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Schroedinger's Cat Revisited: Why It's Impossible to Predict the Markets

First, there is no ambiguity in forecasts. In contradistinction to Bernanke (and using his terminology), forecasts are mathematically "precise” (1) nominal GDP is measured by monetary flows (MVt); (2) Income velocity is a contrived figure (fabricated); it’s the transactions velocity (bank debits, demand deposit turnover) that matters; (3) “money” is the measure of liquidity; & (4) the rates-of-change (roc’s) used by the Fed are specious (always at an annualized rate; which never coincides with an economic lag). The Fed’s technical staff, et al., has learned their catechisms;



Friedman became famous using only half the equation (the means-of-payment money supply), leaving his believers with the labor of Sisyphus.



The lags for monetary flows (MVt), i.e. proxies for (1) real GDP and the (2) deflator are exact, unvarying - respectively. Roc’s in (MVt) are always measured with the same length of time as the specific economic lag (as its influence approaches its maximum impact; as demonstrated by a scatter plot diagram).



Not surprisingly, adjusted member commercial bank "free/gratis" legal reserves (their roc’s) corroborate/mirror, both lags for monetary flows (MVt) –-- their lengths, or frequency, are identical -- (as the weighted arithmetic average of reserve ratios remains constant) -- (analogous to Max Planck's constant in quantum physics).



The lags for both monetary flows (MVt) & "free/gratis" legal reserves are indistinguishable. Consequently it has been mathematically impossible to miss an economic forecast (bubble, etc.). There are no inaccuracies, just some non-conforming & unavailable data (e.g., revisions have been overlaid & lost, flawed deposit classification, data discontinued, etc.). This is the “Holy Grail” & it is inviolate & sacrosanct.



The BEA uses quarterly accounting periods for real GDP and deflator. The accounting periods for GDP should correspond to the economic lag, not quarterly.



Monetary policy objectives should not be in terms of any particular rate or range of growth of any monetary aggregate. Rather, policy should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real GDP. Note: roc’s in nominal GDP can serve as a proxy figure for roc’s in all transactions. Roc’s in real GDP have to be used, of course, as a policy standard.



Because of monopoly elements and other structural defects which raise costs and prices unnecessarily and inhibit downward price flexibility in our markets, it is probably advisable to follow a monetary policy which will permit the roc in monetary flows to exceed the roc in real GDP by c. 2 percentage points. In other words, some inflation is inevitable given our present market structure and the commitment of the federal government to hold unemployment rates at tolerable levels.



Some people prefer the devil theory of inflation: “It’s all Peak Oil's fault.” This approach ignores the fact that the evidence of inflation is represented by "actual" prices in the marketplace. The "administered" prices of the world's oil producing countries would not be the "asked" prices were they not “validated” by (MVt), i.e., validated by the world's Central Banks ( i.e., as Friedman maintained "inflation is always and everywhere a monetary phenomenon")