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New Thinking is Needed for Today’s Dynamic Markets

September 27, 2012

As the Markets change in realtime new WORDS are needed to reflect the new MEANINGS that emerge from trading decisions!

The last few years have revealed to me and many others that our markets are changing dramatically and significantly from prior periods of monetary history. Computer technologies have changed how decisions are made and communicated. Our markets are now mostly Global in nature. Our Central Banks are now mostly the prime manipulators of the markets with prices and interest rates changing instantaneously in realtime.

High Frequency Trading is now dominating the markets and algorithmic platforms create new dynamics within the markets. All this has happened in just a few years. All this change has occurred since the ‘closing’ of the gold window in 1971. Did our then President (Richard Nixon) understand what his decision would create within the markets? Some economic concepts that have changed as a RESULT of these new changes (since 1971) are as follows:

 1. VALUE:  the concept of value has become totally Subjective and specific to each trading transaction. We no longer have Objective values and stable prices within our global markets. This situation dramatically changes the mindset of traders, investors, lenders, and consumers. What everyone now desires are mostly ‘short-term’ results from their trading and investing decisions. Most HFT traders now think in milliseconds and nano-seconds for their trading operations. Their objective is to follow the ‘money flows’ that they witness within their computer screens and then trade ONLY as these flows create dynamic changes in direction. Directional changes are now in realtime and continuous. Money is made and lost in milliseconds and then traders ‘book’ their profits (or losses) and move to another trade. What a change has occurred…as a result of the prior decisions of our policymakers and economic leaders!

2. Time:  the concept of ‘time’ has changed from ‘long-term’ clock time to ‘short-term’ realtime. Our markets are now mostly 24/7 and global. Trading and investing is done within markets throughout our planet and continuously in realtime. Executions of trades are now mostly done via the computer and at speeds near the speed of light. This situation has created the mentality of realtime (now thinking) and investing and trading 24/7. The concept of ‘time’ has changed and decision-making has changed as a result of computerization and the change in the nature of our money units.

3. Currencies: our money units (also called currencies) are now mostly virtual and created via digitization. Digital money is now a reality and the new reality of Cyber-space has become the medium for currency transmission and distribution. Material money is vanishing from our markets (now less than 4% within Western economies) and virtual (imaginary) money units have emerged as dominant. Most transactions are now done on-line and our money units are mostly ‘stored’ on-line and within the computer screen. This major change means that most trading and investing is now a virtual experience (actually an extension of the human mind).

4. Consciousness:  the new concept of ‘consciousness’ has emerged within economics and finance as a result of our non-material money units. Today, our Central Banks ‘create’ new money units Out of Nothing. The word ‘nothing’ means from one’s non-physical mind or consciousness. Some use the term Out of Thin Air in lieu of Out of Nothing. Either expression, however, conveys the message that our ‘money’ today is abstract and inside our minds. What is our ‘dollar’ today as compared to prior history? Today, our ‘dollar’ is a no thing unit (as are all global currencies). All this has emerged subtly and relentlessly since the closing of the ‘gold window’ in 1971. Who could have imagined that money would become ‘nothing’ and mostly ‘imaginary’? Nonetheless, that is our situation today!

5. Existence:   the concept of ‘existence’ vs ‘non-existence’ has changed in recent years as a result of the nature of our money units. Historically, money was a material/physical item (silver and gold are examples of metals from which money units were created). Silver and gold are examples of metals which Exist. Today, money is created from the ‘consciousness’ of select elite policymakers (mostly within our Central Banks). Since money from one’s ‘consciousness’ does Not Exist as a material or physical item, we should now thing of money units as ‘Not Existing’.

And since our ‘dollar’ also does Not Exist and is mostly internal within our ‘consciousness’ (a mental abstraction) we need to change our thinking and philosophy on our ‘dollar’ and the other global currencies as well. Actually, since our ‘dollar’ does not exist as a material thing, we now need to think of ‘value’ and ‘prices’ as units of consciousness also (within our minds and the computer screen). Even our Debt and Deficits today are stored within the computer screen as ‘imaginary’ numbers. So even our Debt and Deficits do not Exist (philosophically). New thinking is now needed…given the changes which have occurred to our markets and our decision-making.

6. Printing:  many financial pundits still think of money units as being ‘printed’. I witness this thinking daily as I listen to various financial pundits, economists, and commentators. The word ‘printing’, however,  implies that paper notes are being created by our Bureau of Engraving and Printing (BEP). However, if you go to the BEP website you will witness that paper notes are actually decreasing over time: The production of paper notes is down substantially in recent years. Why? Could it be that most new money units are now created digitally and Out of Nothing? Our computer technology has replaced the ‘printing’ press for 96% of all money transactions. Yet most financial pundits seem Unaware of this reality.

 7. Hyper-inflation:  this concept is being touted by many financial experts as a future reality for our economy. Is this a potential reality or not? Why are all these financial experts deceived on this issue? I would suggest that their deception arises because their THINKING is focused upon the word ‘printing’. These experts THINK that new money units that are being created digitally are equivalent to ‘printing’. This, however, is a deception (in my mind). Why? Historically, hyper-inflation occurs when an economy uses ‘printed’ notes and bills as their money units. This recently happened in the Country of Zimbabwe.

The Central Bank of Zimbabwe ‘printed’ up paper notes and bills to an excess and flooded their local markets with these ‘printed’ units. This same situation happened in Germany in the 1920’s. Printing new paper notes and bills (in excess) and then distributing these units to consumers and market players does create hyper-inflation over time. This, however, is NOT our situation today. Today, our Central Banks create new money units via digitization. They then distribute these new units to select financial entities (mostly dealer banks).

These new units become excess reserves within these financial entities and then are invested selectively (mostly in government bonds and such). Consumers are NOT getting their access to these new units and therefore they are unable to ‘bid’ up prices of goods and services. This means that hyper-inflation is impossible given this USE of new money units! What is really happening today is a gradual Deflation of money units for the consumer. Over time this means that Deflation (not hyper-inflations) will occur. All this is happening because our current money units are virtual and imaginary today and not physical/material items…like in past hyper-inflation situations (Zimbabwe and Weimar Germany).

 In conclusion, we need to THINK differently today as a result of all these changes to our markets and to our decision-making. We need to review the ‘words’ that we use as we describe the markets. We also need to become aware of how decisions are made at the higher levels within our nation and globally. Today, the elite Central Bankers are in Control of our markets. Also the HFT traders have significantly changed trading and investing. We all mostly trade and invest via high-speed computers today. This has CHANGED everything within our markets. Enjoy! I am:
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