So, completing the picture with a central bank, an inflation tax and a downturn

 The downturn is characterized by a sudden rise in deposits an sudden expenses by government,  plus government will increase its inflation tax. Swift banker see a rise in deposits beyond expected from government borrowing, and government sees a smaller congestion fee for its borrowing.  . The first action of government is stabilize incomes, and that means immediate deposits in consumer accounts with less debt backing it up.  But government is asynchronous to Swift, the central bank equally surprised by the arrival of transfer deposits.  At first, more deposits then loans, government gets a break on interest charges.  What happens after is determined by government efficiency, how long can it keep rank to restore the economy.  

They are a partition, the private and government value chains are relatively prime. But Swift banks know this as well as any other bank. That is the point, to a large extent, if government fouls up, they pay no bigger price than any other ledgered banks. Government generally fouls these affairs up, and that is why we pay the 2% inflation tax.

How does a sandbox S/L respond to a downturn?

 The pit boss is faced with government taking out large bonds while deposits pile up. The pit boss would borrow short and lend long, essentially, ASAP to restore all inventory levels to the same uncertainty ratio. In other words, whoever blundered pays losses to everyone who didn't blunder, and pricing remains neutral. This should be a gain to the pit boss, but it will lose that gain later as inventories adjust, if rank remains. 

The pit boss reacts when variance in market risk hits a point.  The traders do not see events until a point and a half. That extra half step is in the contract, agreed in exchange for round robin access to the boards. But the S/L bankers wants a closed system, it needs everyone on board with smooth access to and from the S/L. Then folks who see sudden shortages will at least see sudden interest gains in their small accounts.

What is natural rate? In sandbox, the earnings from petty cash is zero, you are the only depositor and borrower. In a short chain cash, if you are not using it, then you will lose the half point pit boss error term. So the earnings on deposits should be a half point of unit variance, assuming transaction costs zero. The utility of banking is the utility of smoothing out about three points of price variance over the consumer depreciation cycles.  It is what allows us to have Christmas and spring, and government imbalances; it is the variance induced by state changes, jumping around the Markov 3-tuples.

Central banks are stuck with government skew, a hard barrier. They will always do super position. Shift to one state when adjusting for government innovations, an another state otherwise.  The Swift bankers will be hedged out of the sandbox if they try it. So the better solution is to let government to expose the endogenous state changes with a quick reaction inflation tax. The contract has enough flexibility to let Treasury increase the tax to 4 percent for two quarters, enough inflation to satisfy any Keynesian. But it will later be forced to drop it to one percent for a while. The Swift banks need not be impacted much except they have a renewal coming up.

Variance and points. I start with the assumption that prices vary 3% of gdp. Then I speculate on rank,, this economy has a four digit accuracy.  So the pit boss error is about 3/8 of a point of GDP, or something, it is holding one and a half more capacity then Shannon, as we are adaptive. I use a quarter to a half, and that is also the range of the monopoly fee.

NGDPLT

 The currency banker always wants to see two percent a year in money loses, for NGDP growth, loosing as much money as needed.

How does the currency banker lose money? The pit boss takes out loans against customer deposits.   The pit boss losing money always aiming for more loans/deposits in its market account and fewer loans to deposits for customers.. 

The thinking is reversed in models that say lower interest charges cause spending to pull forward.  Lower interest charges mean deposits are in excess. If a pit boss is putting in excess deposits then it is earning money from the market, deflationary.

Central banking is different since Treasury takes gains and absorbs losses. Right now the Treasury is soon taking more money from the private sector, consumer prices should be dropping, government prices going up.

Go back to S/L banker with a loss function, It will exhaust all the higher level productivty investments, and suddenly be over charging NGDP, then it switches states, and adds more deposits, lowering charges for cheaper goods.  The price index splits in two, which is fine, I guess.

 The sandbox S/L with neutrality is a pure productivity norm. An externally caused shift in the loans/deposits skew which suddenly appears to the pit boss. Consumer are will to take more credit to buy the new and better goods. Suppliers pay off their loans early, and the pit boss will lose money in restoring skew back to zero. That should put prices back to normal.

How did traditional theory get it backwards? They assume the currency banker is always ex ante with the deposits. When a loan is made at market price, the currency theory assumes the banker immediately makes the equivalent deposit, at market rates.  But the borrower has inside information on productivity and will, ex ante, have already set up its loans/deposits to reflect this productivity gain. The borrower is making the hedged bet. That additional hedge is lost, and must be absorbed later by the currency banker.

In central banking that lost hedge gets transferred to treasury, it is the currency risk. We end up with a sever Wile E Coyote. The S/L banker is the second one to see the skew, it sees the board after every bet is placed.  The pit boss thus seeing both the loan bet and the currency risk separately. It takes the loan risk and splits it across the pit to reduce skew, taking its share of price risk.  

The currency banker can either lose or win. In the neutral /L banks the inventory risk, as a ratio, is equal to about 1.5 times the pit boss bounds. The pit boss bounds are always limited to constant currency risk. Price is the delivery volatility and always yield neutral inflation. So the neural pit boss accounts for entry and exit of products and assumes the 'rank', or complexity level is the same over the long run.   If the S/L is wrong it will step through bankruptcy and a more accurate /L takes its place. This appears as super position along the Markov <1,y,z> chain.  If the S/L banker has a loss function it appears on the <2,y,z> chain, it will have two modes, losses and gains, partitioning the price system.

Central bankers are stuck, they cannot be really neutral S/Ls. But they can reduce volatility and have a loss function with a partial partition of the Treasury inflation tax. They end up making the inflation bet, then reverberate about an inflation axis for a few yer, then make a new inflation bet. The Law makes it impossible for Congress to have an ongoing inflation betting pit because of the built in skew.

It is a real issue

 The proposed new anti-crypto regulation by
@stevenmnuchin1 is a form of financial disenfranchisement.

The new regulation got a fake OK from MIT and now Munchkin wants to get the Wall Street fix in. Our educational institutions are in a sad state.

Go with the fat lady

Kamala Harris, Stacey Abrams among nominees for Time magazine's 2020 Person of the Year

We have gender and color covered, the next granularity down is body shape, and fat is number one on that list. 

You have your wry look and then there is fat and jolly.  Go with the fat and jolly. And the short, curly works great, especially if it real.

Early exits

 

 Higher income workers take early retirement in deflationary times.  Lock in payments before facing the oncoming Fed taxes. 

That causes stress on the pension system.  It is almost a net zero except on the margins the retirees do better.

But it leaves a split and potential union rebellion, and we see some of that today. This is similar to the Swift rebellion. The cop union battles.  The Fed tax becomes law, little 'l', defacto, for a long time.

The cops came to a house of mine once

Trump pardons Michael Flynn, former national security advisor who admitted lying to FBI

Three or four of them, shocked me at the time. They wanted to talk to me, wanted in. Sure, and then I began confessing to crimes. Yes, we were to loud at some nights.

They wanted in my little office. Yes, I committed slumlord crimes of the usual sort, trying to confess. 

Out the sliding door, and I began look for excuses for any stolen plants or garbage dumping from or to committed by the housekeeper.

Can we look at the garage? Oh, the old polluting car on jacks, I begin to confess again.

He looked and said, OK, we thought you had a pot grow.

I was a bit insulted, they ignored all my misdemeanors and left. 

Contract provability

 The model is a neutral Spectre compliant, unknown core. The provable contract can show the core thread nets to zero liability over all exits. All exits are accounted for with net liabilities determined by the path from root, which is uncovered by a public key of the participating counter party.

We have a name for this in old compiler theory, it is about assigning registers to minimize memory bandwidth. We know how to do it ex ante and run time. The trick is securing those paths, mostly by minimizing the risk of bunching with congestion markets, using pre-approved signatures. In compiler terms,those congestion market are the memory shufflers that tracks used and unused memory.

Unintended shock vs intended deal

 

Fed, IMF Sound Warning That More QE Could Lead To "Unintended Consequences"

Something just outside the Overton window for Fed minutes.

A split in the chain, that is the best sandbox interpretation. So, open the bidding, this is no big deal.

Conjuring ghosts is no help. Look at the cost benefits of unintended vs intended, find the suitable margin, bid a deal.

I have Drum at a half point GDP, absolutely max. My numbers come in at one to one and a half, and Powell thinks two. My anarchist self is going with Powell, minus the monopoly fee. Treasury get a mean 1.5 percent inflation tax, plus a tiny monopoly fee from the Swifters. Swifter agree to bounded, Due Process banking.

This is about sandboxers buying off the whale.  Central baking cannot free Swifters until the Fed tax issue is settled. Sandbox is neutral, we can run with a double spender in Treasury, don't bother us. So, Swifters make the deal and jump on in.

Hard constraint

Americans in holiday rush despite highest COVID-19 death toll in 6 months

Bayes ruled out any solution long ago. The anarchist would say ,'We be screwed'. 

The alternative is to free market home based critical covid care, teach the kids how to ventilate, give shots, pound chest, and all the rest.  Otherwise, there is not time to build the market. Even the anarchists can't solve this. So, I am with Tyler on this, this is not government repression, this is a universal constraint, and everyone suddenly observes it when visible. This his the local news quick response when the hospital is just around the corner for most of us.