Wednesday, December 12, 2018

Mark it to market

 Actuarial gains and losses of the Fed open market operations.

The Fed wants to sterilize these gains before they ge too high and the losses before they get to low.  How does the fed do this? With an algorithm that bounds around zero. A spreadsheet function what resets interest charges when the bounds are exceeded. When all depositors and borrowers have an equal view of the board, and they know the spreadsheet will run, all information on their collective state of knowledge is revealed in the liquid transactions.  That is called, 'mark to market', and that sterilizes anything the Fed does, and the Fed thus can only select interest charges that minimize market uncertainty.

The algorithm is a known, it is the single step to equilibrium when we have representative samples in the queue (optimum congestion in a perfectly elastic transaction pit). We do that here at Redneck systems, and all our competitors are adapting to the new reality. We are the sandbox reference architecture.

The Fed is free to set the trend to linear or elliptical, if it is a Euler defined trend, it packs sphere, then traders will Wienerize it. So keep it slightly biased toward losses, like Uncle Milt says to do.

Those are not real gains, according to sandbox theory, those are special taxes collect for government and forces the three color system because the system is always forced toward an aliased cycle. Congress is not a representative sample, it is about 1/5 of it.

No comments: