Tuesday, January 3, 2023

The Global Financial System Is A Rube Goldberg Machine

Much Of The Economy Is Like This Machine

More than one economist, big wig CEO, and Fed watcher has alleged the problems haunting the financial system have very deep roots. These people often contend governments and central banks have not fully rectified the problems causing the great financial crisis of 2008. Instead, they have merely papered over our failures by printing money and flooding the system with liquidity.

Let's just cut to the chase. Overall, the global financial system is not a well-designed efficient machine. Instead, it is a cobbled-together mess all glued together in a haphazard way to get the job done. To make matters worse, this system is greased by the greed of those who benefit from stealing a little from here and there. In the real world, things are usually not intentionally designed to be complicated but the reality is that they just are. 

This means that more often than we would like to admit, systems thrown together with various parts or pieced together haphazardly are prone to be unreliable. When we try to explain events in terms of cause and effect the bigger picture has a way of getting lost. Often hidden away is the risk that results when complex poorly built systems become codependent upon other poorly built systems. Bestselling author Nassim Taleb who wrote, "The Black Swan" detailed in his book how when something is highly complicated highly improbable and unpredictable events can and do occur.

While pondering the conundrum that has become our current economy, I stumbled upon an analogy. Simply put, the global economy is like a Rube Goldberg machine. These are "goal-oriented" contraptions built in a ridiculously complicated way to perform what would normally be a simple task. History shows we often have no idea what is driving events until long after they have transpired and even then the picture is blurred by interpretation. The lens by which we peer at events is firmly controlled by those with an agenda. These people control our government, big business, and mainstream media. When we look at the individuals leading these various factions we should feel little reason for faith or calm. 

For a grand display of an incredible and impressive Rude Goldberg machine click on this link https://www.youtube.com/watch?v=qybUFnY7Y8w and watch the video. I don't think you will be disappointed. The fact is, competitions are held to build these machines. In such a contest the designer makes a great deal of effort to complicate the task in an entertaining way by adding far more steps than are necessary. If nothing else it is proof some people have far too much time on their hands

The Direction In Which Things Fall Matter

The problem with getting a good handle on what is about to happen is complicated by the massive number of variables built into events. For example, guessing what a central bank might do is one thing, however, how do you make allowances for the money created to stimulate the nation's economy rushing out of the country at the tap of a button or companies using the money to buy back stock or pursuing a leveraged hostile takeover rather than investing in a new plant and equipment. The argument could be made that central banks can stack the deck but when it gets too high and begins to fall they may not be able to control the direction or who it will crush.

Just because a market or investors have reacted in a certain way in the past is no guarantee that faced with a similar situation their response will be the same or that once we hit a tipping point a self-feeding loop will not develop and take control. We have become very complacent and accepted the idea those in power will continue being creative enough to keep the economy moving forward. This includes thinking they can prolong current trends. Like a complicated Rube Goldberg machine with many moving parts, the failure of just one piece to perform as expected can alter the way events unfold

 

History is littered with many caution signs as to just how difficult it is to interpret current events and their possible impact on tomorrow. This makes it clear that looking in the rear-view mirror gives us a better image of events than predictions as to what might happen in the future. Part of this contraption that controls our world is the huge but hidden world of high-frequency trading algorithms, payment for order flow & dark exchanges. This coupled with such things as stock buybacks destroy true price discovery.  My point is, it might be wise not to have a great deal of faith in our global financial system because not only is it highly leveraged but it is severely flawed. In short, because of corruption and other issues, our current system does not even meet the criteria of a well-designed Rube Goldberg machine.

 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

2 comments:

  1. Would you not also describe it as a gargantuan Ponzi scheme predicated upon perpetual growth?

    ReplyDelete