It is not completely linear when we have an incomplete algebra

Daniel Kuehn is looking at macro through the lens of standard linear algebra. The problem here is flow, it is asymmetric and therefore has no inverse.  The economy is a semi algebra with a limited range of solutions.  The economy has to meet conservation of goods constraint but cannot move goods in the reverse direction. Within a certain imprecision, the economy has to quantize goods to match conservation of flow, and the integer solutions do not generate stable equilibrium inventory.  It first operates in the over determined state, building up excess inventory levels.  It then sees excess inventory expands. In the expanded state, conservation of flow is maintained, but inventories are slowly depleted.

Again, using the wrong measurement norm leads to a basis set foreign to the real economy. Put it this way: When you have half a car on the factory floor, and only a quarter of the remaining parts in inventory, then that implies delivery will ultimately make a redundant trip to delivery a partial set of car parts.  We do not make redundant trips, we deplore it.  Prices are sticky, but so is every other inventory quant. We attempt to keep quants stable to avoid redundant trips to the store.

Here is an example:

The U.S. this week will start taking “extraordinary” steps to extend the federal government’s authority to borrow funds as it nears the national debt ceiling, Treasury Secretary Timothy Geithner said Monday.

Geithner early last month told lawmakers that the U.S. would hit the debt ceiling by May 16 and could default as soon as July 8.

“Because it appears that Congress will not act by May 16, it will be necessary for the Treasury to begin implementing these extraordinary measures this week,” Geithner said in letters to House and Senate leaders.

The latest steps will buy politicians more time than initially anticipated. Instead of running out of room July 8, Geithner said the Treasury Department now expects to be able to continue borrowing funds until Aug. 2.

“While this updated estimate in theory gives Congress additional time to complete work in increasing the debt limit, I caution strongly against action,” Geithner said.

Geithner has repeatedly asked Congress to raise the $14.294 trillion limit, warning that failure to act would force a U.S. default and an economic catastrophe.WSJ

Government channel running short, will contract.