Friday, June 5, 2015

How much second derivative does the yield curve have?

Three month bills are on the right end, this is the Tanh X axis.  I take 1+r and 1-r from the curve, and compute hyperbolic angle.  Then I go to the constrained flow conditions. The sum total of second derivative here is .55, that is, the economy has a bit more liquidity than one.   The thirty year is farthest to the left, count from there.


That second D is the Shannon clock. The total of second D is 1.0. We always need a half of one to avoid the dreaded spiral. Now Shannon tells us that if we get our stuff encoded, we can do a lot with that bit of liquidity. 

What did we do with our .45 of second D? We likely nudged the huge states, frankly.  The big four states are a big fermion in our economy.

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