Thursday, December 2, 2010

What does a true Congressional debt default look like?

From the QM theory point of view.
I simplify the assumption, let us assume the constraint is peak oil suddenly arriving, but the argument holds for any possible pathological real goods constraint.

When the economy discovers a constraint, from an information theory point of view,the economy studies that constraint. The economy having fixed precision, now is less precise about the future of an essential good and will restore that balance by devoting more precision to the constraint.

What does that mean for oil? We are going to get very good at predicting the change in oil flows for any given trade, especially large ones. Anything Congress does will have an oil balance impact, and eventually maximizing entropy will create an oil trade per Congressional action match up. The economy is decorrelating from the constraint by inserting the cost into trades.

Congress, the Fed and OPEC eventually are getting into three way negotiations, it is no longer a market. At that point Congress stiffs the bond holders for cash to OPEC.

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