A few (admittedly) simple thoughts.

A few (admittedly) simple thoughts on the economic consequences of a Trump Presidency.

Mathematics is and never has been a simple concept. As the millennia have passed it has only become more complex and difficult to understand without years of dedication to its structure, syntax and nomenclature. In short, mathematics has become the single most complex of all human languages. Yes, mathematics is a language, though it is not a spoken language it is never the less a language. It is a language that describes the universe in all its glorious mysterious complexities.

From ancient times humans have been engaging in various forms of commerce. Commerce being the exchange of goods, labor and idea’s. In its earliest form it exchanged goods in a form of transaction known as barter. At some point in time, simple barter became to cumbersome for growing civic society. Or, to be more precise, it became to cumbersome for the process of taxation. Thus was born the first of the symbolic abstract representations for tangible goods and labor. From the very beginning currency is and always has been a medium that’s value is predicated on representing something other than itself.

At its inception it represented certain specific quantities of tangible goods. A single copper or silver coin equaled a fixed number of bushels of grain, chickens, cows or other manufactured goods. It evolved into a symbolic representation of labor and then inevitably into a symbolic representation of time itself. As in that long time prior, gold, silver, copper and all other forms of currency hold little actual value in and of themselves. They are symbolic representations of tangible goods, idea’s and physical labor, specifically quantities far to great to be transported by a single individual with great ease.

For millennia simple addition and subtraction were sufficient to deal with basic currency transactions. With the invention of accrued interest more complex mathematics become necessary. The more complex society became, the more complex mathematics became and the more complex financial transactions became. The more complex the mathematics involved in financial transactions became, the better those governing any society were able to stabilize the societies that they governed became.

The mathematics that govern said transactions, including taxation, evolved into the science of Economics. Half jokingly referred to by many of its practitioners as a “Voodoo Science” it is an extremely complex branch of mathematics. Its complexity draws not from the mathematics itself, but from the unpredictable nature of the physical conditions that it describes. The inability to predict when it will rain or how much it will rain, thus crop failures or livestock mortality, add a degree of uncertainty to the calculation that make it almost seem as if economist are guessing which way the economy will go.

Crop failures and livestock mortality are but two of literally dozens of variables trapped inside the equations which economist rely on. Two of the most difficult variables to accurately model are greed and fear. Traveling down this path far enough, and we reach perhaps the single greatest obstruction to accurate economic modeling. A failure to grasp the implications of mathematics and human greed and fear. Here, that ancient invention of accrued interest rears is ugly head. It does so in that brutal manner genuinely only mathematics can do.

When accrued interest was invented, so was a rule that would not be discovered for millennia, a rule blessed and cherished by investors, banker’s stockbrokers and basically everyone involved in the financial industry. Enter the Rule of 72. The Rule of 72 defines the amount of time any investment at any given interest rate requires to double in value. Hidden deep inside the Rule of 72 is a vicious and hideous monster waiting for the unsuspecting.

You can only keep doubling the grains of rice on a chess board for so long before the number of grains of rice weigh more than the entire earth does. Greed and a failure to grasp the mathematical implications of the Rule of 72 blind most people to what must eventually come to pass. Transpose the grains of rice on the chess board with currency, and the doubling of grains of rice with interest accrued under the Rule of 72 and the inescapable consequence is that eventually the weight of currency becomes so great that the entire planet earth’s financial system is crushed under the burden of its weight.

A friend of mine, who as it just happens, holds a post graduated degree in economics is quite fond of pointing me to articles written by Dr Roubini. Doctor Doom as many in the media have christened him has a damned good track record of predicting failures within the financial industry. In 2015 Dr Doom predicted that the worlds financial industries were in extreme danger of being “Reset” by a “liquidity time bomb”.

Dr. Doom: This ‘time bomb’ will trigger next financial collapse.

While Dr Doom does not spell it out as I do here, and perhaps would even disagree with my analysis, I would argue that Dr Doom’s “liquidity time bomb” is essentially my “Rule of 72 Monster”. There is no simple path out of the quagmire the worlds financial system is in. A “Reset” is coming regardless of what any of the worlds leaders do. The question here being, will it be a hard reset or a gradual (soft) reset. The variables in the equations, greed and fear, will make the path forward fraught with danger for not just President Trump, but for all of the worlds leaders.

Nobel Prize winning mathematician John Forbes Nash employing game theory, both identified the problem, and its solution in his Nobel Prize winning equation that bears his name, “The Nash Equation”. The problem of course is that Nash’s solution only works if everyone agrees to abide by it. Remember the variables greed and fear? In other words, while Nash provided the solution, its highly unlikely that it will ever be enacted. Given this as a painfully obvious reality, Dr Roubini has weighed in on the implications and probable realities of a Trump Presidency and its world wide economic consequences.

Trump’s Monetary Conundrum

For a guy nicknamed Dr Doom, this article seems rather optimistic. Yes, it contains plenty of warnings of how things could go very wrong. That said, it is not a gloom and doom article, but a cautionary one of potential pitfalls to be avoided and possible paths towards economic recovery.


7 thoughts on “A few (admittedly) simple thoughts.

  1. a difficult part of the nash equilibrium is when the players choose something that is not ‘optimal’…something not predicted by the person writing the equation.\

    sub-optimal choices show both the arrogance of the economist who assumes he knows what someone will do and shows the futility of attempting perfect accuracy.

  2. i would add that the conditions of the Nash equilibrium can remain unmet as well, this also greatly complicates the predictive accuracy of economics.

    the ‘dismal science’ can be rather infuriating.

    • Yes, whenever dealing with variables the more variables included, the higher the probability of error in the predictive model becomes. The Nash equilibrium is good, but its not perfect. If its conditions are unmet, it comes crashing to the ground like a house of cards. But then again, the whole economic system is going to come crashing to the ground like a house of cards eventually as well.

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