Natural rate of unemployment and delusional macroeconomics

Economists made up this thing called natural rate of unemployment, and unemployment is the blue line on the left. That natural rate would be the level spots, generally just before the crash, where unemployment seems to meander but remains steady.  Otherwise unemployment is in constant motion, either coming down, or going up; never stable. Roger Farmer complains about this notion of natural unemployment.  For reference I lef in the red line which is inflation, and you can see that we magically align inflation and the natural rate, then we crash.

My first point is that half this economy comes from 20 major metropolitan regions spread across a continent.  How did all these employment markets agree to go natural at the same time?  And, second, if the rate is so natural, then why is it stable only for a year and then we crash?  I am sure that economists just made up the term because they do aggregate statistics.  But one would think that an economists, migth consider, how in the Jesus did all that coordination come about!

The real answer is simple.  Mostly the jagged line coming down are all the independent economies acting on their own.  Then DC simple runs up against the bills and cannot pay its own way, so DC fouls the economy..

Simon Wren Lewis wants us to invent Fiscal Bot

From Economists View:

The complaint is:  "fiscal policy is severely hampered by the political process".  

That would be 250 years that economists have complained that government does not follow the proper priors as indicated in paragraph one of economic research.  I have the solution, naturally, Fiscal Bot, an evolution of Banker Bot.

We could put the bots in charge, and fire the economists. Fiscal bots would read the priors from every research report and maintain a Theory of Priors. Then they would allocate fiscal budgets so as to reduce the volatility of priors. We could bet on priors, saving or borrowing units of them. Prior currency would be used as a tax discount. Priors would become unhedgeable.
Seriously, if you dump the voter then plain and simple the bots, not economists, are the better replacement. Simon will never figure this out, hedging his priors is his entire economic theory.

What is the Theory of Priors?

It is, simply, the optimum connected network distributing the flow of economist's priors.  It is optimized over the network of prior readers, naturally.  But won;t this be hedged with Bot clicker machines.  Won't economist just publish a bit of prior then hire the bot clicker?  Sure, but the change in clicker statistics will cause the lend and savings rates on Prior Currency to change, and human readers will be put right back in charge as they bet the variance.  In fact, the Fiscal Bot would be the most popular bot on the web, surpassing even the Banker Bot. It is actually a quite sound idea, and the more I apply the TOE to these problems, the more I see human fallibility driving the singularity.

I have a hard time understanding how we are going to avoid the the bots since they are clearly objective theorem provers, and nothing else.

Zero Hedge nails Apple

Zero Hedge: virtually all of AAPL's cash growth in the December 31 quarter took place offshore, where its cash hoard rose from $137 billion to $158 billion (mostly thanks to the previously mentioned surge in Chinese iPhone purchases). How much of Apple's cash is domestic? As the following chart shows, a paltry $20 billion of AAPL's cash, or barely above 10%, is held domestically - one of the lowest levels in the past 4 years - and can be used for such corporate activities as stock buybacks and dividends.

I was going to nail Apple on this, but assumed Zero Hedge would nail this, I was right.  Did Apple have a great year in China? They sure did, but anyone holding dollars for international trade over the last two quarters made nearly 15% on their holdings.  Betting the central bankers is now more lucrative then making useful stuff!

Audit the Fed?!?

The ongoing debate about monetary regime change. It is hidden under the cloak of audit the fed bills in Congress.

WSJ Grand Central: The Fed sees GAO reviews of its monetary policy decisions as a congressional intrusion into its independent decision-making. Former Fed Chairman Ben Bernanke strongly and successfully resisted “Audit the Fed” proposals and Chairwoman Janet Yellen is sure to do the same. In a December news conference,  Ms. Yellen said she would be “very concerned” about such a bill and would “forcefully make the case” against it.
The Fed demonstrated its savvy in dealing with Congress during Dodd-Frank debates in 2010. Efforts to impose congressional inspections of monetary policy and to reduce the Fed’s bank regulatory powers failed. It emerged from those debates in most respects with more power than it had before.
Ms. Yellen will have President Obama on her side again if the bill gets new life. She will also have the central bank’s 12 regional bank presidents, an influential but little seen force in Congress with strong connections in the deep-pocketed business and banking communities around the country.

Now, of course banker bot is always optimum Black-Scholes Weiner motion and so there is nothing invisible, and no observable hedge.  But Ben Bernanke, alias Edward Knight, clearly bailed out the pension funds with QE, and that was mainly to give the California Flounder some breathing room.  Janet, today, is using her portfolio to help Treasury pay its interest costs, and that is increasingly deflationary in the short term.

So, on the one hand we have the no arbitrage monetary theory, and on the other hand we have bozo central banker and monetary regimes with a 40 year cycle time. The entire discussion is ridiculous, central bankers know damn well it is regime change, the 40 years is up.  WTF do they think they are avoiding?  Janet transparently is violating her own inflation target, and we all know it. The research groups at the Fed are perfectly aware of the Weiner process, they know the theory of everything is here, and they almost certainly inform Janet.  Ditto for Jack Lew, he is simply aware of the new Weiner formulation, and he knows exactly why he and Janet cannot get the interest costs stable.

Who are they kidding? Are we all supposed to deny the absolutely mandate that spectral theory imposes on finite, connected networks. They can fool members of Congress and the voting public, but the moment has arrived, as it has always arrived every 40 years. Most economists know this, if they act in denial then they are frauds.

The safe rate in the generalized Black-Scholes

The Weiner process is mostly about power spectrum in connected networks. The key rate is band limit, the point at which the yield curve lifts one noise level above ground. Its works because the monetary zone is assumed to be a connected network with local additivity. And, of course, the tax authorities make it so.

In the general case of banker bot, the connected network is identified and its power spectrum (probability distribution of trades) is maintained, and assumed visible to all parties.  Hence the banker bot has a sampling rate.  This is how it works in physics with light being the band limit. Again, its about self sampling entities in a connected network and how they form adiabatic Poincare groups.

Looking at the instability of DC from the Theory of Everything

Those vibrations since the crash. The variation in DC interest costs, quarterly. They are not going anywhere and getting larger. Obama and Janet are worried. These variations cost about 3/4 of a point in NGDP flows.

These are self sampling agents, there is no market here.  It is Jack Lew and the bond dealers and then Janet selling portfolio to the bond dealers.  They are a connected network, additive and Phi applies, naturally.  They both have to add up the costs of current government.  But you can see them wait, they are trying to sample at 3/2, because Janet does not want to go until Jack has gone. So we have 1 or 2 up in the queue at a time.  The bond dealers are going full causality at twice the rate. The two rates trying to coordinate but never getting to Phi. They need to have a Higgs moment and make themselves into quarks. No can do without help from Banker Bot.

Janet is cashing in current interest rate subsidies by taking sales gain from the market. This causes her to increase the sale size.  The system is not adiabatic, and Janet will exponentially use up the portfio. As she does this she will be pulling liquidity from real goods and we get more deflation, and that deflation is likely causing taxes to drop.  Deflation and taxes probably are the problem here.

What to do?  Sequester or raise taxes; all of  Congress, the derivative industry and the Fed know about this. One can see this blowing up around June, and if it is not fixed, then Obama gets a grey bar.

This actually started under lil Bush, naturally.  But the economists missed this because we did not have the theory of everything ready in time. This is the behavior that Reinhart-Rogoff discovered in their analysis of over indebted governments.  But the real problem is the broken central banking theory.

The Venture industry needs to get on the ball and find a CEO, like Geroge Selgin, who knows what is up and get get banker bot some freedom.  Get your CEO and I can locate about 20 mathematicians who will provide barrier to entry.

Accounting mismanagement at the Pentagon

Time: The new bomber—designed to augment, and ultimately replace, the nation’s aging fleets of B-52, B-1 and B-2 aircraft—is so new that it doesn’t even have a name yet, beyond the generic title Long Range Strike Bomber.

The author is not harsh enough.  The B-1, for example, had a third of its wing division cancelled simply because it was too expensive.  Through two major mid-east wars the thing made two or three bomb runs and was replaced by the B-52.  Jimmy Carter knew this was a horror story and tried to have it or the B-2 cancelled.  Who reversed the decision and created the boondogle? You guessed. the Great Deficit spender, Ronald 'The Communist' Reagan.

Ronald Bonehead Reagan ran interest costs up to nearly 23% of the budget to  pay for the worthless contraption. He ran government, all totalled as a percent of GDP, to the highest level in memory, excepting WW2.  That Republican was simply an idiot, even dumber than the Bush family.

Why the Tea party loves a big spending Socialist Royal King is beyond me, they have the wrong friggen name, American should demand the Tea Party return their name to its rightful place in history.  I have a better name for them:
 'Yet Another Bunch of Welfare Bums'

This chart will scare the bejeesus out of us!

DC going bankrupt

Interest costs, QoQ rate of change, US federal government.  Over the year, interest expenses in the federal budget are changing from 11-14%, likely.  The Treasury does not have enough cash to cover the variance, and so Janet has been selling bonds to remit more earnings to Treasury.  Congress had gotten themselves into a peck of trouble, hence the scrambling for new taxes.



Why to volatility?
Taxes are collected from unstable streams as the wealthy have variable incomes.  This is especially true of capital gains. Second the cost of government, its multiplier, is well measured. It is measured much better than the Keynesians think. So DC has no hedge of its own against the government price index. Deflation makes the tax incomes more unstable.

This looks to be near the end for the current Nixon monetary system. get your banker bots ready.

Banker bot solves another inventory problem

Here we have a case of a collected network of drivers and r4iders who want to rate each other. Another Marginal Revolution problem set.

“Highly specific pools of reputation information will become more useful in aggregate,” said Mr. Fertik, co-author with David C. Thompson of “The Reputation Economy,” a guide to optimizing digital footprints. “If you’re a really good Uber passenger, that may be useful information for Amtrak or American Airlines. But if you add in your reputation from Airbnb plus OpenTable plus eBay, it starts to get useful globally.” -

No problem, nothing the web bot banker cannot handle.

The web bot pays on deposits and earns lending in units of Uber discounts, priced accurately based on the probability distribution of Uber rides in any connected market. Savings and borrowings are available from the bot for any of the connected users; drivers or riders. Drivers are free to hand out Uber discounts and will always honor them. There is no hedging opportunity available, the web bot sets rates to be Black-Scholes, all the time. A complete digital currency.
So, no need to rate riders,the driver can just pass out a discount to favored riders. No need to rate drivers, the rider just dumps discounts dis-favored drivers. Hence everything properly priced. All market information optimally gathered.

But wait, you say, isn't using the discount for ratings a hedge?

Not for long. The Bot soon discovers a material change in the spectral distribution of rides and discounts.  It notices an increased accuracy, and compensates by changing the uncertainty level in sending and savings balances.  It learns, automatically, the the discounts have a double meaning, and adds that to its spectral pricing system. So, even making the rules about how many discounts is allowed per purchase may be unnecessary, the bot can easily adjust denominations so discounts revert to one discount per transaction and still accommodate ratings.

Only one condition the bot requires, a connect, mostly self correlated market.  When that condition is met, it is Web Bot Banker to the scene. Its the Theory of Everything! Banker Bot is the first Next Big Thing to use the technology.

DeLong is asking: Lost productive capacity in the last recession

The closest macro measure to productivity we have is velocity, the rate at which we trade. Down by nearly 2/3 since 1996. We should be able to hold 1.9.  What happened?

Not sure, but there might be miscounting we have to include that.  Much of the velocity has been absorbed in the web.


The recessions have been taking their toll. And the increasing burden of entitlement spending. Let's add in growth.

The relationship is not so clear. Growth has taken two steps down, but still hangs in at 2.5%. What else? Rates down and inflation down over the series. Could we be slowly replacing money? Is the transaction cost of old style paper just uncompetitive?

Is this the ageing of our current central banking regime?

What else? Rising debt in government.
Inadequate Keynesian response?  We did no Keynesian in 81 or 92, and did the V. We did a bit of the Keynesian in 2008 and did the V. No, the 2.5% growth is just the new normal, been building for years.

How about this. A 40 year central banker regime that is designed to last only one generation. A new technology banking regime being born on the web.