 6/12/7 weeks :: x/2x/1x or 27/55/33 days. The 27th day of the third fractal is nested in a cup 5 days from the likely secondary Wilshire high on 4 December and the secondary high on 16 December 2009.

Since 9 December 2009 the Wilshire has followed a 15/32/15 hour :: x/2-2.5x/x fractal growth series ending on Friday 18 December 2009 with the characteristic nonlinear drop on the 31st hour of the second fractal. The final 15 hour is composed of a 3/8/6 hour fractal x/2.5x/2x or a 12/24/20 :: x/2x/1.6x 15 minute fractal.

On Friday 18 December the Wilshire reached its second and (relatively) final lower high of a 27/55/27 day x/2x/x fractal followed by a 15/32/15 hour : x/2x/x
fractal. Incipient nonlinearity of a major degree is expected on Monday 21 December 2009.

Possible fractal decay progressions using the 6/12/7 week fractal sequence (decay is confluent with and begins in terminal apical growth) are: 6/12/12 weeks or 6/12/12/9 weeks with the third fractal (of the latter fractal series) 12th a final third much lower high.

After watching ALL of this awesome exchange, I wonder if the argument between Keynesians and those who are more laissez faire (economic liberals, in the classical sense) could be summarized as this: Keynesians are more worried about the short run while economic liberals are more worried about the long run. Keynesians are willing to hurt long run growth if current suffering can be eliminated, while economic liberals are willing to endure some short term suffering in order to promote more growth (and therefore, wealth) in the long term. What does everyone think?

If this is true, I'm not sure that you could ever say that one group is right and the other is wrong. The group that is "right" depends on your priorities.

Several times during the discussion, disagreement was distilled down to "what is politically possible" ... not what is correct or right. I found that interesting.

Russ,

Wonderful video. Watching the video reminds me to remain patient whenever an interlocutor puts words in my mouth (you are more generous than I).

I liked the point about the U.S. not engaging in any expansionary policy measures to "help" the economy during the Coolidge Administration.
However, as Paul Johnson mentioned in "Modern Times," government spending decreased (p. 216). Why does this get so little attention among macroeconomists? In macro textbooks? Also, it seems unusual that the BEA only has data going back to 1929 in the National Income and Product Account tables.

Thanks, Russ. I admire your composure, and persistence.
There is something depressing, however, in seeing how difficult it is to get "our" points across in the face of Keynes' populist claims. Sadly, Keynsian paradoxes are much more appealing to the general public, since they promise everything at the price of nothing.

Um, is it me, Russ, or do you essentially defend Bernanke in part three?

And Greenspan, I mean, too. You said his actions were "defensible at the time." Huh? Was your tongue in your cheek that whole time? You say you might have done the same thing as far as the bailouts if you had been in their shoes? Remind me only to read Don's articles from here on out.

I mean, yes, I understand that, and in that narrow sense, I agree, but that acknowledgement is contradictory with endorsing ANY Fed action, which is done naturally by fallible human beings. The problem is the implication that the Fed made any right move AT ALL, since the only right move by a Fed chairman is to abolish the Fed and resign. Even the Taylor Rule necessitates government intervention and central-bank action and an implicit ability by a central-planning agency like the Fed to know the appropriate or "perfect" rate of interest to price-fix at any given moment, and that notion, as any true Austrian would attest, is patently FALSE.

Clearly, he was not defending all of the Fed's actions, only humbly acknowledging human fallibility and the difficulties inherent in leadership. As an antidote at the Fed he would prefer automatic adherence to the Taylor rule, for example. Politically it requires (Aristotlean) prudence, a virtue always in short supply.

I was a bit surprised by Skidelsky's remark that economic knowledge was essentially completed by the work of Adam Smith.

Doesn't really jive with his defense of the Keynesian revision.

I expect that this admission was simply an uncomfortable nod toward Hayek.

Russ makes one key assertion that Skidelsky never rebuts. Keynes maintains that market economies become "stuck" in a high unemployment state and can't escape it without "fiscal stimulus", meaning spending by central authorities not bothered by uncertainty. Decentralized authorities can't lead the economy out of the unemployed state with credit, because they lack sufficient certainty.

Russ denies that history provides any example of this persistently unemployed state and further denies that the Great Depression could be an example, because central authorities in major economies started following Keynes' prescription before anyone could find out. Given that earlier depressions didn't persist for a decade, we don't know whether the Great Depression persisted so long in spite of "stimulus" or because of it. Skidelsky never effectively answered this objection, and the omission is a little unsettling under the circumstances.

I doubt that any circumstances exist wherein entrepreneurs will not take risks with sufficiently easy credit, including sufficiently easy bankruptcy. The risk-averse are the already wealthy who fear losing the nominal wealth they already hold. Only these established title holders have much to fear from "recklessness" in the face of grave uncertainty during times of severe economic dislocation. Entrepreneurs took risks in Somalia at the height of Somali anarchy. How does Keynes account for that?

Freedom's just another word for nothing left to loose. Those with a lot to lose, like Lord Keynes and Lord Skidelsky, aren't so interested in freedom.

I like the way you kept calling him "Lord Skidelsky". I'd have said, "Sure, you want the state selling entitlement to tax revenue, m'Lord. Why wouldn't you?"

In the full interview, Roberts crushes Skidelsky & Keynes -- and in the NewsHour spot Skidelsky & Keynes have a clear victory.

Just finished the 3rd video in the series. Most excellent. Russ - I commend your composure. So far, I haven't found Skidelsky to be too bad. I haven't made it to the 4th, so you may address it there, but at the end of the 3rd Skidelsky argues that the mistakes of a few punish millions.

First, I'd say that millions made mistakes in the financial crisis by investing in bad securities and borrowing money they couldn't pay back.

Second, that reminded me of something George Schultz said in a recent interview with Paul Solmon, which is also an excellent video available on the same site as your's. Schultz explained about the government involvement (for national security sake) in the strikes in the late 60s/early 70s and his advice to Nixon that Johnson had it wrong. He should keep the government out of it so all the parties to take responsibility for their own actions. Nixon listened and it worked out.

When Skidelsky talks about the workers hurt because they lose their jobs because of someone else mistake, I wonder if those workers exercised enough prudence when choosing an employer or asking their boss why they were taking such large risks. As Schultz said, it removes accountability from the system.

... I wonder if those workers exercised enough prudence when choosing an employer or asking their boss why they were taking such large risks.

The future is always uncertain. Uncertainty is not someone's "fault". It's a law of nature, like Gravity.

I don't like the "Market punishment" metaphor that Russ uses for this reason. The Market doesn't punish. It just changes its Mind. Sometimes it decides that you need to change jobs, even careers. Markets are dynamic, not static. Free people must expect this dynamism and learn to love it.

Martin - I agree, the future is uncertain, but that doesn't mean you can't exercise prudence against possible events. My company was nearly bankrupt 2 years ago. They didn't come out and tell us, but it wasn't hard to figure out from the financial statements. Guess what I was doing. Yes. Updating my resume and putting feelers out for a new job. Exercising prudence.

When the Fed Chairman said I should consider taking out an ARM, I decided to sit tight with my fixed rate. Again, prudence weighing in.

A few years ago, when Fannie and Freddie stock were highly touted in the investment community I took a look. I can read a financial statement. I couldn't read theirs'. My Buffett voice advised against investing in something I can't understand. Thank you Mr. Buffett.

If a good portion of us act prudently, it's amazing the types of things we can prevent. Bad stuff happens when the prudence goes away. I think Russ was asking why it went away.

Regarding the markets comments, I heard "profits encourage risk taking, losses encourage prudence."

I agree that profit and losses are not necessarily right or wrong in a moral sense, just simple feedback. Usually the profits feedback is telling us that we're doing something worthwhile, while the losses feedback tells us we need to change something.

I agree with you. I'm only saying that "punish" is not a word we want to associate with misfortune in the market. Misfortune in the market is inevitable, even vital, to market dynamics. When wagon wheel makers lose employment to rubber tire makers (and when wagon wheel investors lose money) the market doesn't "punish" anyone. It politely informs wagon wheel makers that their produce no longer has sufficient value to warrant their employment and encourages them to find another occupation that their friends and neighbors will value.

Statutory benefits like job training and disability benefits are defensible as a buffer against market forces, not to mention earthquakes and hurricanes, but bailing out investors suffering the market's "punishment" is not similarly humane. It's just a lot of statesmen entitling themselves to their own authority without meeting the demands of free consumers and laborers.

Markets don't "change their mind" -- they simply, over time, determine who was right and who was wrong. Both the winner and loser can benefit if they have an interest in the underlying assets. A market has to have two sides -- what I hear Russ saying is that what we have does not even vaguely resemble a market.

We're arguing semantics here, but "was right" and "was wrong" suggests that someone was "right" or "wrong" in the past. It smacks of determinism. Reality is nondeterministic and chaotic. The past does not determine the future. A decision you make today is not right or wrong until the future occurs. A decision is not right or wrong. A convergence of circumstances, of which the decision is only one part, is right or wrong. Some decisions may be better than others in some present sense, but the Fates decide ultimately, and they're notoriously fickle.

Of course people are "right" or "wrong" in the past. That's what markets are about. We don't make decisions from past to present, we make decisions from present to future. That's not determinism, that's uncertainty.

Your conjuring of "fates" and "fickle" as an explanation are as weak as, but not as focused as the "punishment" theory.

We make decisions in the present that will be more or less profitable in the future. The decisions are not more or less profitable when we make them. They are more or less profitable in the future. Their degree of profitability emerges in the future. It doesn't meaningfully exist at all when we make the decisions.

I don't conjure fate. It conjures me, and it also conjures you. The "punishment" theory is not more focused. It's only more dualistic, and it misplaces the punisher. Markets don't punish. States punish.

The market instructs, but it can teach one lesson today and a different lesson tomorrow, or one lesson to me and a different lesson to you. Free people make choices, but their choices don't determine their fate. Freedom is holding the rudder of a dinghy on the ocean in a hurricane.

If you want control and security, you want the state, not the market. That's me hanging from the wing of a biplane flying upside down. I want the market.

New Coke was obviously wrong. But, that wasn't obvious until the market (i.e. consumers) weighed in.

Lending money to poor credit risks to encourage home ownership, based on the thinking that home ownership caused responsible behavior (rather than responsible behavior leading to home ownership) was wrong. The market figured that out long before any regulator or politician.

Agreed. And the New Coke controversy probably did more for (what would become) Classic Coke than any deliberate marketing campaign could have accomplished ... the fickle finger of fate.

The problem with the "markets reward 'good' (or 'smart') investment and punish 'bad' investment" theory is that people take this idea to its logical conclusion and want states to appoint the "good" investors as central planners, but of course, this strategy can't possibly work, because "good" investors are hardly better at central planning than "bad" ones.

Hayek doesn't say only that central planners do not know enough. He says that they cannot know enough.

I agree. It is common to mistake market performance for skill. Worse yet, it's common to mistake a degree from Harvard for skill. Taleb has an excellent discussion on this in one of his books. The mistake is in perceiving the skill of an engineer who can design a bridge as the same type of skill that can be possessed by a central planner, when the latter skill doesn't exist at all.

I believe Russ's comment was that profits encourage risk taking and losses encourage prudence, not that profits reward good and punish bad. Or maybe, you're referring to a different quote.

" The mistake is in perceiving the skill of an engineer who can design a bridge as the same type of skill that can be possessed by a central planner, when the latter skill doesn't exist at all."

Well, actually, there's probably quite a lot of skill involved in being a successful central planner but it is political in nature. Which means 'successful' doesn't take on the meaning we might like it to.

"... people take this idea to its logical conclusion and want states to appoint the "good" investors as central planners ..."

This is not a logical conclusion.

"Hayek doesn't say only that central planners do not know enough. He says that they cannot know enough."

This is a logical conclusion.

"Logical conclusion" belonged in quotes.

Central planners cannot know enough, not only because knowledge cannot be centralized effectively, but also because knowing the present is not sufficient to know the future fundamentally, even at less central levels of decision making.

By saying that it "belonged in quotes", I assume you mean that there are some underlying editorial comments that will be ready for publication as soon as you understand the argument. That was unnesessary.

Otherwise -- Good post!

I meant that my "logical conclusion", earlier, belonged in quotes. People believing that a successful market investor could be a successful central planner could reach a conclusion "logically" from their assumptions, but the assumptions are flawed. Past performance is often a poor predictor of future performance.

So does it get into dirty little secret of Keynes the eugenics advocate?

Don't worry the experts will handle it...trust the experts.

It was an excellent exchange. All the billionaires on wallstreet would agree with Lord Skidelsky.

Very good debate. Good to hear both sides like that.

Well Russ, you're a far better person than me. Two thumbs up for keeping your cool the way you did.

I'm still watching part 2 and it is very frustrating how he keeps putting words in your mouth and arguing against things you never claimed. I just want reach into the screen and slap him and yell, "NO! That's not what he said!"

Anyway, back to watching the rest. Just had to get that off my chest!

Superb debate. I have learned so much thanks to you and Don not keeping your teachings/knowledge within the walls of GMU.

It was also truly impressive to me that you and Skidelsky, while having many opposing views, seemed to get your points across without muddying them up with disrespectful language.

Thank you.