Saturday, August 21, 2010

I think he said it all.

Watched the video below on John Lee's (a/k/a @weeklyta) blog.  The whole clip is great, but I feel that the commentary at 31:33 resonates profoundly in its sublime simplicity.  The following is a quant's response to whether or not he believes that computer models were responsible for the most recent market collapse:
No ... There have been an increasing number of financial crises in the world since 1994 ... and people are used to constant growth and acceleration and every time it's slowed down the government stepped in and tried to stimulate it again by lowering interest rates, just like they're doing now.  And so you get these [sic] sort of rise and collapse, and people don't like the collapse, so they lend money cheaply and force a rise again.  And each time the oscillations get bigger and bigger. 
When previously alluding to the United States economy as exhibiting similarities to the life cycle of sun-like, or larger stars, here, this gentleman's prognosis was what I tried to contemplate.  Large stars burn progressively heavier elements as they age.  The larger a star, the more elements it will fuse, with each element being consumed more rapidly than the last.  Indeed, we have seen time compression between booms and busts since the early 80's, much the same as a large star progresses through its feed cycle.  Red stars last much, much longer than blue ones, by factors of hundreds, and even thousands.  Though their mass, and therefore energy output, may not be as great, red stars are able to reach a better harmony between gravity and energetic expansion.  Without finding some kind of balance by acknowledging that painful results must be accepted as a way to offset gluttonous excess, the fate of our economy rests on ever greater gambles, and ever fewer options.  Soon the pressure on our core driver, the American spender, will be too great.  Philosophical changes must be made before that limit is reached, as supernovae typically occur afterward.