Thursday, March 05, 2009

Federal Reserve and Monetary Policy: Mark to Market

One can now look into their crystal ball and predict what is going to happen to the global economy. There are two leading indictors:


  1. The “Right Wing”, “Rush Limbaugh” Party’s call that the down turn in the stock market is due to the rejection of President Obama.

  2. The yield curve.


Both of these indicators point to the “Book Keeping Away” of debt. Specifically, long term debt will be “Book Kept” away. Long term’s debt value is not the return of investment capital, but the revenue stream of interest payments before the debt issuers' “so called” expected date of maturity.



We will be forced to face the fact that there is no “money” in monetary policy. The elasticity of the U$ dollar is an open question. Is the elasticity of the U$ dollar a relative measure of:



  • Fed Funds Target?

  • Which short maturity US Treasury bill?

  • Which short maturity LIBOR rate??????



Or can one now say the U$ dollar is no longer allow to float? In fact, can this statement also be true to the other so call “Free Market” countries?



The dollar index no longer reflects the value of the U$ dollar with respect to other currencies, but the value of countries’ economic respective policies. The up shot of this “new” world order is the fact that China and Japan can dump their horde of U$ dollar$ on to the market, to pay for their respective economic policies, and it will take a long time before the currency market reacts.



The “math” of this prediction is based on the usage of marginal probability in a decision making process and on the “Axiom of Choice“ [due to axiom theory's use of some sort of maximum likelihood]. The decision making process and the “Axiom of Choice” require the use of Independent, Identical Probablity Distributions (iids). There are two ways one can get an iid in economic theory:



  • Allow the two systems to interact accordingly to the convolution theory of work force and hence the convolution theory of Neoclassic Theory’s Return to Scale”. (see Neoclassical Theory of Production: Using Arbitrage Labor Inputs for details)

  • Change the regulatory rules such that iid’s are “Book Kept” phenomenons.


Wall Street is signaling it wants a “Book Keeping” economy.


The yield curve is signaling the smart money to bail out of anything that relies on long term debt. Examples are Insurance companies, fixed income debt holders such as PIMCO (Their revenue stream is based on the US government guaranty of their GSE holdings), all banks and all long term debt of governments’.


Viva La Résistance Toward Government Bailout Without Full Accountability!!!

Viva La Revolucion!!!!