If We Were to Implement a Gold Price Target, What Should the Fed Funds Rate Be?
So, if you loaned gold to government, for gold interest payments, the interest payments by government should cover about a third of the gold content over 50 years, the expected default amount.. That comes to about .6%/yr. But this does not include new gold discoveries which might raise that rate a bit.
The paper contract issued by government would then be liquid and transferable a face value.
In terms of portfolio theory, you are treating the government gold market as a sequence of 50 trades. Since all traders are aware of the government tendency to default on its gold standard, that sequence has to be treated as a balanced binomial. The interest charges extracted make this the case.
That is to say, the secret is out, the peak to peak default is known and both government and gold lenders can be seen as a 50 random coin flips, one per year. This is the correct analysis, but the value 1/3 is a guestimate.
Most of our economists are trained to let N go to infinity. It does not, N goes to once per generation, usually, which comes to about 50 in units of years. But there will always be some uncertainty in the default period, since a finite model that meets Lucas criteria has inherent, but bounded uncertainty.
It all boils down to keeping trade congestion in the pits at optimum. Many p0roofs in math now use this method for finite quantum mechanical systems. It is hidden Markov application.
The inherent uncertainty limits the number of elements in your portfolio due to trade congestion getting to large. This gets you into hidden N-tuple Markov theory about which we are still learning.
I have a set of complete comments on this to the right, bottom of list under optimum portfolio.
In terms of portfolio theory, you are treating the government gold market as a sequence of 50 trades. Since all traders are aware of the government tendency to default on its gold standard, that sequence has to be treated as a balanced binomial. The interest charges extracted make this the case.
That is to say, the secret is out, the peak to peak default is known and both government and gold lenders can be seen as a 50 random coin flips, one per year. This is the correct analysis, but the value 1/3 is a guestimate.
Most of our economists are trained to let N go to infinity. It does not, N goes to once per generation, usually, which comes to about 50 in units of years. But there will always be some uncertainty in the default period, since a finite model that meets Lucas criteria has inherent, but bounded uncertainty.
It all boils down to keeping trade congestion in the pits at optimum. Many p0roofs in math now use this method for finite quantum mechanical systems. It is hidden Markov application.
The inherent uncertainty limits the number of elements in your portfolio due to trade congestion getting to large. This gets you into hidden N-tuple Markov theory about which we are still learning.
I have a set of complete comments on this to the right, bottom of list under optimum portfolio.
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