The ultimate problem in the currency markets

Not enough currencies. 

We have four major currencies, the yuan, dollar, euro and yen. Whenever the global economy goes through a repricing, like they are doing now, all the  new prices have to be dominated in these four currencies because the derivative industry has to hedge the relative rates of change in these currencies.  So we get the loop pattern, some sectors re-price, they then bounce the currency market, which then reflects back down to the sectors which cancel out redundant pricing, bouncing the result back to the currency markets.  Four of five trips up and down in each of the hundred sectors that make up the global economy.

How did we get into this mess?  Government monopolies on the currency business. Hence, we cannot trade one sector directly against another and shorten the loop.  Repricing takes so long that the derivative grows in nominal value, counting each trade pattern three or four times.  The derivative industry is now 80 trillion, it was 40 trillion in 2008.

How to fix the problem?

Free banking allows banks to target sectors and reveal prices via intermediate currency markets. The pricing network becomes efficient, it loses redundancy.  This is something the tech sector needs to address since the additional gains come from multi currency smart cards.  This problem is straight out of Schramm-Loewner, and that theory needs to be brought down to the level of common understanding. Utility and gasoline outlets need to be allowed their own currencies, and run mini central banks.  Doing so allows their re-pricing to be separated out.  Same with Wall mart.  Investment coops need to build intermediate currencies to avoid dark pools. Home builders need a currency so they and future home buyers can hedge rates and prices independently. Tech companies should understand no arbitrage central banking, and offer systems and cards.

Consider oil pricing at the moment

Jim Hamilton, the expert, has a tool the tells us how to separate the factors in pricing.  Based on demand alone, the price should be $75 a barrel, yet the latest price? $48. The missing value might be considered an oil war, but it really should be cast as a delayed pricing problem.  The fundamentals here are government reseting currency values so often that oil pricing never stabilizes, we end up in a continuous loop.  But only about 10% of the economy has oil as the highest priority in inputs! Yet the 90% of the economy has to await the repricing every time, it is delayed by currency mal-adjustments. This manipulation of currency caused the price mismatch leading up to the crash, and the problem continues. Canada, right now, had to alter rates, not because 6,000 folks were laid off from the oil fields, but because they are susceptible to the delay in re-pricing.

Economists need to understand the mathematics of decomposition at the frontier of growth. The motion of repricing is killing the global economies. Globally connected complex markets need a currency system to find smei-orthoganility between them.  Governments have no fear, they can trade their tax currency freely on hierarchical markets. The result is re-pricing becomes more transparent for everyone.