"It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience."
Or its popular version:
"Everything should be made as simple as possible, but no simpler."
14 March 1879 – 18 April 1955
On the Method of Theoretical Physics.
The Herbert Spencer Lecture, Delivered at Oxford.
June 10th, 1933
I am a libertarian and was always a rebel. I am also a liberal and I can't stand that people should suffer just because they are poor.
This Tract started with a paper I wrote in the spring of 1994. I was asked to write, for free, about any subject on economy or financial Markets. As I saw that the Japanese Crash took place with very low interest rates, a very rare occurrence, it made me think, like many others, that it could be a Liquidity Trap.
As I was a bond trader in a previous life I looked at the history of The US Treasury Bond Yields. I was shocked to see that they had been following a strong downward trend since 1981. I intuitively concluded that that trend would continue and that the Japanese Keynes' Liquidity Trap would start a pandemic of epic proportion that would engulf the world. I also intuitively foresee that anything that would be done to slow that process would in fact increase its speed.
I decided hence to profit from the Crash and to make research in order to predict when it would occur.
Everyone knows that the cause of the lack of demand is the cause of a depression and I found out that a Islamic and Judaic precept, Zakaat in Arabic Tsedaka in Hebrew was in effect increasing demand. As a Jew I decided to go where the root of the solution was and where I would find the solution I made Aliah to Israel in 1995. Mind you: I am not religious, I believe religion is much too important to be left to the religious.
In 1996 I discovered that the cause of the downtrend in long-term yields was the increasing income/wealth disparity and that its root cause was the existence of credit. Middle East was starting to deliver its secrets: both Qu'ran and Torah formally forbid credit with interest rates.
Soon after I succeeded in finding that the Liquidity Trap was not a phenomenon that concerned only the 0% lower limit on short-term interest rates but that the whole yield curve had a lower limit which depended on the implied volatility of interest rates.
I thought I was ready and started to make business appointments with financial institutions: they were amused and politely listen to me not even trying to understand my simple model.
I started, like a fool, to talk to everybody about my research, none would listen: rich or poor, intelligent or stupid, no one. The last fifteen years of my life was an infinite moment of solitude. The only human interaction I had about my research was when I was decoding the GreenSpeak, or received the critics from my father Max Hamou. When I read Alan Greenspan I felt like someone was telling me something, encouraging me in my quest. He comforted me about the importance of long-term yields, explained me the dangers of shrinking risk spread, explained me the oil markets, he taught me the chaotic and discontinuous behaviour of Market Crashes... On the other hand my father, a fiercely conservative man with a strong faith in capitalism questioned all my work not missing one single contradiction or incoherence. It helped me double check every part of my intellectual construction. If you can enjoy once the prosperity of The Credit Free, Free Market Economy it will be thanks to these two great men.
I have spend 18 hours a day observing the economy and the Markets, researching, building websites, sending unsolicited mails... All I had was a computer, an Internet connection (dial up at the beginning.) and a few free softwares.
I believe that the reasons that make people so impermeable to my ideas are several they are all linked to man's animal spirit:
✔ People don't like bad news and throw stones at those who predict difficult times.
✔ People tend to believe that tomorrow will be like today a little changed in the good direction. They tend to think linearly although they experienced or heard of good and bad catastrophic events they tend to screen them out of their mind as it is difficult to adapt to them and much more to envision such a thing.
✔ If someone perceives that he gets an advantage out of a situation he won't leave it no matter its real cost for him. This is why so many poor people are Capitalists: they feel lucky as it is.
✔ People have a tendency to screen out of their mind the sufferings of others: it is too much for them to bear.
✔ People in good health must have some irrational optimism: how many time in your life did you think about your own death, which is, I have to tell you, a certainty? How many people buy lottery tickets with negative expected returns?
All of these reasons were stronger than the quest for profit.
But none of these have changed now so one may wonder: what will make you change your mind? May be, may be simply because people will start registering their €5 bank note. It is our only chance!
As I thought I needed more money to finish my research I proposed to a friend to sell half of it to him for $15,000 He flatly refused to buy at that price something that, I believed, was worth $billions.
I decided that my research was not for sale any more and I started thinking of a solution to the ominous Keynes' Liquidity Trap believing that there was something spiritual in people's denial.
One day I met with a Chabadnick and, as they always do, he told me that they were nine and in need of a tenth for the afternoon prayer. I accepted and I asked him to teach me Torah.
I learned some elements of the interpretation of the Torah by the Rebbe and was struck by the tradition of the dollar: a One dollar bill wears a representation of George Washington, worshipping it would be a grave sin for a Jew.
Like any paranoid I soon made associations: I discovered that Egypt could be associated with capitalism and the One Dollar Bill to a small sacrifice. The Middle East had delivered its third secret.
That small sacrifice in religion is called a cheap talk in game theory: it allows to increase the speed at which the players reach to their optimal strategy.
This is the how I designed my way out of The Red Sea, The Liquidity Trap. But just like in Egypt the slaves don't want to leave their Master.
When the last economic crisis begun I thought people would start listening to me. But it was just another malediction and soon they closed they ears and returned to their Irrational Exuberance like junkies on dope.
This is What Made me Successful in my Research?
Some mathematical skills, a high dose of laziness that makes me look for synthetic solutions, an incapacity to elaborate complicated formulas, a good capacity for associations and the fact that I lived in my flesh the Irrational Exuberance and the Depression as I suffer from bipolar disorder: believe me: no period of irrational exuberance can pay for a deep depression.
Everything else was pure luck.
Well not everything: I often asked myself why some great economists like John Maynard Keynes, Friedrich August von Hayek, Milton Friedman or Alan Greenspan did not find that income disparity was a major factor of macro economy. The answer is simple they were not poor enough so they never understood to what degree credit was discriminating against the poor. I was just lucky to be both sick and poor.
Would I have started these research if I knew it would take fifteen years: probably not. But now I am glad I did.
What is in Title:
Plea for a New World Economic Order:
As you will see The Liquidity Trap is the ominous fate of credit based economy. It is a systemic risk. Nothing can be done within the system to correct it on the short run (less than a few decades.) I had to come up with a new economy. What I call my Adjusted Credit Free, Free Market Economy is a necessary condition for a prosperous, stable economy. Because the economy is global the solution has to be global. Hence my Plea for a New World Economic Order.
The Age of Turbulence:
All started again with Alan Greenspan. How would a man more than eighty years old call his book The Age of Turbulence. As always with Alan Greenspan what he means is not what he seems to say. He often makes associations between mathematics and physics and economy and financial Markets. Let's read the definition of a turbulence:
In fluid dynamics, turbulence or turbulent flow is a fluid regime characterized by chaotic, stochastic property changes. This includes low momentum diffusion, high momentum convection, and rapid variation of pressure and velocity in space and time. Flow that is not turbulent is called laminar flow.
A liquid is a fluid. A Liquidity Trap and every Crash owe most of the proprieties of a turbulence: it is chaotic, discontinuous unpredictable. It is a disorderly of liquidity.
I hence chose the title of my Tract as an answer to Alan Greenspan, which was, I guess a reference to other turbulent waters:
In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."
John Maynard Keynes, 1st Baron Keynes of Tilton
June 5th, 1883 – 21st April 1946
A Tract on Monetary Reform.
Making the Research and writing The Tract was certainly not a easy task. I hope, although it is not yet apparent to most, it will be useful.
It Will be Witdrawn from the Internet on September 1st, 2009.
Buy The Tract Now.
Our Credit Free, Free Market Economy Will be Organised Among the Owners of a Registered €5 Banknote.
It Will be Jump Started After the Crash if the Number of €5 in the Cra$h R€gi$t€r Is Sufficient.
It is Hence of the Uttermost Importance That, When the Crash Comes, Which It Will Inevitably Do, we Restore as Fast as Possible the Economy by Quickly Implementing our Adjusted Credit Free, Free Market Economy as to Minimalize the Economic Sufferings of the People.
That will be possible only if a sufficient number of people register a banknote.
It is hence in our best common interest that we propagate these ideas as much as we can.
Talk to your family, to your friends, to your business associates.
To that order I am building redundant networks. Grow the Networks!
Get Involved With the #MarketCrash Discussion.
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"Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic.
Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits—of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole, is it based on an exact calculation of benefits to come.
Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die;—though fears of loss may have a basis no more reasonable than hopes of profit had before."
John Maynard Keynes, 1st Baron Keynes of Tilton
June 5th, 1883 – April 21st, 1946
The General Theory of Employment, Interest, and Money.
Chapter 12: The State of Long-Term Expectation, Paragraph VII.
December 13tn, 1935
€5 Can't Buy You Love But It Can Buy You an Economy!
All of This Stays True Until the Poor Becomes Richer Relatively to the Rich.
It Will be Proved by The Crash.
My Political Orientation According to Nolan Chart Survey!
As Libertarian as Friedrich August von Hayek!
Extreme Economic Conditions Call for Radical Solutions.
The Provocative & Controversial Innovation
Since John Maynard Keynes and Friedrich August von Hayek.
Read the Publisher Agreement.
© 1994-2009 Shalom P. Hamou & Other.
Disclosure: Long Treasuries, Corporate Bonds, Minerals and Stocks.