Recasting the yield curve again.

Treasury Yield Curve

Now we know why we have to recast the yield chart into standard frequency and yield coordinates, we need standard form to use Shannon Theory. In the last post, I posited that the finite stages of production try to share bandwidth in equal amounts along the curve, bandwidth being measured in frequency because we are mainly concerned with the Quant rate at which, say a diary network, can deliver quarts of milk. Hence we need frequency on the X axis.

The curve above is the yield curve for quantities of Congressional goods, but for approximation we take it as the yield curve for quantities of aggregate debt. The frequencies from 2 to 4 represent the Fed's share of the curve in its current deflated state. There are two or three other distinct stages represented, the economy has done this on purpose. The amount of bandwidth that equalizes the stages is yield times delta(f), which in Fourier terms is integral of log(f(x) )* x taken over the lower and upper limits of each stage.

You see, in this form we can use all the existing channel theories.The theory also relies on one important assumption, the noise in the channel for any economic distribution is fixed, in our brains. We create Shannon channels that match a constant "comfort zone" in our brains.