Economics and Markov

Call it a monetary economy.

The economic sectors are forced into value added chains so output can meet the hidden Markov model.  The hidden Markov model are enforced by financial portfolios, connected to money.  When the chart analyst uses the golden ratio, in various powers, they are balancing a portfolio, of various elements. One can see this as one continues this analysis up above 3 Tuples.

Money is, in essence, a fake dimension, one above the economy.  The banker always wants the best and simplest binomial approximation to the economies of scale in its monetary zone. The bankers trick is that the pit boss gets first access to the bets so the interest swaps are adjusted to prevent a requant. The effect is to give the banker control over the added dimension.

The 2D S&L model expanded to the 3D model with the formal pit boss bound to a finite variance. The central bank model is a 3 tuple, and finance manages a fourth moment, the real interest swaps adjusted in shadow banking.  These are all Lucas criteria complete models. Economists take notice.

The new and better model clearly shows that central bankers need independence. This lets them manage the 2D model, S&L sandbox style.  Right now the Fed and Congress are measuring the unseen shadow bankers, they will certainly fail, they always do.  But, by making the central bank have a reasonable, renewable periods of independence, in exchange for government writing off some losses, we get less shadow banking. Less shadow banking means Fed money is more reliable, and economics more egalitarian.

Reasonable periods means the generations should get a good 1.5 times around the circle to adjust long term portfolio. And one and a half time that, they want careers.  So they should be adjusting their Fed seigniorage risk samples at twice the generational life time. The generaitons have to make two adjustments in life, split slightly uneven between retirement savings and uncovered inflation costs. Inflation defined as lost money, free paper to government, a random but balanced process, like a negative element in the portfolio.

Give the Fed a long term contract, seven years, maybe eleven or thirteen.  Pick a prime just to fuck with their heads, make them pay attention. And be prepared to stamp out bogus small state governors who do not manage their senators well.

A negative element in the portfolio?

In free entry and exit, that is a balance between negative and positive, the bank balances can be treated as the white noise error variance, bound. In the central bank theory we sort of admit to MMT, we just make sure it is spectral  bound to the generational accounts to minimize revolution violence each time we pass the Right to Coin. It is going round the hedging circle once. There is a cost. But so what, we just make that cost much more controllable, do a better Nixon by making it a iLog(i) process, spreading liquidity to manage the cost. If done correctly, to mathematical precision, then each agent can just have an S&L account, and the corporations are equally served with S&L accounts, there is no equity market.

Central banks cannot do this, sandbox can. In sandbox style automated S&L, the enterprises can judge the risk of a value added chain with respect to a balance binomial model of the zone economies of scale, as pit boss error is a bound, known variance.  But sandbox lives quite nicely with central banks, it is neutral.