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Saturday August 31st 2019Tim Candler9

 

     Generally speaking when you want to get a better grasp of an understanding your best bet is to find a dour source that's invested in reality, rather than a source that trades in cuteness. And here as an example of a trader in cuteness, you've got your Boris Johnson, you've got your Donald Trump, you've got your Putin, and you've got at least 99% of the political class. So by cuteness you're looking at the often tragic and always deliberate appeals to the eye of the beholder rather than the cute factor associated with something like Kittens who are what they are and can't help it. This means to get some grasp of the current state of the Economy around the world you'd do better to find a more theoretically minded Hedge Fund manager rather than one of those 'did you see me on television, catch me on twitter, follow me on face book' type aggravations without whom we'd all live much happier and longer lives. Either way current thinking in certain 'so un-cute it's boring quarters' suggests that a wise consideration in the attempt to get a grasp of the current economic climate would be to take a good look at the economic events of 1930 to 1945. In those years Blow Off dramatically disrupted the self adjusting mechanisms that hithertofore had been relied upon to maintain the free market cycles within the economy, and this disruption resulted in a paradigm shift.  A Blow Off is a graph that goes up steeply and then suddenly falls as it reenters an equilibrium. As an example, if you take the 1980's an inflationary trend was getting totally out of hand, the graph was climbing steeply, the value of money was falling, and this potential for disaster was addressed by the regulators who raised interests rates in a most dramatic way, the graph began to fall and an equilibrium returned. A paradigm shift is when a new way of doing something to achieve the same result begins to happen, and then takes off big time. If in doubt, consider the effects the arrival of the telephone had upon the way people communicated with each other. By the early part of the 1930's equilibrium was so out of whack, mechanisms available were so overwhelmed that here in the United States for example millions were homeless and there was a net emigration, people went to Canada and Australia. By early 1940's an equilibrium was finally achieved by trying new ways of doing the same thing, and that same thing preserved the equilibrium.

Past

     The issue of course is to determine what forces and currents, winds, storms, sunny days, push the equilibrium around and sometimes just smashes it against a cliff, or devastates somewhere like Florida. When you've identified those forces and currents you can keep an eye on them. Then when one or other identified force or current begins to climb steeply, you can say one of two things. "Nothing we can do about it, let's just let it Blow Out." Or you could say "What happens to this equilibrium destroying steeply climbing curve if we did this." Sometimes you kind of know what to do because it worked before, and you say something like "We need to raise interest rates," "we need to encourage people to spend money," "the government needs to spend money before this gets totally out of hand," "the government needs to stop spending money." There's a whole list of these possibilities and traders in cute tend to sniff the solution out that most enhances their own cute factor. Serious people attempt to be a little more objective by taking the information available to their decision making process from something other than face book likes. As well, a Hedge Fund manager doesn't give a hoot for anything much more than the success of his Hedge Fund which he or she measures in terms of percentage increases in the value of the Hedge Fund. When things within the equilibrium get tough, graphs start misbehaving, then the first instinct is consider the best investment strategies for reducing the potential for damage to the value of the Hedge Fund. One why this can be done is to make an appraisal of the mechanisms available to government to deal with steepening Blow Off curves. More recently though, for a Hedge Fund manager and for the rest of us, there are a number of areas that have the potential for impacting the equilibrium which could well involve a reach for brand new solutions with which to secure or maintain a free market equilibrium. Currently too, many a Hedge Fund manager could well have concluded that there's not much point on pinning any hopes on what's called traditional monetary policy, which is raising and lower interest rates, printing money, and boosting the economy by running a government deficit. Yes indeed the problems for the Hedge Fund manager's equilibrium, problems some might argue were actually caused by people like Hedge Fund managers, are all political in origin, and for an astute Hedge Fund manager the problems to be resolved are, inequality of income that's resulted in an increasing wealth gap that's led to what's politely called Extreme Political Polarity, and there's also a massive economic power being confronted by a massive rising economic power. And this is the circumstance that's similar to but not exactly the same as 1930 to 1945 period, back then they didn't have climate change to contend with.

 

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