The Possible Decrease of Poverty

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There are many solutions to a problem.  It just it seems to me that my idea seems sound, not just by me being biased that it is me, but I see the evidence of it around me where I live.  Poverty is a problem, and when people are faced with survival, they will break the law in order to get the things they need in order to survive.  This is not the case with all crime, but a large portion, it is the case.  I firmly believe that with the money that this country has, there should absolutely be no person living on the streets.  Not only should one consider the entire budget of The United States, but consider as well the printing power that this country has.  People don’t like the idea of paying for someone else to live; they would rather have their tax money go towards other things, especially considering how little reading people do on poverty.  People figure that you can just take things into your own hands, and just get out of poverty.  Since the majority of people in poverty stay in poverty, they are perceived to deserve to be there because they do not have the ability to get out.  The whole premise of our economy, our philosophy of it, is that people with more ability should be paid more.  So if people don’t have the ability to get out of poverty, then they should stay there.

But I just argue it is the decent thing to do, and we have the money to do it.  People don’t trust the government, as they should, but I think this would be a key point to use the power of the government.  Church’s do wonderful work, but they don’t have the capital to do what I am proposing needs to be done.  Private charities I just do not trust for the life of me.  The profit incentive is just too much with those organizations, and exploit their message to make more money for themselves at the expense of the people they were paid to help.  This is why I think the government is the only entity that can really pull this off on a national level.

I have found a basic relationship where I live.  There are extremes in income levels throughout the city and county.  What I have found, is that the neighborhoods seem to be in conditions accordance with different schools, and the better the schools create better neighborhoods.  It’s a symbiotic relationship.  Meaning, both entities influence one another in either a positive or negative way.  Considering that most schools, not all, are funded by property taxes, it makes sense that better schools create better neighborhoods and vise versa.  However, it is in my belief, that with this system comes a feedback loop in either the positive or negative way.

In regards to a positive feedback loop, good academic performance creates good test scores, good funding, and good advertisement for the school.  It puts the district or neighborhood in demand.  Raising prices, which increases funding for the school.  There is even a district where I live, that actually volunteered to raise prices for the school district.  The community recognizes the strength of education, and wants good education for their families.

On the negative side of things, poor test scores or academic performance, lowers the demand of the district in general.  This decreases the price of the real estate in the area.  With less money being funded to the schools, cuts have to be made, making learning conditions worse for the students, increasing the likelihood of poor test scores.  This makes property values go down, which further impacts the school.

There are other variables that impact property values.  The big one for me that comes to mind is crime.  The problem is crime would be alleviated if people were more educated, because they would decrease some if not most of poverty, by creating people that can land higher paying jobs, which again would decrease crime.  It’s all interconnected.

In short, by increasing the quality of education in all areas, people would be prepared to not only make better decisions, but to go to college, get a degree, and land a higher paying job.  This would create better communities to be apart of.

What is this idea?

It’s really basic.  I think what makes the most sense, if you the reader, were to read my posts on government debt, to print the money required to fund schools in need, and schools that are the center of poverty.  The funds would initially be used to modernize the facilities of the school.  Good electrical, plumping, good gyms, technological science labs, I mean the works.  There would also be money allocated, to hire better quality teachers.  Hopefully there would be enough funds available, to try and keep class size low.  With better facilities, and better teaching staff, it is up to the staff to provide favorable test scores.  I will note, that I think it would be better to teach multiple subjects, rather than just a test.  If you were to teach the kids well, the ACT or SAT would be just another test to study for.  To take the entire year to teach this test, you rob the student’s potential of learning important aspects of our world and society.

Tax payers are going to want the money to be paid back.  Essentially the school should be run like a business.  If a teacher is under performing, make warnings, but then don’t be afraid to fire.  All expenses, including the salaries of administration, should be termed “expenses.”  The profits are then sent back to the government to be paid back in full over time.  The incentive to pay back the government at a decent rate, is to have that money paid back into the school.  Once the government is paid back, (yes there will be instances where schools will fail and should be learned from) the government can take a database of statistics on the program, and ultimately can be used to learn how to attack the issue of poverty further.

It’s a really basic idea, founded upon a basic relationship I have found in my community.  At the very least, I would hope this idea could start a conversation on how to infuse government capital into education.  We spend trillions of dollars for wars, yet we refuse to educate our own people.  And honestly, I think that it is intentional.  As a Rockefellar was caught saying, “I want a nation of workers, not thinkers.”

The only thing we can really do, is express our voice to the people in power.  Honestly, I have lost hope there, but I am going to write to my representatives about this issue.  Ultimately I think what gets a voice in Washington is money, but at least I will have the ease of mind knowing I did what I could to bring an idea that I have to fruition for America.

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Plato’s Lifeforce –> Energy

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The Ancient Greek philosopher Plato, theorized that there was a life force in all matter on this planet.  However, people knew through working with stone and rock, there were no living parts or systems of these materials.  Since there was nothing to be observed for this theory, there was obviously scrutiny.  Understandably, people wanted observable evidence to this theory than to accept it – which is understandable considering human nature.  Even to this day, physicists and mathematicians create theories without possibility of acquiring evidence, or in other words to test the theory.  The prime example of this is string theory.  It is a mathematical marvel, however physicists are starting to shift to other areas of thought, simply because they want to work towards something that is testable.

Is it possible that we are thinking about this in the wrong way?  After all, all matter was created from energy.  The energy that drives this planet, to make the planet’s systems sustainable, comes from the sun.  The sun is pure energy.  As we learned in elementary school, foliage consumes sunlight, which is then in turn consumed by other animals.  Either by sucking in oxygen, or by consuming the plants themselves, or by consuming other animals that consumed those plants or other animals.  Thus, the food pyramid.  The food pyramid is one of the mechanisms by which the sun’s energy is transferred.

My contention that everything has some sort of energy, and thus is the lifeforce that Plato was talking about.

What about rocks?  They act as transferring heat from itself to what is around it.  In fact, it has been theorized that when energy is transferred through the rock, and it is in a pool of hydro carbons (like pools by volcanoes), eventually the atomic structure of the rock would change.  Why?  Because the rock is becoming more efficient at transferring its flow.  (The Constructal Law)  Look at water.  The movement of water, either by potential energy or by direct energy through the sun, brings about movement to fuel the life on this planet.  Each organism consumes this energy in some way, and is used to create energy for that organism, while its waste is used as energy for other organisms.  It’s a complete cycle.  If one were to consider that the transfer of energy, that substance or organism “has” energy, then there is energy in all things.  There is a lifeforce to this universe, which means Plato was right.

But what other aspects of this lifeforce are there?  I think energy can be expressed in a wave, with a frequency and amplitude.  These different frequencies make things like heat, light, and compounds.  In fact, one could argue that matter is a certain frequency of energy.  With that said, I think anything living, are in tune to these frequencies that energy produces in them and other things.  A common example of this would be dogs.  Cesar Millan, the gentleman behind The Dog Whisperer, has a theory based upon the “energy” of the dog.  Meaning, how does it feel to be around the dog?  The reason why these dogs exert these energies, is because different states of mind metabolize its fuel differently, and changes the physiology of the dog.  The energy of the owner, or in this case Cesar Millan, interacts with one another like two waves coming into contact, creating a resultant.  This “resultant” wave, is the wave that is perceived, and thus is responded to.  In essence, the dog communicates how he or she feels to Cesar, or any owner that is in tune with their dog.  This is possible because the energy is transferred through the air, literally affecting the air molecules.

I would argue the same happens with plants.  If I were to walk in a state or national park, I would feel at ease assuming I didn’t run into predators.  That is because the energy of water, the wind, and trees and plants, provides a sense of relaxation that is not felt anywhere else but nature.  Simply because our physiology evolved from nature.  I suppose if natural selection is true, some time down the line humans would start to evolve to the conditions of the city, rather than nature herself.  I don’t think we would live to see the day.

Therefore, not only is energy in all things, as fuel, but as a means of communication and ultimately influences the perception of living things.  When you go about your day, and you are in the presence of friends and family, pay attention to what you feel like when you encounter them.  It is true, that a bad day may influence these feelings, so I suppose pay attention over time.  Each person feels different, because they metabolize energy differently, resulting in different waves, which against changes the resultant wave.

One might be able to consider that energy can act like a neural network.  It flows through all living and nonliving things, and provides a very subtle way to communicate to everything on this planet.

This is why I do not discredit Plato.  I actually think he was right, and were thousands of years ahead of his time.  It is astounding, to think at the very beginning of our universe, during the big bang, pure energy would shape, provide fuel, as well as a means of communication for the universe entirely.

Thanks for reading!  Feel free to submit questions and comments.  And thanks for sticking with me, I haven’t wrote on this blog for a long time.  I do hope to change that.

Government Debt –> What is it? How does it work?

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There is a common debate being displayed on the internet when discussing the national debt.  First, a person will chime in saying the debt is unsustainable when looking at the interest payments and the amount of taxes the government receives.  Then another person will chime in and say “the debt isn’t what you think it is.”  The first person just can’t fathom a debt that doesn’t matter as much as he or she perceived, and since they refuse to read up on the issue (it takes some time), while misunderstanding how the system works, he or she continues to disagree with what person B is saying.  Usually, people who view this “new” national debt are labeled as liberal, and the other party as conservative.

The best way to understand how the system works, is to view the economy as a flow of money.  The flow of money has three major segments.  Treasury to the Banks, the Banks to The Fed, and The Fed to the Treasury.  I would argue that this triangle is the core of our financial system, as the flow between these three bodies encapsulates the whole process of printing.  Let’s start with The Treasury.

The Treasury has two accounts.  Its “tax” account, and its “spending” account.  The Treasury has a target amount of money to work with each day.  Meaning, the goal is to reach that same amount day after day.  It isn’t precise.  The Treasury is able to print treasuries, or basically T bonds, or treasury bonds.  A bond is when a person gives a principle amount of money, and after the lifetime of the bond, the principle plus interest is paid back.  With a treasury, the bond is backed by the US government.  It is literally an asset that is safer than money itself.  If I am a billionaire and I have my assets as cash in banks, if an account is more than 250k it isn’t backed by the FDIC.  If the banks go under, then my cash goes with it.  But if I buy bonds that are backed by the US government, the US government will pay me back.  Therefore, this asset is in high demand, especially right now.  And treasuries, are the back bone of this entire system.

National Debt –>  Total outstanding treasuries.

Outstanding in this context, the financial context, means issued and sold.  So when the national debt clock increases over time, that means more and more treasuries have been bought.  Treasuries, like any other bond, has different lifetimes.  Month, three months, six months, year, ten years, even thirty years!  Over the course of the bond’s lifetime the interest on the bond is readjusted in accordance to the market’s conditions.  This is fundamentally important, because this means not all treasuries have to be repaid at once.  It is obvious, but becomes increasingly important as more is learned.

At the beginning of the day, The Treasury pays out what is due in expiring treasuries.  The remaining money that is in the “spending” account, is deficit spent.  Meaning, it is just spent in government programs.  (This is why fundamentally, regardless of ideology, the government is going to continue to grow in size.)  The Treasury then calculates what taxes they will receive from the bond holders later on in the year, and credits their spending account with tax money from their tax account.  Then, the remaining amount of money needed to put The Treasury’s spending account current, or in this case, the target amount of money that The Treasury works with each day – the required amount is printed in treasuries and they are ultimately sold.  This puts the spending account around the same amount of money it was at at the beginning of the day.  Currently, we are printing treasuries to pay for interest on treasuries.  Meaning the amount of money the Treasury prints is more than the amount of money The Treasury pays out.

When money is deficit spent, it is new money being deposited into the economy.  New money that gets spent on government programs, contracts, and employees.  They deposit money into their banks, and their banks get new deposits.  This increases the total liabilities that the banks have, which means their reserve accounts go up.  A bank, when it is issuing a loan, takes three main points into consideration.  What is the market for loans?  What is the customer’s credit?  What is the current reserve situation?  More reserves do not promote lending, however it allows for more lending.  That’s really important.

With more reserves being added to the system, eventually loans are made.  Loans are made through credit creation.  This basically means banks just fabricate the loan from nothing – they created credit out of thin air.  With all of these loans being made, and considering that loans are paid back over time, the net result is the expansion of the money supply.  This is crucial, because you need a growing money supply to meet the demand of money of the entire economy.  If there was a finite amount of money, the economy would screech to a halt because everyone would save their money because there would be no more to earn.  A growing money supply allows people to make more and more and more money.  Where this is relevant, is this allows people investing in treasuries, as well as new people to invest in treasuries, which allows treasuries to be bought consistently.

So a quick recap.  The Treasury pays out to bond holders that have expiring treasuries, and deficit spends.  This money ultimately increases bank reserves, which allows for more loans.  This expands the money supply, allows for more money to be invested into treasuries, who buys treasuries to put The Treasury’s account current.  Rinse and repeat.

As one could tell, it’s a feedback loop.  Deficit spending in essence takes the old bank loans and puts them back into the reserve system.  That’s important, because banks do not create reserves when they issue a loan.

There is one more step.  If one were to think about it, with the increasing amount of treasuries bought, the amount of treasuries to be paid out increases.  This decreases the amount that can be deficit spent.  Eventually the entire spending account will be used to pay out expiring treasuries.  Every year, The Fed transfers its “profits” to The Treasury, thus expanding the spending account.

How does The Fed make money?

The Fed makes money by providing services for banks, interest by providing loans to/for banks, and interest from the treasuries that it buys.  All of this interest is put in a server running a program that buys and sells currencies on the foreign exchange market.  The Fed then determines its expenses, and the remaining profit is then transferred to The Treasury.  This allows The Treasury to pay out existing debt, deficit spend, and sell debt at an expansionary rate.

There are some details that I left out, but I covered pretty much the entire printing process.  It’s really basic, it’s just people have to go out looking for it.  In my opinion, from the scholarly articles, journals, and books that I have read on this issue, our basic economic courses need an upgrade.  For example, my macroeconomics text book says banks create money from fractional reserve, where I read a study where economists were able to follow the books of a bank in Europe.  They created credit from nothing.

There are many implications and further understanding to take this.  But I want this post to be about how we print specifically.  Once that is understood, it can be seen that what we are doing is totally sustainable.  There are some people that think we can print as much as we want how fast as we want, and there will be no consequences.  I tend to think there are consequences on any action in this universe, so I do believe you can print too much.  But that is part of the reason of taxes.  It decreases the amount of you have to print to make The Treasury’s accounts current.  In essence, it slows the rate at which the national deficit increases.  If you have GDP increase as well, you can keep a certain target debt to GDP ratio.  Our is around 1, and Japan is over 2 and they are doing fine.  Yeah Japan has had some contractions/recessions/depressions however you want to define it.  But it is ignorant to think it is solely due to their debt levels, and not something else as complex as an economical system.

An indication on if you are printing too much is inflation.  However, it is usually the case with central banks, to keep inflation around 2 percent.  Not sure why.  If that starts to change significantly you can decrease demand by increasing taxes, or interest rates, or both.  If you would want to ease up on the taxes and interest rates, then it would be wise to deficit spend less.  Deficit ultimately helps put more money in the economy and thus increases demand.  If supply can’t keep up, prices increase.

I hope you all enjoyed this post!  Leave your comments/questions below.  Thanks!

Global Warming –> A Hunch

 

This post will encapsulate what I believe is happening with regards to society, oil companies, and global warming.  I am going to apply what I am learning from a documentary series on how the Earth works.  With the knowledge of early Earth history, as well as the events taking place, there is a basic, simple, easy deduction in regards to what might happen to the future of the planet.  I think it is this reasoning that I believe scientists are calling the future inhabitable.  Now, to the post.

When global warming was introduced in the seventies, everyone, including oil and coal companies knew it was true.  They did what tobacco companies did.  They hired think tanks, panels, scientists, experts, what have you, to contest the data at every way.  They were successful.  Because now I have to say I “believe” in global warming.  When it is obvious, when looking at the events of early Earth history, that carbon dioxide is a green house gas, and was required to create the early atmosphere, by warming the planet.  Everyone knew this.  The goal of oil and coal companies is to make money, but in a way that not everyone knows.  When looking at satellite images of oil reservoirs throughout the planet, more and more oil is found when you travel north.  It is speculated upon, that the arctic has the largest oil reservoir on the planet.  So, warm the planet to melt the arctic, harvest the oil, and say ef it to the future of humanity.  Why?  Money.  It’s pure evil.

When the Earth was first forming, clunks of asteroid matter rammed into one another.  As more and more did so, the gravitational field got stronger.  Thus, a feedback process emerges (VERY common occurence of nature).  Eventually, the physical Earth emerges.  With all the asteroid ramming, a molten core is started.  This eventually starts volcanic activity.  Volcanoes eject carbon dioxide, as well as other compounds, into the sky, starting the early atmosphere.  This warms the planet to a temperature habitable for life.  Since the inanimate tends to transfer energy more efficiently over time (The Constructal Law), life is eventually created as the further facilitate of energy.  These primitive life forms, were the most successful life forms in the history of the planet.  They covered the Earth for about 3 billion years.  What did they do?  Photosynthesis.  They took water, sunlight, and carbon dioxide to create oxygen.  This steadily changed the atmosphere to less carbon dioxide and more oxygen, resulting in these species to die off, while evolution took another route with aerobic respiration.

This is all that is need to be known to deduce the future of this planet.

We are releasing carbon dioxide at a rate never before seen on the history of the planet.  It’s going to warm the planet, because that is how the Earth was created.  It’s all known.  Which means, not only will temperature go up over time because of our lust for money, but the concentration of oxygen will increase.  With the added CO2, the heat will greatly affect the biosphere.  I’m presuming, a lot will eventually die off.  This is less usage of oxygen over time.  The primitive life forms of the Earth will reign once again, converting the highly concentrated carbon dioxide back into oxygen.  This means the concentration of oxygen in the Earth’s atmosphere will be more than now over time.  Which means three possible alternatives.  Either humanity leaves the Earth (too much oxygen is actually damaging to the body), humanity will evolve over time to the new conditions of the planet, or humanity will fail.  A reset.  The new conditions will spawn a new kind of evolved life on this planet, and it wouldn’t be humans.  However, it is still possible that intelligent life will be created.

Why?

Money.

Gaia doesn’t care.  She will wipe us out instantly if that means the preservation of life itself, because Gaia doesn’t exist without life.  Scientists are trying to accurately model the future of the unknown.  They say in about 100 years, the planet won’t be habitable.  I think what we are doing to the Earth, will be stabilized billions of years later, and afterwards, if “humanity” lives it is another species.

Honestly, it makes me wonder if these secret societies worship Satan or something.  Because it is just evil.  It is evil to destroy this perfect super-organism that is our own, because of an economy.  Especially considering there are other theoretical economies out there that isn’t the isms, and isn’t bartering.  It’s absolutely maddening and awful to me.

This is the stepping-stones of us becoming the aliens of the universe invading planets to harvest their resources.  We just consume more and more, and don’t design a society that is in harmony with the environment, determining sustainability.  So the very “evil” that is portrayed in our stories, we are becoming.  The universe has a lot of resources, but we will eventually die off.  We would live longer, probably to the edge of the end of time, if we learned to be more sustainable.  When the universe cools, there is nothing we can do.

I know we are talking maybe billions of years in the future, but we could drastically increase our lifetime in this universe if we respected the universe, and not exploit it for an electronic spreadsheet of money.

What “National Debt” Really Means

Newman, Frank Neil. Freedom from National Debt. Minneapolis, MN: Two Harbors ; Distributed by Itasca, 2013. Print.

 

I have been busy to say the least, but as I have said in the past, I’ll never forget about this blog.  I have been studying and discussing as well as reading discussions on modern economics.  My goal is to write a formal essay with my overall understanding.  It is actually progressing rather nicely.  I have two more papers ready to be read, and I need to work hard to try and find a good source on The Fed.  I have to be careful, because there is a lot of speculation.  I will say, that my understanding of The Fed is not from good sources, and I know this because the information is not consistent.  Therefore, I will try to refrain from talking about The Fed.  Really, with the last two sources that I read, they both focused on The Treasury.  People that even worked The Treasury didn’t understand how The Fed has their money.  When The Treasury needed some money, it was provided in exchange for bonds by The Fed, and when those bonds expired, the account is credited closer to zero with the appropriate amount.  There is no transfer of money.  Again, this is based off of discussions rather than reliable texts.

So, what does national debt really mean?  The National Debt, that everyone is concerned about, is total outstanding treasury securities, that are held by either The Fed, private banks, or private investors.  Outstanding in this context means bonds that are issued and sold.  That means, the number you can keep track of by looking online, are the actual amount of bonds bought.  There maybe still some bonds on the market!  Treasury securities, or otherwise called Treasury Bonds, T Bonds, is a bond backed by the United States Government.  It is literally the safest USD asset on the market.  It is safer than money itself.  If someone is a billionaire, and they had cold hard cash, if banks were to go under, they may lose that money.  The Government has the resources of The Treasury and The Fed to provide a safety net for the Treasuries that are purchased.  Treasuries are safer than money.  Bonds in general have a lifetime associated with them.  So the text mentions one month, three month, one year, five years, to even thirty years.  In other words, if I buy a thirty year bond, I won’t be paid back with the interest until thirty years later.  By agreement, at certain time intervals, the interest on the bond changes in accordance to inflation and other factors.

That means, there are treasuries that have various lifetimes.  Which means, not all treasuries have to be repaid at once.  Only a fraction of the outstanding treasuries retire.  Once these treasuries retire, they are removed from the system.  However, treasuries are also printed.  What happens, as described by this text, is The Treasury will have a certain amount of money in their account at The Fed.  They use that money to pay off treasuries that are expiring, and then the rest is used for deficit spending.  That money, some economists theorize has a multiplier.  This means, that for every dollar that is deficit spent in the economy, since it passes through so many hands, it will wind up at around 2.5 dollars.  In any case, by the end of the day, the same amount of money that The Treasury spent on deficit spending and expiring treasuries, is put back into its account with the purchase of more bonds.  The Treasury receives money for the bonds that it issues.

At this point in the book, I was wondering about the interest.  It is common for investors once their treasuries expire, to take the interest and then reinvest the principle into treasuries again.  I started to think that the paid interest on bonds was expanding the money supply.  But there is something to take into consideration.  First, The Treasury can get bank money whenever they want by selling bonds to The Fed.  Second, The Treasury can control how many securities it is putting on the market.  Thirdly, by collaborating when The Fed they can manipulate interest rates on the bonds.  The Fed can declare what the overall interest rate is, affecting all interest rates in some what or another.  But that isn’t how The Fed manipulate bond interest.  The way that interest rates are determined on treasuries, is by an auctioning process.  The author did not go into great detail exactly how it works, because I suppose he didn’t want to overwhelm the reader, and it maybe extremely complicated just to determine interest rates.  I am inferring, that the overall supply of the bonds have an effect on the resulting interest rate.  Therefore, The Treasury while getting instant bank money from The Fed also manipulates the interest rates on the bonds by the remaining supply of treasuries available for investing.  Remember, the overall supply can be determined by The Treasury.  What this means, is that The Treasury can always be in a favorable position.  There is a specific example in the book, that directly addresses my issues with the bonds.  It has huge implications.  So I quote on page 49:

Interest payments do not affect the money supply.  Suppose The Treasury pays 100 dollars of interest from its Fed account (talking about interest on the treasuries).  That 100 dollars becomes cash flow to the holders of the treasuries.  If 20 dollars is paid back to the government as income taxes, investors will be left will 80 dollars increase in their bank accounts.  The Treasury then issues 80 dollars of new securities, with investors placing 80 dollars from their bank accounts to the treasuries, and The Treasury fully replenishes its account with The Fed from the 80 dollars from investors and 20 dollars from income taxes.

With people that don’t really follow the Modern Monetary Theory scene, this has huge implications.  It has been explained in the community, that it is required by law for The Treasury to be in the black, or negative.  Keep in mind it is technically true that The Treasury prints physical currency, but it does not create money electronically.  The Treasury can only print treasury bonds.  So, basically The Treasury exchanges money for bonds that it prints.  The government uses the money from The Fed to deficit spend.  Once the treasuries expire in The Fed account, money is credited, but obviously there is a perception that The Treasury prints faster than the treasuries retire.  This deficit spending, is one of the primary ways that the money supply expands, and since The Treasury is by law to be in the black, that debt is understood to never be repaid.  From what I gather in the community, the majority of the national debt is owned by The Fed.

I will get back to the thought I am about to say later, but that quote up above, shatters the perception in the MMT community.  The author, was the Associate as well as The Secretary of Treasury.  I think it is a very reliable source.  First, he has stated numerous times, that The Treasury would have positive accounts.  Second, he clearly says interest on bonds don’t expand the money supply.  The Treasury prints bonds to The Fed to pay interest, and in combination of taxes and issuance of new treasuries, the money is put back to the account with The Fed.  Thirdly, he uses taxes.  This is actually contested by a paper of economists that I have read.  They essentially say that in order for The Treasury to gain access to the money from printing securities, it has to send taxes to The Fed account.  With the perception that I had at the time, and the majority I would say of the MMT community, the taxes are essentially destroyed.  Simply because you are putting money into a deep black hole of negativity.

Well, it seems that The Treasury uses taxes.

Even though this particular source wasn’t 100 percent accurate, there was still some very valuable concepts discussed.  It goes to show the nature of learning economics.  There’s no pdf file that describes exactly how the economy works.  So when I navigate the information world on figuring out how the economy works, I try to find credible sources, and try to refrain from taking the word of other people.  I have already had instances where someone who seems to be more credible than me, is wrong in my eyes, simply from the readings that I have done.  A lot of people try to logically reason the process of the economy based upon assumptions that they know of the time.  What I have found out, is a lot of the time my assumptions are wrong.  The only way is credible sources.

I got distracted.

So another perception of the MMT world is that The Fed owns pretty much all or most of the national debt.  As of 2013, there was 11 trillion of national debt.  1.7 trillion was owned by The Fed, which means the rest, 9.3 trillion is owned by the private sector.  So that’s trumped.

So the begging question, what expands the money supply?

One thing that is not contested, and that is thoroughly understood, is that bank loans expand the money supply.  Banks create credit from nothing.  Issuance of loans turn the wheel of the economy, and expands the money supply, which allows an expansive amount of purchasing of national debt.  Finally, there is a huge black area of understanding that I have right now in the process of the economy.  What encompasses most of that blackness, is The Fed.  That’s my next project.  I want to find a good, credible book, on The Fed.  I have short papers to read as well, that have to do with overall economic policy, but I hope to one day solidify the process in my mind by reading a good book on The Fed and how it works.  As the author put it, if he ever wanted money The Fed had it and would give it to him.  How?  So I still have a ways to go, but I have learned a lot.

There is one more thing that I want to touch base on.  Foreign countries owning our debt (securities).  Our debt, is the safest USD asset, a treasury bond.  That bond, when it expires issues US currency.  US currency can only buy goods and services in the US.  If, these countries want to trade our currency for another, the person who bought all the US money, has the same problem.  Do I buy goods and services in the US?  Do I re-invest in the US?  Or do I trade currencies?  If he trades, then the person he traded with has the same problem.  Put simply, that money is going to be used to drive the US economy in one way or another.  It is good for us.  It isn’t true that China can demand on their debt and it will bring our entire economy to a halt.  The fact that China has trillions of dollars in US assets, means that’s trillions of dollars for us.

What is interesting is the author’s take on overall policy.  When the economy is slow and needs recovering, then it is good to print securities to pay for securities.  In fact, The Treasury has been printing securities to pay for securities since 1791!  It helps boost the economy.  When the economy is doing wonderful, he actually advocates for a more austerical philosophy.  You can think austerity as the traditional view of the economy, or another way to say it, a state’s budget.  A state can’t print their currency.  So a state, like Missouri which is where I live, can only spend money from state taxes that it collects.  Essentially that is what he was saying.  When the economy is hot, spend what you get in taxes.  When an economy is hot, The Treasury will manipulate securities to the point that more securities retire than printed, assuming The Government practices austerity, and that the economy is booming.  This results in a decrease of national debt.  Of course, there are other philosophies out there, but it is something to take note of and to think about.


For all who read this blog, I truly thank you.  I hope you learn something, and at the foremost, I hope it makes you think.  If you don’t agree, I just hope it made you think.  We all strive to be better and smarter people.  I hope you enjoyed your reading experience, and I hope you will continue to visit my blog.

The Theory that I Have Been Searching for is MMT

I have to apologize.  Some of the statements that I made in the previous post, on credit creation, were inaccurate.  I have found out there is no “multiplier effect” with credit creation.  Essentially there are multiple loans in the economy at one time, that are used in buying assets in many cases.  During that moment, the money supply has expanded.  However, when the loan is repaid, the principle amount of money has been destroyed.  The interest the bank keeps.  Only the central bank has the power to manipulate bank reserves, except for the added deposits from consumers.  Banks cannot manipulate their reserves – they are only traded and manipulated based on deposits, or transactions from the central bank.

With that out of the way.

I am going to rewind to the financial crisis of 2008.  I actually got really depressed, simply because I was so mad at the society around me.  My family is struggling financially, and institutions that are responsible for risking an entire systemic crisis, are bailed out and kept alive.  What about the American people?  Jobs were lost.  What was more displeasing was the fact that when someone was arrested for protesting, they got a felony.  There was more though.  The Fed bailed out institutions around the world for 17 trillion dollars.  There was the stimulus package.  Fox News replied by enacting fear, and started doing segments on the national debt.  Through the fear of it all, everything settled, and it occurred to me.  We didn’t collapse.  What about the federal debt?  Everything seems to be working fine with increasing government spending.  Could the government debt not matter?  How does The Fed have 17 trillion dollars?  What about spending that on the American people?

So I started to search for an explanation.  Along the way, I would piece together piece by piece what is really going on.  I would have an overall theory, and time and time again it was wrong.  But I pushed to learn more and more.  I first learned about fractional reserve banking, and contemplated an economy based upon that.  I mean, it has been the accepted theory of banking even in my macroeconomics class.  But recently, I have found out that the current theories on Quantitative Easing, which are based on fractional reserve banking, are flat out inaccurate.  My previous post, albeit with some miss information (my theorizing was inaccurate), empirically showed that banks create credit from nothing.

With more digging, it was like Neo searching for something called The Matrix.  I was searching for MMT, or Modern Monetary Theory.  The theory is complex, and will take some time to get a grasp on.  But once I have an idea on how commercial banks, central banks, and their respective governments interact with one another, I can say I have a general idea on how the economy works.  And that to me, would feel good.  To the reader, I hope you understand this is going to be a journey, and I am going to record it.  Along the way, I may say somethings that are inaccurate.  I will do my best to be as accurate as possible, but part of the process for me is to fill in the blanks so to speak, until I can verify if those blanks are accurate.  It’s part of the process.

And so, to the entree of the post.  I read a paper on the interaction of the banks among themselves, as well as on the influence of the central bank.  I learned what actual Quantitative Easing (QE) really is.


McLeay, Michael, Amar Radia, and Ryland Thomas. “Money Creation in the Modern Economy.” Quarterly Bulletin 2014.Q1 (2014): 1-12. Print.


A bank basically has assets and liabilities.  On the assets side, is paper currency and reserves – while on the liabilities side is deposits.  It makes sense.  The bank is responsible for everyone’s deposits, so therefore they are a liability.  Let’s take the first scenario, where a bank issues a loan to a consumer that banks with the same bank.  The newly credited loan, is considered an asset.  When the loan is issued to the consumer, there is a deposit matching the value of the loan.  Therefore, liabilities goes up.  And, the bank takes a percentage, the rumor on the internet is it is around 10 percent, of the loan amount to reserves.

In a more complex scenario, a loan is issued out to buy something, and then that money is deposited into another bank.  When this happens, the issued loan is still an asset to the original bank.  However the amount of the loan turns out to be deposits to the following bank.  Deposits, are a liability.  And, in order for the bank to cover this liability, about 10 percent of those deposits need to be placed in reserves.  The reserve amount is transferred from the original bank to the following bank.  Deposits are the main influence on bank reserves.  When a bank is short on reserves, or even in excess of reserves, banks can transfer reserves among themselves.  Reserves are in place by fiscal regulation, in order to satisfy consumer demand of their money.  However there is still great mystery for me the role reserves play in the whole process.

For one, reserves don’t have to be cash.  As this paper in particular put it, some banks have Treasury Bonds in their reserves for the appropriate amount of cash.  I also read from a different source, that banks essentially have Mortgage-Backed Securities in their reserves.  (ring a bell?)  In other words, when money is put into the reserves, a “portfolio” is constructed, as I understand it.  It is true that the interest on loans is a way the bank makes money.  However, I’m starting to wonder if the banks uses its reserves as a means to accrue more wealth with financial instruments.  It is true, that the reserves cannot be created nor destroyed by the bank, however I am wondering if the principle amount of the reserves are used to accrue more wealth, and the only way the principle amount is adjusted, is when there are new deposits.  This, I am unsure of.  Also, something noted that the paper didn’t cover, is the reserves are a fraction of the deposits.  Where do the rest of the deposits go?  If they remained to satisfy money demand, would that not make them reserves as well?  But reserves are a fraction of total deposits.  Where does all the deposit money go?  It doesn’t go to loans, because loans are issued from fabricated credit.  Does it go to the bank to be used?  How do they use it?

As you can see, this paper does a great job showing the process of banking, but there is bad explanation in other areas.  There is knowledge that is assumed to be known, that I don’t know.  And as with anything when learning about MMT, once I learn more, I have more questions to be asked.  It is going to be a long process.  But it is a bear that I really want to tackle, and I’m going to record this growth over this blog.

With those questions aside, the paper makes a thorough case as to why banks have a limit to what they can loan out.  The limits are:

  1. Market forces constrain lending because individual banks have to be able to lend profitably in a competitive market.
  2. Lending is also constrained because banks have to take steps to mitigate the risks associated with issuing new loans.
  3. Regulatory policy acts as a constraint on banks’ activities in order to mitigate a build-up of risks that could pose a threat to the stability of the financial system.

-page 4.

This is important to understand.  Because if you think about it, if banks can issue loans with fabricated credit, why couldn’t they just lend out as much as possible, to get the most interest?

First banks not only get paid through interest on their assets (loans), but they also pay interest on their liabilities (savings accounts).  The whole idea is to receive more money from loans than they have to pay to their liabilities.  This interest rate, the rate on the loans and savings accounts, are determined by the central bank, which we will learn is the ultimate “constraint” to money creation.  Also one has to realize, it is very possible that loans created from a bank is deposits (liabilities) for the other.  In which case, reserves change accordingly.  I am going to assume for now the banks uses their money for themselves and invests with it, simply because why have fractional reserves?  If the bank can’t use the rest of the liabilities, why have reserves?  Reserves are rumored to be around 10 percent of deposits.  So why not just keep all of the bank’s liabilities as reserves?  The 10 percent rule I believe is in place to be able to provide money demands to the consumer base, while the rest the bank uses as means to accrue more wealth or pay for expenses.

Remember the interest rate on the loans vs. the savings accounts or deposits?  Well if for instance, a bank were to issue out loans at a lower value to compete, they may receive more assets (the loans) but deposits are sent to another bank, whereby the first bank lowers their bank reserves.  When looking at reserves, as well as the interest coming in and the interest paying out, they may have to start charging more interest on their loans, in order to make sure they can satisfy their consumer base.  If a bank were to continually loan under market value, eventually they would run out of reserves, and could not function as a bank.

Another variable on what determines when and how much a bank lends, is their cash flow.  Overtime, how much deposits does the bank receive?  Over time, what usually is the amount withdrawn?  If most of the bank’s deposits are withdrawn at one time, there is what is called “liquidity risk.”  Since banks loan out for months to even a year, they very well could not have the money to satisfy the demands for the deposits.

And this is what I don’t get.

What about the reserves?  If strictly speaking, reserves are a fraction of your deposits, once deposits are taken out of the bank, what happens to the reserves?  I’m thinking that reserves are taken from the deposits.  So if I deposit 100 dollars, 10 dollars are put in reserves.  If I withdraw all of my 100 dollars, 10 dollars are removed from the reserves to satisfy the withdraw.  So if many people are withdrawing most of their deposits at one time, most of the reserves are lowered.  This lowers the power of the banks to lend (assuming this is correct).  Because once a loan is issued, deposits are created somewhere else.  They would have to send reserves to the bank receiving deposits.  And if they are short on reserves, they are at risk to not being able to satisfy the demand on their liabilities.

Really this reserve system puts more risk on the bank, but I guess there is a chance that it makes more money, because they only have to have a fraction of reserves on hand.  But yes, I’m still confused.  It’s the learning process, right?

The obvious reason is next.  Credit risk.  If people have bad credit, a bank shouldn’t lend money out to them, because that would be too high a risk of the loan not being repaid.

There are two possible outcomes to money when it is issued out by banks.  First, a loan that is paid to someone else, could use that money to payback their loans.  This is called the “reflux theory”, because essentially money is being destroyed, and therefore having no effect on the economy.  On the other hand, the loans to pay for something, when that person or business receives that money, if they don’t have outstanding loans, the money is spent through the economy.  And, as it passes hands, it will continually be spent through the economy.  It is the view in this paper, that this is an inflationary process.  In other words, if bank loans aren’t destroying money, it is put out into the economy and expands the money supply, resulting in higher prices.

Onto the central bank.  As with England’s policy, as this paper was written in the context of the British economy (economies with central banks essentially work the same), the government wants inflation to be at around two percent.  So the central bank does practices to try and meet that two percent goal.

One interest rate that the central bank influences is the interest rates paid on the bank reserves that banks deposit into the central bank.  Therefore, the amount of money that they make from reserves deposited to the central bank influences their issuance of loans.  Also, the central bank is able to influence interest rates on loans that are sent through the money markets, which is basically banks and financial institutions.  These different interest rates have different “maturities” and are felt throughout the banking sector.  Ultimately, the interest rates put on reserves and the money markets have an impact on how much a bank is willing to lend.

Maturities – the state of being due.

The last section discussed in the paper, has to do with Quantitative Easing, or QE.  In England, the central bank went to the private sector, and bought assets from corporations.  It could of been an insurance policy, pensions, or what have you, and the central bank bought these assets with cash.  The central bank therefore has assets to accrue wealth, and in turn these corporations have this access cash that they do not particularly want.  Most will reinvest, while same may spend into the economy.  In both cases, this stimulates the economy.

In the states I have heard things are done differently with QE.  The Fed actually, by a mechanism that I can’t remember, increases the reserves of banks.  This is in hopes will create a incentive for banks to lend out more money, and therefore stimulate the economy.

Here are the main questions that I have after this reading:

  • With the reserves being a ratio to deposits, what is done with the rest of the deposits?
  • Do banks pay an interest to the central bank for depositing their reserves, or does the central bank pay an interest on the reserves deposited to it?  From the language of the paper, it is hard to discern either way.  I hope one day I will find out.
  • Why is spending money inflationary?  I got to get a pdf on variables that affect inflation.
  • How does The Fed increase bank reserves?
  • Are banks able to make their reserves a portfolio equal to the amount of reserves?  Whenever reserves have to be released, they can either sell to get cold cash, or just trade the asset, assuming this is what they do.  If they make a profit off of the assets, they can sell, but they cannot add to the principle of the reserves.
  • When banks send reserves to one another, is there interest associated with it?  Does the bank that transfers the reserves, do they get an interest payment or does the bank receiving the reserves?  I just don’t know from the paper that I read.

It seems as when there is anything you are trying to tackle intellectually, especially something as complicated as this, more questions are provided once you read the paper, and it seems more questions arise than questions that are answered.  I’m not done reading about banks.  I need a more thorough read on the practice of banks, but I think I’m going to dive deep into my next paper that is prepared, and it is over the central bank and the treasury.  I don’t know if it is written in the context of The United States, but it has been told to me from multiple people, that really any economy that uses a central bank does the same thing.  So I’m going to put this on hold, and learn how the central bank and treasury print money indefinitely.  A key component to the Modern Monetary Theory.

As you see, it is a process.  As I have stated earlier in this blog, I’m going to record the process of understanding this very complex theory.  Getting into it, is showing to be intimidating.  Every single time I read something I just have so much questions.  I just hope one day I can read something about MMT and say, “Interesting.  I get it.”  And leave it at that.  Only time will tell.

Thanks for reading!

 

 

What Possibly Happened Before the Big Bang

Afshordi, Niayesh, Robert B Mann, and Razzieh Pourhasan. “The Black Hole at the Beginning of Time.”Scientific American  Aug. 2014: 38-43. Print.

This idea made me marvel at the possibilities that are out there, possibilities that may or may not be true in explaining the universe around us.  They built this theory around the concept on the volatility of singularities.  What I am trying to say, is our universe is very uniform and flat, which makes no sense considering the accepted theory of the big bang.  Singularities have no laws of physics, and there is no future or past – there is no time.  Out of all the possible ways the singularity exploded, the singularity exploded in such a way that eventually harbored life.  To them there has to be a logical explanation rather than a spiritual one.  So they came up with this idea, to provide conditions for the singularity to explode in a much more uniform manner.

According to their mathematics, it very well could be possible that the big bang happened on the event horizon of a black hole in four-dimensional space.  This basically means the black hole is a part of a universe in higher dimensions.  The event horizon would be three-dimensional, the very conditions that our universe exists.  The core reason why they are scheming this is because they need the event horizon.  And I quote:

Cloaked by an event horizon, the singularity is rendered impotent.  Its disturbing effects cannot escape, making it possible for the laws of physics to describe and predict all that we observe…

…We would like to have a way to shield ourselves from the big bang’s singularity and its catastrophic unpredictability, perhaps with something akin to an event horizon.

The point to all of this is a way to explain why the singularity of the big bang exploded the way it did.  They saw that if the singularity was in an event horizon, then it would work out.  This theory is testable which I like, and it is tested by analyzing the background radiation.

So what do they say about the universe that exists in higher dimensions than our own?

Well since it would of been in existence much longer than our current universe, it would have time to equalize its temperature.  This would provide the favorable conditions on the event horizon which would allow our universe to explode in such a way that the temperature is consistent enough, and the shape flat enough to eventually harbor life.  But they of course have no good explanations on how that universe was created, or the laws of that universe for that matter.

In conclusion, it is a forced hunch.  They are designing a situation knowing what we know currently which would explain why the big bang exploded the way it did.  What about the universe in higher dimensions?  Why did that singularity explode the way it did?  It is my forced hunch, that physicists do not completely understand singularities themselves and how they behave.  I think it very well could be possible that the birth of our universe is from an implosion, and that implosion had the natural conditions to eventually harbor life.  Scientists just struggle with the implications of this.  Inflationary theory was derived because scientists didn’t like how precise the amount of matter was in the universe.  If it was much higher or much lower, life as we know it would not be able to exist.  I don’t understand it completely, but the fact that if the universe expanded on an order of 78 in fractions of a second, eliminates the need of what I term “The God Ratio.”  It’s the ratio of actual matter and theoretical matter required to make the universe flat.  It had to have been equal to 1.00000000000000.  With that precision.  If it was off, our universe would not be flat and we wouldn’t exist.  Scientists didn’t like that idea, because it points to a Creator.  So they derived inflationary theory.

It makes sense, that if the singularity of the big bang was created, it was understood it would harbor life.  Scientists don’t like this philosophy or way of thinking, and will derive complete theories to get around it.  Not only inflationary theory, but this theory as well.  This bothers me.

I understand what happened during The Enlightenment, and I can see why people have a beef with spirituality.  But spirituality cannot be divided into certain factions.  The bottom line is nobody knows, and we all can theorize on the spiritual realm.  Just as I cannot provide hard proof that God exists, we cannot provide hard proof that he does not exist.  Therefore, we should conduct ourselves open to the possibility that our universe was created.

Finally, I believe that if we continue to think everything was not created from a creator, we will deal with an infinite paradigm.  Here is what I mean:

At the end, the tadpole looking thing is going into a world that is completely infinite.  What I am trying to say, is if we do not wrestle with the fact that something had to come from nothing, we are going to explain different universes infinitely.  There will always be a universe that created the other, but how did the original become created?  Believing in creation ends this conundrum, and it very well could be that the existence He created is infinite.  It would be within His power, or wouldn’t it?

At least this idea is testable.  String theory is losing popularity because the ideas aren’t testable, it is just a mathematical marvel.

I mean the other month, I read about a theory that states universes are in the singularity of black holes, which means our universe is a singularity of a black hole.  What made that black hole?  A universe, which is the singularity of a black hole.

Am I making sense here?  This theory is infinite.

So I take theoretical physics with a grain of salt.  It is a lot of creative math, but no data to support its claims.  I hope scientists get the data they deserve, so we can have an absolute picture of our universe.  I also hope more scientists would be open to the idea that there is a Creator.

An Different Look into Scarcity

Mullainathan, Sendhil, and Eldar Shafir. Scarcity: why having too little means so much. New York, New York: Henry Holt and Company, LLC, 2013. Print.

 

Throughout the majority of my life, my family and I had to deal with very tight financial constraints.  I can’t count the amount of times I have feared that we wouldn’t be able to pay for food, and there have been a multitude of times when we have had to use a food pantry.  I wanted to know how this is possible.  Why are there people flying private jets while there are people unable to eat?  The resources are there!  So  I have tried to get a better understanding of how the economy works, and I have taken time to learn various philosophies when in regards to economic policy as well as general economies as a whole.  The book that I just read, adds a layer of complexity to the study of economies.  As it is stated in the book, various economists make the assumption that people will make the most rational decision.  Yet, as we all know, this is sometimes not the case.  The psychology of scarcity actually can explain this phenomenon.  What is interesting is there are other things that are scarce throughout life.  Time can be scarce at times, followed by calorie intake (diet), the book throws a curve ball and talks about “social scarcity” (loneliness), and quite frankly I think addiction can be applied to the sphere of scarcity as well.  There is probably more, but what this book shows is that what they are finding about scarcity can be applied generally to other cases, not just money.

The premise of their findings was generally stated in the introduction of the book.  Essentially scarcity first forces us to tunnel on the thing we are scarce over.  So if I don’t have a lot of time and I am working hard, I will focus on the most immediate or late deadlines.  This prioritization, or heightened focus on deadlines (tunneling), is a double edged sword.  The efficiency of the person under a strict deadline goes up substantially because he or she is focusing harder to get his or her work done.  However it is through this tunneling, that sometimes other factors that contribute to scarcity in the first place gets overlooked.  So in the time example, while working on a late deadline another deadline has to be completed late.  This is a feedback process, and eventually I would be placed in what is termed the “scarcity trap,” where I am constantly in the state of scarcity, fighting a forever uphill battle to actually complete everything on time.  There is more though.  The authors of this book used the word bandwidth to encapsulate the overall processing power of the brain.  It is found that scarcity actually taxes the bandwidth of the brain, more specifically fluid intelligence and impulse control.

Another example could be used with addiction, or chemical scarcity.  Once the addiction is established, there is a drive to put their drug of choice into their system.  When there are heavy cravings (scarcity) addicts will tunnel to focus on getting chemicals back into their system for their high.  Addicts get very creative when it comes to getting money for their addiction, and that typically means other financial to relationship obligations, fall through the tunnel.  Eventually the added on stress of not meeting those responsibilities is dealt with taking more drugs (not to mention their impulse control is down).  This again brings about another scarcity trap.  Usually addicts have to reach rock bottom in order for them to gain the motivation to stop.  In order to stop any scarcity trap, including that of addiction, impulse control is needed which is extremely difficult considering the bandwidth tax.

Here is a summary of the findings of this book with regards to financial scarcity:

Tying all this together, we see that scarcity traps emerge for several interconnected reasons, stretching back to the core scarcity mindset.  Tunneling leads us to borrow so that we are using the same physical resources less effectively, placing us one step behind.  Because we tunnel, we neglect, and then we find ourselves needing to juggle.  The scarcity trap becomes a complicated affair, a patchwork of delayed commitments and costly short-term solutions, that need to be constantly revisited and revised.  We do not have the bandwidth to plan a way out of this trap.  And when we make a plan, we lack the bandwidth needed to resist temptations and persist.  Moreover, the lack of slack means that we have no capacity to absorb shocks.  And all this is compounded by our failure to use the precious moments of abundance to create future buffers.

Shocks in this context has to do with the financial surprises that life brings us.  They use the term slack to talk about room in the overall budget.  Having slack is a very important component to keeping you out of, and get you out of, the scarcity trap.  Put simply, having a little extra money allows one to save money to keep him or her out of the trap.  When in the scarcity trap, slack allows for somebody to pay for late bills without the need of a loan.  When looking at the scarcity trap, saving is the most important thing one can do to keep yourself from that mindset.  It is extremely risky to spend all of your budget every paycheck if it is avoidable.  It takes just one major “shock” to put yourself into the scarcity trap and mindset.

This book was interesting, but I must say I did not like how they structured the book.  The majority of their theory was revealed in the introduction, which made the rest of the material more bland.  If they were to reveal the theory as they went, the material would have a more interesting factor to it.  I understand they have to be thorough when explaining the evidence for their theory, but in my opinion it was a little excessive.  They spelled it out like someone was a complete moron, being so thorough of their logic.  I suppose this is good, especially considering the kind of people they are selling their book to.  But I found it irritating.  I really think they could of taken 100 to 120 pages off of the book.  Their theory is condensed, not long, not hard to understand, and could be provided evidence through their studies.

This book makes me realize that all people will do things impulsively under scarcity.  So when someone does something irrationally, it has to do with their taxed bandwidth.  I hope that this knowledge can be used by economists to better understand how people behave in the economy.  Maybe it will allow economists to change their assumptions, which would provide a more accurate understanding.  But I hope in the end this will breed more empathy for the poor.  And I hope that one day we will all have the mindset to allow the necessities of life to be provided to everyone.

A Physics Theory of Life and The Constructal Law

A Physics Theory of Life

The Constructal Law

The first link provided is an article about a MIT physicists who has recently provided the mathematics, or formula, to describe how possibly life began in general.  The second link is to a previous post of mine related to The Constructal Law – a new law of physics describing the structure in nature.

Both of these concepts stem from the thermodynamic laws.  As I recall from chemistry class, the first law of thermodynamics states that energy goes to a lower state of enthalpy.  (Meaning, that energy tends to be released)  The second law of thermodynamics state that matter goes to a state of higher entropy, or randomness.  For there to be orderly reactions, energy has to be put into the system.  So for example, a plant takes energy from the sun to construct sugars for nutrients with the help of water, and according to the article, plants emit infrared radiation.  There is always a spread of energy, as is described by the laws of thermodynamics.  What the constructal law accomplished was an overall framework on how the structure of our universe operates.  Put simply, the universe consists of various flow systems (including energy itself), and these systems will create structure to further facilitate its flow.  So a river delta is formed simply because more water can be moved with the least amount of energy.  Urban spread follows the constructal law.  Large volume segways are then met with smaller thoroughfares, which in turn get smaller.  It is exactly how nature herself operates.  Look at the circulatory system.  Huge arteries by the heart transfer blood to smaller veins which transports the blood to the designated site.  These are termed volume to point, or point to volume flow systems.  Neurons share the structure of lightning, while trees show the same structure as the respiratory system.  Structure is maintained by being more efficient in transferring whatever the system is transferring (flow systems).  This is why the inanimate looks the same throughout our universe.

Where these two law and theory come together, is the explanation of life.  In fact, I think the MIT physicists must of known of the constructual law.  The premise of his theory was predicted by the authors of the book I read, however the mathematics haven’t been derived.  Now it has been.  Of course, there is going to be scrutiny among the scientific community as it should, but I think this idea coincides with what is found in the constructal law.

Using the laws of thermodynamics, the physicist thought up of a very viable system.  Carbon atoms in a pool of something, something that carbon could radiate its heat off to.  Finally, this system is being bombarded with energy by the sun.  Through his mathematics, he is able to deduce that eventually the structure of the system would change by following the laws of thermodynamics.  The system will gravitate towards needing to expel more energy.  Why?  Because if we were to take this system as a flow system, the structure of the system will change to further facilitate its flow, or in this case, energy.  This is crucial.  Because if light is shined on the surface of the Earth for billions of years, eventually structures would evolve and eventually primitive life could form.  And, when there is primitive life and eventually RNA and DNA, Darwinian concepts take hold.  But life itself is a further facilitate of energy.  More energy can be transferred per unit of energy used.  This is the true driving force of evolution.  Mutations that work exist because they can transfer energy more efficiently.  And each layer of organisms can be used as a source of energy for others.

I honestly think if the mathematics of this all checks out, it could be a candidate for the Nobel Prize.  Of course they are already coming up with ideas to test his theory in the lab, which is crucial in the whole scientific process.  However, it must be noted, that computer models show his mathematics at work.  So I think that will boost his idea in the various labs across the world to try to verify or disprove his idea.  To think that the inanimate is the very creator of life is very chilling.  To see it work from the very beginning, the big bang, the formation of stars and planets, and those stars if under the right conditions create “life” or formations that can facilitate further the flow of energy.

Wouldn’t it be perfect?  Wouldn’t it be perfect to create a system that is literally self-evolving and self-sustaining, that has no need to be tampered with?  The imperfections are weeded out, and are necessary in order to make the system itself sustainable.  So for example, if there was no friction, there wouldn’t be sustainable movement of various things.  Interest rates are necessary to constrict the flow of money, otherwise there would be hyperinflation.  If energy would be purely transferred, there would be no energy absorbed, which would not allow for orderly reactions, therefore actually restricting the amount of energy that could be transferred.  The imperfections are necessary in order to keep the system sustainable.  This strengthens my belief in a God.  But I believe God created this system that we call The Universe and let itself create its destiny.  His gift is life itself, it is ours to do what we will.

Quantum Computing and Innovation

Ceder, Gerbrand, and Kristin Persson. "The Stuff of Dreams." Scientific American.  12 2013: 36-40. Print.

This article was truly a captivating and exciting article.  The power that this technology holds on not only the material sciences, but of other fields, could essentially invoke a revolution.  Scientists have created quantum computers – super computers that operate with the language of quantum mechanics.  Quantum mechanics is another breed of mathematics that help describe the atomic level.  I know very little about quantum mechanics myself, except for the general statements that a person can not wrap their head around the behaviors of the quantum world.  Classical logic does not work.  Also, quantum mechanics uses probabilities to describe where certain particles are more likely to be at, rather than continual certainty.  Also, a quantum computer uses the fundamental essence of information called a qbit.  In classical computers the bit either represented a one or a zero.  A qbit can represent a one, zero, or any superposition of those two.  With the qbit itself able to represent more than two states, this shows the creative potential of a quantum computer.

The application of a quantum computer in the material sciences could not be more fitting.  These scientists are able to construct theoretical compounds and materials, while also being able to do calculations on those theoretical compositions.  They can calculate theoretical conductivity, opaqueness, brittleness or strength, to even weight.  These computers are able to predict the compatibility of these various atoms by doing quantum calculations on the theoretical atoms the computer is constructing.  In the past, much of the material sciences was trial and error.  One tried a certain composition and if it “stuck” so to speak, then tests had to be performed to learn about the characteristics of that material.  It could very well be possible that after all of that testing, it could not be favorable to be used in a real world setting.  Therefore, this method of quantum computing saves lots of time and money (albeit it was not cheap building and programming the computer itself) with the process of materials design.  Materialists are able to give the computer parameters to do its work by.  So if a designer wants a material with a certain conductivity, density, and strength, the computer will be able to narrow down to hundreds of possible theoretical materials.  Then, the operator would be able to run a series of tests on these theoretical compositions to help narrow down the candidacy even further.  To make things better, organizations around the world are pooling their data into one database.  This way, there is time saved by just having to look up materials that have already been tested.   Maybe one day if it isn’t done so already, the public database will be streamlined into the super computer systems.  Updating its systems on theoretical compositions, the computer will know which materials that don’t need to be tested.  That system will update the public database of new findings, to the point, that the entire theoretical universe of materials design will be recorded.  That is the holy grail of material sciences.  They would have a great place to start in determining what new material to pursue, in caparison to doing trial and error in finding the right material.

This innovation, the quantum computer, is not just an innovation for materials design, but is a innovation for all of humanity.  One of the prerequisites to Artificial Intelligence (AI) is having the foundation of a quantum computer.  Programming something that is self-aware and able to learn, that is another stepping stone, and it is one that is going to be pursued.  But what is intriguing, is we will be using these quantum computers to innovate for us.  A TED talk that I watched talked about how innovations in general have kept humanity from mass casualties due to over population.  The Earth naturally puts conditions in place for a species that becomes over populated, and our innovations have battled against Earth.  One of the impactful moments of his presentation, was the fact that the rate of innovation has steadily been increasing over the years.  Therefore it is concluded, that humanity won’t be able to keep up with the rate of innovation, and eventually Earth will start to eradicate large segments of humanity.  However, there is hope.

Humanity will probably try and beat mother nature, rather than identifying and dealing with a population problem.  Quantum computers will be more streamlined, and will be used to innovate in various fields.  An AI with access to a database of all known knowledge, would easily be able to provide innovations that humanity requires.  (A team is already working on creating a database of all known knowledge)  I am willing to suspect there will be ideas that we will not be willing to do.  If we as humanity would create a system to quickly streamline the innovation process, no matter what it would be, humanity’s population would reach for the stars, probably quite literally too.  But we would let the super computers innovate for us engineering designs, materials, and production methods.  If we could automate that process, with advanced robotics, we would be able to flush out solutions to various problems and ensure the survival of humanity, while keeping the paradigm that we are in.

Honestly, I would rather change how we think in order to be more stable.  I have stated the specifics of that throughout this blog.  But I think people don’t want to change our way of life, and if they do, they feel like they couldn’t do it.  People for the most part consume products and services and don’t really think.  Regardless, quantum computing provides an answer assuming we have the resources to sustain it.  We could innovate at a much faster speed, keeping up with Mother Earth.  But I still think eventually, if all else works out, there will be a shortage of resources, and Gaia will have the last laugh.

This was a very enjoyable read.  I think we are on the brink of an AI revolution.  We have all the prerequisites in place:  a quantum computer.  How researchers go about coding a brain is beyond me, but will surely be pursued if it hasn’t been already.  I think with the advancement of technology we are going to have to greatly reconsider our model of economics.  But that is for another discussion entirely.

Thanks for reading.

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