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FED’s Economic Model(s) are mostly Rubbish! Why?

December 31, 2012

Bernanke and Company use various Algorithmic Models (math and formulae) to forecast the future and to implement their monetary policies. WSJ article today gives the basics and the ‘names’ of these Models.

Today’s WSJ had a full article called ‘Fed’s Computer Models Pose Problems’. What Bernanke and Company have been doing is using their math models to forecast future trends based on assumptions which they might implement. They then review the output from these models to determine which policies they will implement for interest rates, quantitative easing, asset purchases, etc. Does any of this make sense given that we now have a global economy which is mostly made up of ‘virtual’ currencies, HFT trading, and mass speculation based upon the emotional decisions emerging from these mathematical models.  Can math and algorithmic models really forecast the future and/or stabilize prices in today’s markets? My view is that these models of the Fed are mostly Rubbish. The ‘names’ given to the Fed Models are:  Ferbus, Edo, and Sigma. Is any of this representative of real Capitalism?

Fed makes predictions based upon outcomes derived from math and algorithms (is this sound policy?)

When forecasting the future is this far off isn’t it time to question the Model?

What has happened since the closing of the ‘gold window’ in 1971 is a trend towards using econometric Models (math and formulae) as the mechanisms for forecasting the future. All this was made possible when our ‘dollar’ became a ‘fiat’ unit and then a ‘virtual’ number within the computer screen. Non-material money which was totally separated from a physical commodity (like gold) allowed our ‘dollar’ to become non-material (merely an abstract mental ‘number’). This then allowed Central Bankers to use these math Models (such as Ferbus) rather than using their subjective JUDGMENT and Common Sense. All this ‘appeared’ objective to those in positions of Authority. After all, are not math and numbers objective phenomena? In reality, numbers are ‘units of consciousness’ (subjective) and forecasting the Future is beyond the human ken (foolishness).
Does the wishful ‘thinking’ of Bernanke and his econometric staff know the Future?

What we now need to recognize is that the Models used by our Authorities (our Fed and Government Committee’s) are mostly Rubbish and mostly Meaningless for the type of markets that we now witness. These Models may have had some validity when all markets were ‘inflating’ in a uniform manner. Also, when consumers were reacting like robots to the decisions of these Authorities then Models of this type may have worked. Today, however, we have a global economy and subjective money creation from numerous Central Banks around our planet. It is very unlikely that any of these Models will work in 2013 and beyond. We now need to recognize that the philosophy of Keynesianism is obsolete for our future global economy. Also, all the Algorithmic and Math Models used by our Government policymakers are mostly Rubbish going forward!

It is now time to Think independently and Question all official forecasts coming from our Fed and other Government Authorities. The Models they are using for their decision-making are mostly Rubbish (going forward). We now need a New Economic Model for a Global Economic System that is emerging daily. Let’s start think in terms of a NEW ECONOMIC MODEL…going forward! I am:
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