Monday, 9 June 2014

Wave function

All things in nature, upon closer inspection, describe a wave function. Arguably the science of economics, or indeed human sentiment and endeavour, is not immune from this natural law. Downward economic swings are an integral feature of the wave nature inherent in the path economies can take. Indeed they are as natural as economic booms. When a central banker arrogantly intervenes against this law by using "unprecedented" steps to dampen the amplitude of the wave in its down cycle, he will inevitably dampen the amplitude on the up cycle. And extend the wavelength. Because to use layman's language there is no free lunch. For those not persuaded, think of the empirical evidence from Japan and now the West.

Furthermore central bankers of the free market world today, trained to believe in the hegemony of capitalism over communism, are guilty of the same accusation they have levelled at the failed economies of the communist states. Massive injections of liquidity into the otherwise freely operating markets to control economic output are as doomed to failure as the central planning of the old soviet states.



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