Carranza2, thank you for taking the time to answer my post with such a comprehensive reply. I agree that your historical facts are correct and broad description of the variables in play accurate.
I would disagree that the models I have presented are just alchemy though as they are based on my experience as an engineer investigating problems with manufacturing processes and electronic circuits. It's just in this case we are talking about a fairly large scale "circuit" called the world economy. The principles are the same though and it's all down to supply and demand at the end of the day. In one case it's electricity flowing from one part of the circuit to another, in this case it's basic materials, money, and finished goods.
Because it's a complex problem, with many, many variables that may or may not interact with each other it would be a tall order to try and separate out them all at once and try and work out what is going on. i.e that is no way to answer a "$20 trillion" problem.
The answer is... don't. Instead construct some basic models. Do your best to make sure your measurements are as accurate as possible, your assumptions and uncontrolled unknown variables are defined and identified as much as possible, but apart from that no need to tax your brain. Let the factors you use in the model, and the effects calculated, act as proxy variables for all other factors and interactions in the system. Let the numbers "talk" about what is going on. The variation going on will show what is effecting the model the most, and those variables are the ones that should be identified and factored in first as they are the most important. Look at the big problems first then move on to the smaller problems. It should be taken for granted though that you don't know what the biggest problem is. Only by observing the errors in the model can you start to suggest possible solutions. I very much doubt our leaders are using any such a sophisticated approach. They would not have just flooded the system with money for a start.
Economics is math as the most basic level. Prices and counting inventories. Having a model is like having one eye open in an environment where many have both eyes shut. Many are just reacting to what they "know already" i.e that are not becoming aware and sensitive to what is changing in the system. Other problems are normal human reactions that take place when we face the unknown. I am afraid that many errors are going to be compounded into whole new multi dimensional errors as the "corrective action" taken by authorities won't do the job expected.
The Baltic Dry index is one example that springs to mind. Please understand me, I am no expert and have no background in economics, but this does not require an expert to realise there is a problem. The world economy was operating at level "Y1". Operating at an enhanced high level perhaps because of bubbles, Alan Greenspans, Bernie Bernankies, Helicopters, etc but at level "Y1" non the less. Then came the realisation that it was all a ponzi scheme, Madoff maybe gets jailed in his luxury apartment, and the world economy has to work at a new more painful lower level "Y2". Y2 is less then Y1. The trouble is for the world economy to operate at level "Y1" really big bulk carriers had to transport large amounts of stuff from one place on the planet to another, making a profit in the process. That activity has almost ceased.
When a problem occurs it is best for all to become aware of it, and that way a solution eventually presents itself, and in a free market someone steps in and fixes that need. Todays solution is to stop publishing the real news and pretend there is no problem. The "denial syndrome" seems to be cropping up in all sorts of places as politicians try and stop people from becoming aware of what is happening. That velocity problem you talk about has some depth and breadth to it. A whole host of models could be developed to describe just the velocity problem.
The output from such a problematic scenario is most likely erratic, probably bipolar in nature, alternating from one extreme to another.
investmenttools.com
If you put me in charge of the world economy, I would ensure the BDI got bumped up to about at least 30% of where it was by emergency measures if necessary. I would have done that way before giving bankers a whole ton of money to play with. Maybe some stuff will get unnecessarily shipped but it would be a minor issue, it would get used eventually.
/edit. Re BDI. Hmmm, I've seen the shape of that graph somewhere before -g- |
