Posts Tagged ‘money’

How to get Very Rich during a Depression

Thursday, November 27th, 2008

The Kondratiev Wave predicts the long term behavior of the Economy. If you look at the Kondratiev Wave, the next stage after the Depression (Winter) is called Spring. Spring is the Time of the Seeds (new Ideas). They where harvested in Autumn. During the time of the Winter the seeds are dormant.

When the Harvest was rich, Winter is a time of Contemplation and Rest. Nature hibernates. Plants, Trees and many Animals sleep and are in the state of the Unconsciousness. When the Harvest was poor, Winter is a time of big trouble.

There will be shortages of Food and Fuel. When the Harvest was poor Winter is a time of Social Unrest and even Social Conflict. During the Kondratiev Winter Big Wars are fought and the Dark Side of the Unconscioussness shows itself in the extreme rise of Psychological Problems (Stress, Addictions, Paranoid) and Dark Religious Movements.

During Winter Shares, Paper money and other Imaginary forms of Wealth are worthless. When you want to buy something you have to deliver real value (Cash, Gold, Silver).

It is very clear that You can Make Big Money during a cold winter when you have gathered a huge pile of primary commodities (“raw materials”). During Winter raw materials are exchanged for other raw materials. When you don’t have access to these materials the only thing that is left for you is Charity.

When you are the owner of raw materials and you are making a lot of money you are Making Use of the Situation. During a cold winter you have to give to the poor and the sick. To make it very clear Making Big Money during a Depression is a Crime.

When you are Rich you can accumulate Social Value by giving away your Material Wealth to Others. During a Depression Material Wealth has to be transformed into Social Wealth to prevent a Social Conflict. This investment will pay back with a lot of social interest during Spring and Summer.

Unconditional Giving, Charity,  is a very old fashioned concept. At this moment we “give” a loan and we “ask”  interest but “giving and asking” are really “demanding”. We want to make sure that what we give will be returned in the same state. More Money for Money, an Two Eyes for an One Eye.

When we don’t want to deepen the down path of the Depression we have to leave behind the Behavior of the Expansion phase of the Cycle, Summer. When the Economy expands it is “easy” to accumulate Wealth. Loans and interest are helpful to bridge a temporary dip in the flow of cash. Summer is a time of fast moving Ups and Downs in the Economy (Recessions).

It is not strange that we are copying the behavior of the Summer. Long Term Cycles just like very fast moving Cycles are not noticed by the Human. They are generational. The pattern repeats every 50 to 60 year so the people that must be Aware of the current situation are Old. They are the grandmothers and the grandfathers, the older people (>75).

Moving through a Depression needs Wisdom and a Long Term View. A Depression is the time to Listen to the Older Generation. Hopefully they have Learned from their Mistakes at that time.

LINK

About the Kondratiev

About Spirit and Soul

Thursday, November 20th, 2008

Economic Cycles move Up and Down. We are now in a Down-state, a Recession. To stimulate consumers the Central Banks lower the interest and are pumping a tremendous amount of money into the economy.

Pumping money generates inflation and when inflation happens prices start to rise again. What the economist wants to avoid is deflation.

When prices rise people will buy goods and invest money. When the prices go up you can make a profit. When prices rise you have to buy the goods on the short term because they will be much more expensive in the future. When consumers believe the economy will contract they will start to save money to cope with the problems they believe they will encounter in the future. They will also postpone the buying of (luxury) goods. When they postpone producers will lower their prices and when prices are lowered other prices will be lowered. This is called Deflation and Economists are terribly afraid Deflation will happen.

A state of contraction is just like a state of expansion highly related to Expectations and Expectations are a Self-Fulfilling Prophesy.  If the self-fulfilling prophesy of a down-fall is not broken the economy will shrink until eternity. To motivate consumers to believe in an Expanding Economy Economists tell scientific fairy-tales hoping people will start to believe things are going the right way again.

Social scientists know for a long time that the majority of the people are not rational at all. Humans act on impulse and explain their behavior later. Humans believe others who believe others who believe others. Most of the things that are happening in the Economy are very complex and we need a simple explanation of a trusted expert. At this moment there is one thing everybody believes. Things are going in the wrong direction and One Thing is for Sure.

Bad news travel very fast.

The current state of technology has speeded up the transport of bad news to almost the speed of light. The contraction of the current economy moves much faster than the comparable contraction during the Great Depression.

The economy is controlled by two variables, Production and Consumption.

In a balanced economy the two variables are voided. The consumer destroys (consumes, eats) the products of the producer. The destruction of the product starts a new production-cycle. When the production is not voided producers have to create an inventory and take stock or speed up production. Producers don’t like to take stock. Stock costs a lot of Money.

Producers are just like Consumers highly controlled by their Expectation of the Future. The big difference between the two is the reaction-time. Consumers are able to Act on Impulse. It takes a lot of time and coordination to produce. Producers have to control their impulsive emotions but to sell their products they have to stimulate the impulses of their customers.

In the current economy the time between production and destruction is extremely shortened.  To keep the customer satisfied new versions of products are produced almost on-demand (on impulse). To organize a demand-driven production-line the producer needs highly advanced logistic systems. One of the most important concepts of logistics is to optimize the Inventory. Inventory costs money and space. To produce a product the chains of suppliers are heavily integrated.

Nobody is taking stock and one disturbance in the production chain causes a disturbance in the complete chain. When the impulses of the consumers are suddenly stopped a complete chain slows down and production has to stop.

When the Banks are not able to finance a slowdown of the supply-chain the production has to stop even faster. Again the effect of bad news has a huge and fast impact on every producer in the world. At this moment all the interconnected wordwide supply-chains are collapsing

We are living in a time where negative impacts propagate with the Speed of Light. The political institutions are unable to react to the speed of change that is now changing the world in an instant.

People remember negative impacts much better than positive impacts. The expectation of the Human is constructed to avoid big trouble. The constant sequence of bad news lowers the trust in almost everything that was trusted before.

At this moment Advisors, Bankers, Politicians, the Stock exchange, the Banking System, the Political system, the Medical System, Pension Funds, Insurers, the World Economy, the Climate and much more are not Trusted anymore. Everything is interpreted out of a negative perspective. Not only the economy is contracting but also the trust in the now and the future is contracting. Not only the Economy is in a Depression, many people are Depressed.

Production and Consumption are two important variables but there are really five variables at stake.

The cycle of Expansion and Contraction is balanced by two other variable called Spirit and Soul. Soul is related to the Human Emotions. Spirit is related to Human Creativity. The Four variables move around a Center and this Center is moving around other Centers.

Spirit is the Creator of New Ideas. Ideas want to move Down. They want to be realized on Earth. It is very difficult to determine these ideas because Old Ideas want to be Replicated all the time. Old Ideas have to be destroyed to make place for the New ones. The only way to do this is to enforce Stress on the old replication-system. It is very clear that this is happening at this moment. The old solutions don’t work anymore.

Soul contains the Human Potential and this potential is basically unlimited. When the Soul is Stressed it Explodes and new Opportunities become visible. There are two types of Stress. The Stress to create something New, the Stress of the Artist who is desperately trying to Express something that is there but cannot be Grasped. The other type of Stress is caused by the constant pressure of something that is forcing the Human to do what he really don’t wants to do or is not capable of doing. Let us call this type of stress, Negative stress.

Soul and Spirit are connected to the Destructor and the Controller.

When the Negative Stressed Emotions connect to The Destroyer of the Senses the Human becomes Violent. Sadly enough the Destructive force of a World Wide War will certainly generate an Up-state of the Economy.

When the Negative Stressed Emotions connect to the Expectations of the Controller it will generate Fear. Fear is the Destructor of the Senses. It narrows the view of the Human and produces the simple insight of the Common Enemy. They (not we) are the cause of all evil. A long time ago the Jews were the scapegoat. Recently Islamic Terrorists were the most important enemy. At this moment the “Greedy Bankers”, the Capitalists are the cause of the big economic crisis. If we don’t watch out we are moving into a new Struggle of the Classes.

When people are Afraid they simply stop moving. They wait and see and start to look for protection. In this case Big Brother is always there to help them. Extreme fear generates the need for all kinds of weapons to prevent war and to stop or even destroy the Agressive Humans. The Stressed Emotions create Enemies, Protectors, Weapons and finally the perfect reason to Fight a War or start a Revolution. If we don’t watch out a Huge Violent Conflict is unavoidable.

When the Emotions connect to Spirit, Spirit will generate an Insight. When this Insight has appeared Spirit will Transform the Soul and the Human will be lifted to another Center, a new Frame of Reference, a new View on the outside World. In this case Spirit gives the Expectation Hope, a view on a Bright and Exciting Future. The Creative Spirit is the Powerful Force behind Enthusiasm and Motivation.

We are living in an Illusion. Money is an illusion, the Economy is an Illusion, The Banking System is an Illusion, and the Contraction of the Economy is an Illusion. If we keep on believing this Illusion, the Economy, will slowdown, until it finally stops. At that time we have to cooperate to survive.

We See what we want to see and when we See a Contraction, the Contraction will happen. Our Expectation creates the world it wants to see and when the Expectation is without Hope, the outside world becomes Hopeless.

We, the Humans, are perfectly capable to create a completely balanced economy if we listen to the other, exchange ideas, cooperate and start to implement the ideas.  We will always make mistakes but mistakes generate new ideas and the cycle of Innovation will start again.

LINKS

About the Struggle of the Classes

How to create Enemies

About Suffering

About Unlimited Energy

Why Free Will is an Illusion

How to Shape your Own Future

About Mind Control

About the Emotions

About the Observer

About Synchronicity

About Time

About Paranoids

About Creativity

About the Big Brother State

About the Placebo Effect

About Honesty

About the Soul

About the Union of Socialistic States of America

Friday, October 10th, 2008

Government is Nationalizing the Banking Industry. This is just what Karl Marx wanted to do after the Proletariat had taken over Society. Is the US becoming a Communistic State?

When the Economy is Going Up Investors take on Risk. They start to Lend. The longer the Economy is going Up the more risk they take the more they lend until they’ve taken too much.

Eventually, they reach a point where the cash generated by their assets no longer is sufficient to pay off the mountains of debt they took on to acquire them. When this Happens we are at the Turning Point. From that time on the Economy is going Down.

The big problem is that you have to Pay Back the money you Lend with Interest. To Pay Back you have to Earn money. When the Economy is going Down you will earn less money so why should you lend money even when the interest rates are low?

When you expect that your income will go down you will reduce your spending behavior. You will certainly not lend money and the bank will not lend you money either because the banks want to be sure that you will be able to pay back the money and the interest. The Recession will deepen.

When Everybody Expects the Economy will move into a Recession the Economy will move into a Recession.

What You Expect to Happen will Happen.

The Central Banks are not only telling to watch out for a Deep Recession. They are telling we are moving into a Worldwide Recession. This is a completely new phenomenon.

When people believe a recession is near many of them will start to build up an emergency fund. The amount of money in the emergency funds will rise but to make money you have to invest money in something. Most of the time a part of the World is going Up and the other part is going Down. You just have to move your money to the place Where The Action is.

When the whole World is going into a recession nobody knows where to invest money.

We are not only encountering a Worldwide Recession, we are also encountering a “burn-out” of the Worldwide Financial Infrastructure. When you have created an Emergency Fund and the World Economy is going down and the Banking System is failing you really don’t know where to go.

The underlying assumption of all these models is the Power of the Market. The only thing Government has to do is to create the conditions and after some time the Market will restore itself.

Government is lending money for a very low price to the Financial Companies and they will propagate this advantage to their customers. The Customers will start to spend and the Economy will rise again but the Financial Institutions don’t propagate the advantage.

They add a Risk Premium to Save Money for Customers who are not able to Pay Back the Money. When Everybody believes the Whole World is Going Down this premium will be very high.

In essence Banks are Brokers. They have been very successful in bringing two parties (the Savers and the Spenders) together. The savers and the spenders are the Customers of the Bank. They are also the Customers of Government.

Why is Government helping the Financial Institutions and not the Customers of the Financial Institutions?

They believe the Market is able to recover by itself.

Why is the Market not able to recover?

The Market is an Illusion, a Theoretical Construction. The Market consists of Humans. When Humans believe a Theory (a Believe) they will act according to this Believe. If the Market will recover they will Wait until the Market will recover. If everybody Waits nobody Acts. Not-Acting leads to a Recession.

What is wrong with Economic Theory?

The Scientists believe Humans are Rational Beings but Humans are Emotional Beings. Most Humans are doing what other Humans are doing. When they don’t know what to do they just wait until the Markey recovers. The Fear of Losing drives Human Behavior. When this Fear Takes over Control Humans Act without Thinking. They Sell Everything they have to avoid a Higher Loss.

In essence the Government is confirming all the time that we are heading to a Huge Crisis. When we go on the way we are going the Crisis will be the Most Spectular Crisis the World has Ever Seen. The World Economy will come to a complete standstill.

Why is Government not Acting as a Broker?

This could be a simple solution. Just put Your Money where the Action is and the Action in Society is performed by Entrepreneurs. Entrepeneurs are very different from Investors. Investors invest their money in Entrepeneurs. Entrepeneurs Act. They put Ideas into Practice.

Entrepeneurs are Practical people. They know that You have to Earn Money to Invest Money. Their big problem is the Cash Flow. Their Customers have to pay their bills. When Customers don’t pay their Bills they need the Support of a Bank. When Entrepeneurs want to lend money to balance their cash-flows lend money to Entrepeneurs directly.

When Customers want to lend money to pay their Bills lend them the money they really need. You don’t need Banks to do this.

Every Economic Scientist is agreeing on point. Small businesses are the Pillar of the Economy.

There are many reasons why Small Businesses are the Motor of the Economy. The owners are responsible for their own actions. They get broke when their Business Fails. In Big Business You are able to spend or waist money without any consequence. You even get money when you fail. When you own a Small Business you are unable to create big Staff Departments. Big Staff Departments waist money and play Political Games. Small Businesses are the most effective and efficient Economic Instruments. They are also the Source of Innovation.

Why is Government not Supporting Small Businesses?

Government always supported Small Businesses until the Big Malls and the Big Companies were created. The Big Companies are paying a Lot of Money to influence the Politicians. Politicians were able to make big money when they started to do what the Lobbyist were telling them to do. It is time we get rid of Politicians who only want to make big money. To be a Politician is an Honor. You are serving the Whole and not Yourself.

Is US Government doing what Karl Marx wanted to do?

This is the most interesting point. According to Karl Marx, the first action after the take over of the Proletariat would be to Nationalize Banks. There are more parallels with the USSR. The USSR Controlled and Manipulated the Media, Gathered a Lot of Data about his Citizens, Spend a lot of money to Build and Maintain an Army, Occupied many Countries, Created an Elite (The Communist Party) and controlled the State with a huge Almighty Secret Service.

Are we finally moving to the Union of Socialistic States of America (the USSA)? or even worse to World Government.

LINKS

The vision of Karl Marx

About the Broker State and Small Business

What is Happening in the Financial System

Friday, September 19th, 2008

The current Foundation of the World Financial System, the US Economy based on the Dollar, is in a Fatal Crisis. The Solution to the Current Crisis, Bailing Out, will finally Speed Up the Crisis. The real problem is moved to the Near Future, to another Level of Society (MiddleClass, the Poor) and to another part of the World. In the End it will fireback on the US itself and deepen the Recession that is already taking place.

Money represents a Value of Something. For a very long time money was based on the value of Gold. This foundation failed. The failure of the Gold Based Money system created the Great Depression and finally the Second World War. At this moment the Financial System is without any Foundation.

To prevent a Third World War the Bretton Woods Agreement was created in 1947. The foundation of the International Money System was based on the Dollar. In 1971 the US broke up the Agreement because it was unable to stabilize the International System. At that time the US was spending too much money to fight the war in Vietnam. It became a Debtor and remained a Debtor until today.

From that Time on the International Money System is Floating but the Foundation, the Dollar, is still used. The Euro is an alternative but it is almost impossible to move to the Euro without destroying the US Economy and the World Economy. Europe, China and even Russia are Forced to help the Biggest Debtor in the World to avoid the destruction of their own Financial System. In the mean time the Biggest Debtor in the World keeps on Spending. It is even Increasing its Spending Behavior.

Many people believe that the reason behind the Financial Crisis is the Credit Crunch. They believe mortgages are the cause of everything but the reason is much more complicated. The main reason are financial derivatives.

Derivatives are very complicated ways to gamble with money. They are so complicated that almost nobody is able to calculate the value of these financial instruments. They are so complicated that almost nobody is able to keep the books. The controllers of the banks lost the control a very long time ago.

 

Derivatives are the playingfield of dealers and the dealers are able to confuse almost everybody when they want to play their game. The effect of playing dealers has shown itself in many cases like the falldown of Barings. The Derivatives have transformed The Banking Industry into a Casino.

The US Government and its Allies are trying to avoid a new Great Depression by bailing out or protecting every US Bank, Insurance Company and other Company (Farmers, Chrysler, Boeing, Ford, ..) that is unable to pay its debts. The US Government is moving the huge and uncertain debt from the Market to the Government hoping the Market will Restore itself. They believe the Market is going Up and Down. Someday they will be able to Sell the current Debt with a Profit back to the Market.

The strange thing is that other countries are helping the US to protect their vital companies from a certain disaster. The US, the Protector of the Free Market, is protecting its Own market and the only reason why others are helping the US is to avoid a certain disaster on the level of the World. Strangely enough they are disturbing their own market to avoid the destruction of the market of their biggest competitor.

In the background investors, Countries and Companies are slowly moving out of the US Economy. The are investing in Europa (Warren Buffett) or are creating their own financial market and currency (China, Russia, India).Nobody believes the US will recover but they have to prevent a total meltdown.

China is even taking over control of the US Economy. With their enormouss funds they will be alble to “blackmail” the US. They are already doing this. The Chinese are in contrary to the US fighting the war with the Wapens of their Opponent. They know how to win without fighting.

What many peopl don’t realize is that the long term Economic Cycle (The Kondratiev) is going Down for about 26 years. We have entered a State of Compression in 2000. The Expansion of the World Economy during the last 26 years has stopped. We are just in the beginning of the Phase of Compression.

During the phase of compression the Baby Boomers will stop working. They have invested a lot of money to buy a pension. During the compression their pensions will evaporate. During the phase of compression many people will get old and ill. The Social System will be without any money to help them. Many people will move into a very angry state when they realize what really has happened.

During the Downfall The Debts will increase tremendously. The move from the Market to the Government (and the Tax Payer) is a temporary solution. Someday the Debts have to be repayed and the only thing US Govenment can do is to accept the fact that the US and the strongly related Western Economy will enter a state of Recession.

The Economic Activity will go Down but Social Activities will Move Up. When you are losing money somebody (Your Friends, Your Family, Your Community) has to help you.

What many people also don’t realize is that the very long time cycles are supporting the DownFall of the Economic System. The very long time cycles and especially the Cycle of the Precession is Jumping to a new Level. It is jumping to a higher level of Consciousness.

The current instability of the World System is not only visible in the Financial System. It shows itself in every System of the World. It shows itself in the Psychological System, the Cultural System, The Religiouss System, the Political System, the Ecological System, the Weather System and the Planetary System.

These Systems are highly interconnected. A Disaster in one of the Systems has an impact on all of the other Systems. When the Financial System is fixed, a Political Conflict (Russia) starts and the Financial System is unbalanced. When the Political System is stabilized a huge Earthquake or a giant Tornado will move the total System into unbalance. This will go on and on until everybody realizes that we are living in a Highly Interconnected Reality.

The only thing we can do is to act on the Level of Earth and Face Reality. We have to realize that all the Isolated Systems are One and the only thing we can do is to find Balance on Every Level.

We could start to Find Balance on the Level of the Human.

We could start to Reduce the Power of the Ego, Desire, by reducing our Needs.

We could start to Reduce the Power of our Expectation, our Thinking, and start to Trust the Other.

We could start to Empower our Imagination, Spirit, and Imagine a Shared Future.

We could start to Empower our Soul, Empathy, and start to Take Care of Others.

We could start to use our Consciousness and become Aware of what is really Happening.

Many people believe the current crisis will be a Fatal Crisis, a (Financial) Apocalyps. I don’t believe this will be the case.

Imagine a world were you are not Working all the time. Imagine a Life without Stress.

Imagine a World where You don’t have to Play Political Games to Survive.

Imagine a world where You could enjoy Nature.

Imagine a World were You are able to Help without Being Payd.

Imagine a World were you are able to Create when You want to do this. Imagine a World without War and Violence. The only thing You have to do is Leave a Little Bit of Your Current Luxury behind.

If this happens the Downfall of the Bad Buck would be replaced by a tremendous Rise of Good Luck.

LINKS

How the Great Depression was created

About Derivatives, Accountants, Greed and other terrible problems in the Banking Industry

 

 

Are we Heading at a Total Collapse of all Systems?

Monday, December 17th, 2007
When I finished my blog about the Great Depression in 1929 I wanted to write about the Great Depression of 2008. I was convinced this would happen again. I am not the only one. Many known and unknown people are warning about a worldwide economic disaster (a deep recession).

The Central Banks are pumping money into the market to prevent this to happen but to their big surprise the market is not able to use this money because the banks are afraid to lend money to other banks because there is no trust at all.

They want to revive the system but the system is in a very special and dangerous state called StagFlation. It is slowing down AND speeding up in terms of prices and the creation of money. Stagflation is something the Economist cannot handle. It is a Catch 22-situation. What you do, it always works against you.

Another problem is caused by the collective believe that things are going wrong. People stop to invest and to buy which generates a downward spiral. You can lower the interest rates to zero but when many people are afraid to buy they don’t need a credit.

The collective believe-system is the most important factor. When the Central Bank is lowering the rates it is telling two stories at the same time. The first story is that it is doing something to help but it also confirms the believe that something is really wrong.

The second story is more powerful than the first story. People don’t believe in the financial system anymore. It has destroyed itself. What the people need is self-confidence and a way to solve their own problems but The System that is there to help them is in trouble itself.

The only way out is that people start to cooperate without the “interference” of the big complex dying systems. The Rich could simply lend their money directly to the “poor” entrepreneurs. There are enough people available to create new businesses but they are simply stopped by the incomprehensible System that has lost its own Entrepreneurship long ago.

The Rich, the Investors, don’t want do this because they don’t know how to trust an Entrepreneur. They want to be helped by experts who really don’t know what they are talking about because they are way beyond the practices of real life. The experts live in a highly abstract world that is dominated by Models and Models have nothing to do with Reality. They are a product of the Imagination. To solve our problems we have to move back to Earth and become Practical again.

In a blog I explained to so called Domino-effect. When one domino falls all the domino’s fall. At this moment all the banking-domino’s are preventing the domino-effect to take place. They are afraid they will lend something to another bank that will fall.

The banks are unable to show their credibility because they are unaware of their own risks. The financial structure of a bank has become incomprehensible because of the very complex products based on expectations and the failing IT-Systems that are unable to show what is really happening. Everything is connected to everything. The financial community is a highly complicated knot.

Many people are trying to comprehend the current situation but they are missing the right theory. Suddenly I remembered the Resilience Alliance (RA). They have created a beautiful theory to explain ecologies. It is not difficult to see that the financial system is an ecology.

RA has defined an adaptive cycle with four distinct phases: growth, conservation, collapse and reorganization. The cycle contains two major phases, the fore-loop (growth and conservation) and the back-loop (collapse and reorganization).
At that time an Innovation in Religion came into the World. This innovation can be summarized by the famous statement of Socrate Know Thyself. When we Know Our Selves we will be inspired by our Inner Light. Know Thyself has been translated into many practical approaches like Socratic Learning, Socratic Decision Making (Sociocracy) and of course the Cooperation.

The most important point is not to believe in the Apocalyps but to understand that a collapse is always followed by growth and conservation but on a new level. Believing in the End will generate the End. Our collective imagination is one of the strongest forces on Earth. Look for the signs of the new structure that will enfold out of the old one. Join people that are driven by Spirit and Soul. They are everywhere.

The back-loop is a rapid phase. During the fore-loop wealth is slowly accumulated and competitive processes lead to a few dominant species. The fore-loop destroys diversity. This is what happening in nature and it looks like the same thing is happening in other human ecologies. When most of the diversity is gone the ecology is highly connected and vulnerable to external influences. When something unexpected happens the total ecology collapses.

My feeling is that we are now in a state were many ecologies are collapsing at the same moment. They are collapsing because Nature is collapsing at an impressive speed. We are not heading for a Great Depression but we are heading for the Big Collapse.

The back-loop is a rapid phase. Suddenly the Weather changes with an incredible speed. Suddenly the Financial Market is evaporating and we are unable to do anything. Suddenly major conflicts start and we are unable to manage them with the current systems.

According to RA after the collapse the ecology reorganizes itself by jumping back to a “hidden” state that was stored in its memory a very long time ago.

How far back do we have to go in history to find our rescue? In another blog I wrote about the destructing cycle that was caused by a new insight that was given to the world by Socrate and the Buddha.

Why the Finance Gurus Get Risk All Wrong

Tuesday, September 18th, 2007

When I read the news I feel the Worldwide Financial System is slowly moving into the disaster zone. The main reason is the absence of Trust. For almost 25 years I have been active in the Banking Industry.

I started my career as a mathematical analyst doing Operations Research. Our most important client was the International Money Market. The next 25 years I was in many roles involved in this area.

Banking is in its essence very simple. A bank buys and sells money. All the products of a bank are sometimes very complicated structures where the flow of money (the cash flow) is regulated. A bank has to balance its cash flow every day. When the cash flow is unbalanced it has to buy or sell money from other banks or the National Bank.

The money market is the most complicated market. The most important person in this market is called a Dealer. To balance the activities of the Dealers a Manager gives them all kinds of Limits. The sum of all the Limits has to be zero on a daily basis.

When they buy and sell money it is very easy to manage the dealers. You just have to add all the cash flows and compare them with the given number.It became much more complicated when the dealers created new products.

In these new products they started to trade Expectations (Options). An expectation is a statistical construction. To calculate the Limit a new way of calculation had to be developed. Not only a new way of calculation had to be developed we also needed a new way to keep the books.

Everytime when we were able to find a way to solve the problems the dealers invented a new product. They started to trade in expectations of expectations and many other very complicated combinations of other products. In the end we were not able to keep the book anymore.

This was the moment when things went totally wrong. Perhaps you remember the end of Barings where a dealer called Nick Leeson was able to fool almost everybody. He wanted to regain his losses and to do this he had to take more risk in every step he was taking. He was gambling with the money of the bank. I don’t want to offend dealers but I think GAMBLING is the best way to describe the current situation in the financial industry.

Not only the bank is gambling but also Companies and Customers are gambling in every aspect of their lives. Customers buy a house and hope the price of their house will rise. Companies buy a company and hope the merger will make a profit.

Gambling is a zero sum game. Gambling is a very complicated way to distribute a whole. The sum of all the chances is one. To state it simple when one person wins the other has to lose. We created a very complex system that hides the fundamental laws of gambling. An example is inflation. Inflation changes the value of a currency. To compensate the ups and the downs of the currencies money flows from one country to the other.

When a bank is unable to reach zero (balance) it has to lend money. There are many arrangements between banks to make this possible. Most of the time banks operate in clusters or networks. They use preferred partners to do so. When you are playing in the lower league you have to pay more. You are playing in the lower league when the chance that you become unbalanced is high. You are a risk and to compensate the risk you have to pay a higher price because the bank has to reserve money to compensate for the risk. The money the bank has to reserve is not making money.

A very long time ago I was responsible for a project called Global Limits. We used the GEIS (General Electric)-network to connect all the dealing centers in the world. The system operated on a real-time basis. Every transaction with a bank was stored in the central database. With one button a central manager could block a bank. If the bank was blocked the dealers were unable to deal with this bank.

The system was created because of the Oil Crisis. The management of the bank was very afraid the Domino-effect would take place. The Domino-effect happens when a bank goes broke and influences the next one. We calculated this effect on a daily basis.

At that time the banking network was not too complicated. Many banks worked in alliances (ABECOR) and the alliances could stop the cascade.

At this moment we are in a totally different situation. The banking network is worldwide, highly interconnected and the transactions between banks are based on expectations. When a worldwide expectation fails the system is almost unable to stop the cascade.

Most of the time expectations are also balanced. When many expectations fail at the same time the Insurance Industry calls this an Act of God. Acts of God (or Destiny) are outside the reach of statistics. They are so rare that it is impossible to predict them.

It looks like the world is hit by many Acts of God at the same time. The System is able to take one blow and a second blow but at a certain point in time the System is down. The money that was reserved to compensate is gone. At that time only Governments are able to help.

They are able to create (!!!) money to help the System to survive. Creating money is a temporary solution. In the end the balance has to be restored. The total System gets out of balance when very big or world-wide disasters occur. When the System is unbalanced for a long time the system is permanently vibrating and is basically unpredictable (volatile).

The creation of money creates Inflation. There is an end to this Support System when the Inflation rises to an unexceptable level.The only way to solve this problem is to change the value of the Currency or to hide the Inflation. This a trick many countries apply. It buys them some time.

The effect is a change of the flow of money from one country to the other country. The most terrible situation arises when the Economy is going down and Inflation is going up (Stagflation). Stagflation is something the brightest economists are unable to handle. You have to stimulate and stop the System at the same time.

The current system is still highly dependent on the Dollar. When the US is unable to manage the flows of money the Worldwide System is in big problems. Currently the World Economic Power is the cause of many Acts of God and experiences many Acts of God.

Yesterday the former president of the independent financial autority in the US(FED) Alan Greenspan predicted a financial disaster in the US. He explained that the US does not have the financial buffers to handle a crisis. When this crisis comes (the baby-boomers) they have to lend the money elsewhere.

What we see now is a very dangerous situation. The banks are afraid to help their colleagues. They don’t trust anybody anymore. When a bank is unbalanced it has to ask the Government for help. When the Bank has to ask the Government for help the customers that have given the bank a loan demand their loans back. The Bank is unable to survive this. When the first bank has fallen the other banks want their money back. When the money is gone the next bank falls and the next bank falls. An endless cascade starts to move like an avalanche.

In 1996 Per Bak wrote the book How Nature Works: The Science of Self-Organized Criticality.

Self-organized criticality is one of a number of important discoveries made in statistical physics and related fields over the latter half of the 20th century. Per Bak used the metaphorical visualization of a “sandpile” on which new sand grains were being slowly sprinkled to cause”avalanches”. The Domino-effect takes place when the last grain falls and all the sandpiles start to move.

What Per Bak discovered was a Power Law. The Acts of God are predictable by a mechanism that underlies the natural phenomenon in question. The Power Law is fractal which means that the rules of the system come back at every level and behave like the tones and overtones of music. Sometimes the disaster is repeated at every level of enfolding of the system and creates a multi-level avalanche.

What Per Bak discovered was that the sand-pile system is fractal. It is a self-reference. Old fashioned statistics, used by Banks, are unable to handle fractals.They are not able to predict the “sudden disaster“.

Benoit Mandelbrot (the inventor of fractals) and Nassim Nicholas Taleb wrote an article called “How the Finance Gurus Get Risk All Wrong

Conventional finance theory treats big one-day market jumps or drops as anomalies that can be safely ignored when gauging risk or forecasting returns. But if you remove the ten biggest one-day moves (both up and down) from a chart of the S&P 500 over the past 20 years, you get a picture very different from market reality. The big moves matter

In market terms, a power-law distribution implies that the likelihood of a daily or weekly drop exceeding 20% can be predicted from the frequency of drops exceeding 10%, and that the same ratio applies to a 10% vs. a5% drop. In bell-curve finance, the chance of big drops is vanishingly small and is thus ignored. The 1987 stock market crash was, according to such models, something that could happen only once in several billion billion years. Another aspect of the real world tackled by fractal finance is that markets keep the memory of past moves, particularly of volatile days, and act according to such memory. Volatility breeds volatility; it comes in clusters and lumps. This is not an impossibly difficult or obscure framework for understanding markets. In fact, it accords better with intuition and observed reality than the bell-curve finance that still dominates the discourse of both academics and many market players“.

What they are telling is that disaster breeds disasters. What they are also telling is that INTUITION is the best tool to use when you want to besuccessful in the financial market.

Alan Greenspan explained yesterday what he experienced when he was trying to convince the Government to stop to destroy the Country. He also told the reporter that he was convinced they would not stop the process and he was also convinced the process could not be stopped. I hope he is wrong.

LINKS

About Fragile & Anti-Fragile Systems

About the Legal System

Saturday, August 4th, 2007

A friend of mine is a well known lawyer. He is writing a book about improving the Legal System. He is thinking out of the box.

His main issue is efficiency. We can save much money and of course save a lot of trouble of innocent victims of the System when we use sound principles of management. I agree with everything he is writing.

I don’t want to think out of the box I want to remove the box itself. Let’s have a try.

Why do we need a law and people that are enforcing the law?

Was there a time in history when Law was not needed?  Law was not needed in Paradise.

What Went Wrong?

The Church is trying to convince us that we were forced to leave Paradise because of Sin. Eve ate an Apple. The Apple was given to her by the Snake and the Snake was Evil. Sin is the cause of the Legal System.

We have to detect and punish all the sinners who are not obeying the Law. When they have confessed their sins in Court they have to pay the price in terms of money and/or years in prison. After that time they can start all over again.

The concept of Sin was invented to give the Power to Judge to the Church of Rome. The Church of Rome was the successor of the Roman Empire. They were the experts in managing the masses (Divide and Conquer, Bread and Games). They were also the inventors of our Law System.

My friend uses many Latin insights like “De minimis non curat Praetor (dont go to court for something small)” to support his arguments. Later the Institutions of the State took over the Power to Judge.

The Church of Rome not only explained why we had to leave Paradise. It also invented a new concept called Heaven. Heaven is Paradise but now we have to obey the law to get there.

Paradise was given to us. To go to Heaven we have to obey. They not only invented Heaven but also Hell (The Jail) and a manager of the eternal Jail called the Devil.

The snake is really the symbol of Consciousness, the power which knows itself. When the human left Paradise he became aware and was given the opportunity to become a co-creator. He became a part of the Whole that is called All-That-Is (Yahweh). He was also given a Free Will because a dependent co-creator is not a creator.

What went wrong?

We were not able to co-create a balanced Earth and time after time All-That-Is was asked to interfere and to create a Law like the Ten Commandments. The first command was “Don’t Kill“. Humans thanked Yahweh for the Law and just went on killing.

What went wrong?

We always find new laws (exceptions) that are more important than the first commandment. We invent them. We are allowed to kill when somebody has killed another person or we are allowed to kill when somebody is trying to kill another or…. I can go on and on giving you very intelligent arguments why killing a human is allowed in a certain situation.

This process of inventing exceptions is called jurisprudence and it creates a very complex system of laws. To judge a situation we need highly educated experts (Lawyer) and highly educated “objective” persons (Judges) to value the law and its exceptions to pass a verdict. By creating experts we created a shortage. The experts in law are not trained to become a doctor or an artist.

In society we don’t discuss this shortage. We hope that the System (now called a Market) will regulate itself. When it is regulating itself we create Laws to stop the process of Self-Organization (also called Consciousness).

The doctors are afraid there will be too many doctors so their price (income) will go down. They organize pressure groups that are influencing law makers and often somebody introduces an exception. This exception increases the Complexity of the System.

What went wrong?

When you need an expert you need money and some people are poor. So we invented a system where there are two types of victims the rich and the poor. The rich are able to win a legal process more easily than a poor person.

Again we created a shortage. The shortage is wealth and we invented a tool to “objectify” wealth called money. Poor people are in need of money and rich people have an abundance of money. We created a system called a Bank to regulate the flow of money. We created systems to regulate Banks. Regulating regulators never stops.

What went wrong?

The rich people have influence by themselves. We try to prevent this but behind the scene people with influence are making deals with the Law. We all know that.

We create Laws to prevent this but as you all know now people don’t like to obey rules. This opportunity was given them when they left Paradise. It was called Free Will. We are constantly trying to control Free Will (Our co-creating Creativity).

What went wrong?

At some point in time the masses became too powerful. They were on the verge of a take-over. To stop this democracy was invented. This went wrong when the masses started to vote for themselves. To prevent them doing this the consumer market was invented. The masses (now called citizens) could vote with their money.

Now the consumers (the masses) are taking over the Power again and the consumer market is destroying Earth (our Paradise).

We are inventing new concepts like Media and Games (Bread and Games) to silence them.

We also create new ways to “divide and conquer” called Sound Management Principles and Compliance but will it help us?

What went wrong?

The main point I am trying to show you that things always go wrong. We are compensating a fatal error with a fatal error.

This is a meta-problem and I can go on phrasing meta-meta-meta questions and in the end things are always are going wrong. Is there something totally wrong behind all this?

We started with the gift of consciousness, the power which knows itself. This power gave us a Free Will and Free Will is Co-Creativity. The Co is very important Co means Co-Operation.

Are we really using the Power to Know Ourselves? If we would know ourselves we would know what was Right and what was Wrong. We would act out of Knowing instead of out of our Impulses. We would not need an outside Law. We would be carrying the Law in Our Selves.

Why are we not using our Consciousness?

People use their Consciousness all the time. It is a voice that is talking in their heads asking them Why?

Why is starting the process of Reflection. To reflect we need a Mirror and the Mirror is the Other. If you were the other, would you like to be treated like You are treating the Other?

What people do most of the time is the opposite of Reflexion called Projection. Projection is telling others not to do what You are doing all the time.

You are a Priest working in the Army. You tell others that they are not allowed to kill but when there is a war you pray to God for help to win the war.

Projection is the cause of all the trouble we are in. Projection is Judging others without starting to Judge yourself.

Ask yourself the question. Is it wrong to ask for food when you are hungry? The Law in the Bible tells you to give shelter, food and care to the poor and the sick.

Why are we not doing this?

We are doing this because when we give money our account is going down and perhaps we need the money later when we are in trouble. But when everybody is helping everybody we don’t need to save money.

We don’t believe others will do this and therefore we are not doing it our selves. This is projection. We are projecting our behavior on others.

Is it wrong to ask for a shelter when you are poor? Again “giving something” causes problems because when we give we are also have to take.W

We think Life is a zero-sum-game.  We are imagining a shortage. Shortage is a fantasy, an Illusion created by our Thinking Process.

Our Thinking is projecting(!) troubles into the future and acts in the Now like they are real. It wants to control something that is still not there.

We have created the Illusion of State, Law, Money, Inflation, Interest, Budget, Time and many other Illusions of Control. They are bothering us now in everything we want to do.

Life is really a non-zero-sum-game when we share and collaborate. The solutions for the big problems in the world are known. We don’t apply them. We are projecting, projecting and projecting. Let’s stop this Evil Game.

Let us start to observe our selves.

Let us use our imagination and create new possibilities.

We don’t have to move far away. Let us start in our own environment, our family, our friends, our colleagues, our neighbors. If everybody is doing this we will solve many problems.

In the end we will still need a Law and a Judge but the amount of Laws, Jurisprudence and Lawsuits will dramatically go down. The System will be very simple and  a lot cheaper. It will cure and clean itself.

LINKS

About Lady Justice

About Ethics

Hahahaha Dadadada: About Childisch behavior and Decadence

Wednesday, June 13th, 2007

This evening I talked with a friend of mine. He runs a business in Knowledge Management Tools. His brother-in-law is very rich and he was invited to visit him in Spain (Valentia). His brother-in-law owns six cars, a big house and a very expensive sailing ship but he is not able to sail.

My friend is an expert in sailing and he is helping his brother-in-law to sail his ship to Alicante. This weekend a huge sailing event is taking place. It is organized by Switzerland. They needed a sea so they made a deal with Spain.

Organizing the whole events costs 2.000.000.000 Euro (Tax money). To develop a sailing boat an investment of 20.000.000 Euro is necessary just to experiment. Building the ship costs much more (200.000.000 Euro).

Winning the race gives you status in the network of rich people. Larry Ellison the owner of Oracle is one of the persons who is investing billons just to win and another Russian billionaire is doing the same. Anderson made his money by creating and selling software to big companies and government agencies. The Russian billionaire just grabbed everything he could get in Russia. He not only owns a expensive ship but also the most important Soccerteam in Brittain (Chelsea).

Normal (poor) people can watch the race on television and rich people don’t even watch. They have their private parties and my friend is invited. I advised him to find somebody that would buy his environment just for fun.

His Sister-in-Law shows strange behavior. She is wasting enormous amounts of money (six cars) but she also looks at the small things. She is “pound foolish and pennywise”. Her main interest is faking the luggage system of the airplane. She does not want to pay more than the normal fair and she has developed numerous tricks to fake even the customs. She is an expert in smuggling. She acts like a big child and she does not knows she is playing with fire.

My friend is an analytic observer and he observes the same thing in government projects (also tax money). His tools are very cheap and very advanced (Open Source) but Government Agencies and especially Government Research Organizations are spending billions to create something that is already available for free.

Rich people don’t pay a lot of taxes. They pay advisors to find holes in laws and the advisors advise governments to create holes. If they don’t do that the rich people move to other places in the world. Switserland is the expert in “helping” rich people. Banks are doing everything you want to do secret things with your money.

Last night I was asked to help the sun of a friend. He was having troubles with mathematics. I am a mathematician. (Not) to my surprise I found out that his problem was not insight but just doing something at school. He was spending all his time with friends, making fun in school and he did not spend a minute to listen to the teacher or to read his book. I couldn’t do anything to help him.

My friend also wanted to talk about the “career” of his sun. He had to make a choice and after some debate I found out that he wanted to become a banker. I have worked for a bank and I explained him what bankers are doing. He wanted to work in the money-market. I told him economics or mathematics is needed. He understood that his behavior in school was not helpful. After some debate I found out that he did not want to become a real banker. Banking was about doing nothing, driving big cars, nice suits and having fun. He just wanted to be rich.Unfortunedly his father was not a rich person so the only thing that was left for him was to play the lottery.

What is happening?

What is happening is called decadence. We are so rich that we don’t know what to do with our wealth.

But we are also very stressed. Why? Because we are convinced we have to work to make money.

To employ people we give them fake-jobs. Many jobs are about advising the advisor. This is a well know play in the Netherlands. Behind every teacher (we have a shortage, it is not paying much) twenty people are advising. Behind every nurse (and we have a shortage, it is not paying much) there are twenty advising. And it goes on. There are advisor to advisor and at a certain point they create a loop. This loop causes complexity and we employ advisors to make it simple and a new complexity arises. In the end we don’t know what is happening, we get stressed and we employ advisors (ok I stop).

It’s like a strange dream and the dream can turn into a nightmare when the system collapses (and it is collapsing) and suddenly we don’t have enough electricity (Fall-outs happen) and the trains are not running (They do).and computer systems are going out of control (They do) The advisors know that the reason is complexity but they don’t know how to solve it.

Dada or Dadaism is a cultural movement that began in neutral Zurich, Switzerland during World Ware I and peaked from 1916 to 1920. The movement concentrated its anti-war politic through a rejection of the prevailing standards in art through anti art. The movement influenced later styles, movements, and groups including Surrealism, Pop Art and Fluxus.

The artists created art out of junk and shit and made a fool of the governing class. Surrealism uses the Dream World to show how the elite is behaving. The “leader” Andre Breton was trained in medicine and psychiatry. He used the psychoanalytic methods of Freud with soldiers who were shell-schocked. He admired anti-social attitudes and disdain for established artistic tradition. He hated them and wanted to show the fake and the nightmares of poor innocent people that were fighting a useless war that was all about Power and Status.

Now the rich persons are paying millions to buy a piece of shit of Dada.

Andre Breton is laughing in his grave and the rich people are laughing also because they also have fun.

Hahahahahaahahaha

Dadadada. Childisch Behavior.

Decadence.

Are we watching the End of Western Civilisation?

I don’t know.

The rich have all the money and therefore the power to stay in power.

The children watch the Jet-Set on Television and also want to be rich.

If they are very poor they Join the Army.

Loop.