Advant Guard

Risk and the Entrepreneur

2026-03-07T14:31:00.001-05:00

Note: This post written with assistance of Google Gemini.

While most people see risk as a "danger sign," a savvy entrepreneur sees it as a barrier to entry.

Larger corporations are often bogged down by "loss aversion" and shareholder expectations. They have too much to lose to bet on the unproven. By stepping into the spaces they find too volatile or uncertain, you aren't just being brave—you’re building a structural advantage.

Why Risk Functions as a Moat

The Comfort Tax: Established competitors pay a "comfort tax." They only enter markets with predictable margins. If you operate where the data is thin, you’re playing a game they aren’t allowed to join yet.
Agility vs. Scale: Large companies are like tankers; they need miles to turn. An entrepreneur is a speedboat. You can navigate the "choppy waters" of risk because your pivot speed is your greatest asset.
The "Wait and See" Trap: By the time a risk is "de-risked" enough for a massive corporation to feel safe, the entrepreneur has already captured the brand loyalty and the learning curve of that niche.

The Two Faces of Risk

To keep that moat deep, it helps to distinguish between the types of risk you're taking:

Type of Risk	The Entrepreneur's Approach
Market Risk	"Will people want this?" — This is the moat. You figure it out while others watch.
Execution Risk	"Can I actually build it?" — This is the internal challenge.
Financial Risk	"Will I run out of cash?" — This is the dragon you manage to keep the lights on.

Bottom Line: If a business idea had zero risk, a billionaire or a tech giant would have already automated it. Your willingness to sit with uncertainty is exactly what makes your position defensible.

War and the Perspective of History

2026-03-02T22:24:00.002-05:00

The typical American will tell you that World War II began with the attack on Pearl Harbor in December 1941. However, Russian history speaks of the Great Patriotic War beginning with the German invasion of Eastern Europe in June 1941. France and Britain maintain the war began with the invasion of Poland in 1939, while Czechoslovakia was annexed in two waves across 1938 and 1939. For the Chinese, the "War of Resistance Against Japanese Aggression" began as early as 1937. Even the Spanish Civil War, which began in 1936, featured direct participation by the German and Italian militaries, yet it is often excluded from the official timeline of World War II.

History suggests that the "start" of a global conflict is often a matter of perspective.

The first forty years of the post war period was dominated by a cold war between the two superpowers America and the Soviet Union. The collapse of the Soviet Union left the American Colossus bestride the world, unopposed.

The next thirty years saw an integration of Eastern Europe and East Asia and Southeast Asia into global markets. This “new world order” saw increasing prosperity globally, but had many critics. Some attacked the deindustrialization of the developed economies. Others criticized the inequality of distribution of the wealth created in developing countries.

For Russia and China, the ability of America and Europe to write the rules of international law was seen as an obstacle to their own global ambitions. Especially after the rise of Xi Jinping to President of China, Chinese foreign policy talked of creating a multi-polar world order.

Russia and China began a process of undermining the current order; Russia using military and hybrid power, China using economic and propaganda power.

When viewed through a modern lens, a similar pattern of incremental aggression is visible:

2008: Russia invaded Georgia during the Beijing Olympics.
2013: China launched the "One Belt, One Road" initiative (later renamed the Belt and Road Initiative), designed to shift the center of global trade flows away from the U.S. and the EU toward China.

2014: Russia invaded and annexed Crimea. Later that same year, Russia sponsored rebellions in the Donetsk and Luhansk regions.
2015: Russia intervened in the Syrian Civil War, providing troops to the Assad Regime.
2017: Russian Private Military contractor Wagner Group enters the Central African Republic to provide various military services.
2020: Russia acted as a "peacekeeper" in the Caucasus, brokering a ceasefire between Azerbaijan and Armenia and providing security guarantees.
2022: Vladimir Putin discarded the international rule book by launching a "Special Military Operation". This air assault on Kyiv sought to capture—and potentially execute—the President of Ukraine, replacing him with a puppet leader cooperative with Russian policy.

Crucially, Russia does not officially consider itself "at war" with Ukraine. To do so would require recognizing Ukraine as a sovereign state. Despite the Budapest Memorandum, Russia has silently revoked its recognition of Ukrainian independence. While the physical combat is contained within Ukraine, the conflict is effectively a war on NATO, intended to deny the alliance the resources a future Ukrainian member might provide.

Many commentators express concern that the current situation in Ukraine might eventually escalate into World War III. However, if we apply the perspective of history, that concern carries a haunting presumption: that World War III hasn't already started.

The twist came in 2026:

In a move described by commenters as a”Special Maduro Operation”, U.S. special operations arrested the President of Venezuela Nickolus Maduro and brought him to jail in the U S.
A few weeks later, a joint U.S.-Israeli operation beside hitting various military targets also bombed the home of Iran’s Supreme Leader,killing as well as several other top officials.

The possible loss of Iran as an ally hurts both China and Russia, China loses an oil supplier,Russia loses a drone vendor and an old hand in money laundering.

Be careful what you wish for: Once you ignore international rules, some one else might ignore those rules as well.

Memories of 2007.

2026-03-01T01:25:00.001-05:00

Note: This post created with assistance from Google Gemini.

Providing a loan to a distressed entity (liquidity) only works if that entity's underlying assets are still worth more than its debts. If the assets themselves—the private credit loans to mid-market companies or real estate—are fundamentally impaired, then the bank "assisting" the shadow bank is simply throwing good money after bad.

The "Slow then Sudden" Mechanism

The 2008 crisis followed a specific trajectory that seems to be mirroring itself in the private credit space today. It’s a process of Value Discovery that the market resists until it can't.

* Phase 1: Denial & Extension: Private credit funds often use "PIK" (Payment-in-Kind) toggles, allowing borrowers to pay interest with more debt rather than cash. This keeps the loan "performing" on paper even if the company is insolvent.

* Phase 2: The Liquidity Bridge: Regulated banks provide "subscription lines" or warehouse facilities to these funds. This is the "temporary assistance" you mentioned. It masks the lack of cash flow from the underlying assets.

* Phase 3: The Impairment Realization: Eventually, a trigger—higher interest rates, a recession, or a high-profile default—forces a re-valuation. Because these assets are not traded on public exchanges, the drop in value isn't a slide; it's a cliff.

The Re-Linkage to the Banking System

The irony of Basel III is that while it tried to insulate banks, it created a synthetic umbilical cord between regulated banks and the shadow system.

* The Leverage Loop: If a private credit fund sees its asset values drop by 20%, it may breach its covenants with the regulated bank that provided its leverage.

* The Contagion: The bank is then forced to "call" the loan or write down the value of its exposure to the fund. Suddenly, the "safe" loan to a diversified fund on the bank's balance sheet becomes an "impaired" asset.

Shortened Memory and the "Panic Pivot"

In 2008, it took over a year from the initial subprime tremors (New Century Financial's collapse in early 2007) to the Lehman moment.

Today, with instant information and the scar tissue of 2008 still present, the "initial denial" phase may be shorter. If the market senses that the "Private Credit" black box is full of insolvent "zombie" companies, the run on the shadow banks—and the subsequent pull-back from the regulated banks—could happen with terrifying speed.

Visualizing the Schwarzschild transform.

2026-02-27T23:04:00.003-05:00

Note: this post created with the assistance of Google Gemini/

Schwarzschild Mapping Diagram

The diagram below illustrates how different radial positions ( $r$ ) in the Schwarzschild geometry map to locations along a unit hyperbola in light-cone space ( $x^+, x^-$ ).

Based on the provided document, the mapping of the Schwarzschild radius to the unit hyperbola ( $x^+ x^- = 1$ ) is defined through Light Cone coordinates and a specific hyperbolic transformation.

Schwarzschild Mapping Diagram

The diagram below illustrates how different radial positions ( $r$ ) in the Schwarzschild geometry map to locations along a unit hyperbola in light-cone space ( $x^+, x^-$ ).

Mapping Details and Logic

The mapping follows the logic outlined in the Schwarzschild transform:

Coordinate System: The coordinates $x^+$ and $x^-$ represent the light-cone axes where the unit hyperbola is defined as $\tau = \sqrt{x^+ x^-} = 1$ .
The Transform: The parameter $\rho(r) = \ln(r - R_s) - \ln(r)$ determines the position along this hyperbola. This can be interpreted as $x^+ = e^{\rho}$ and $x^- = e^{-\rho}$ to satisfy the unit hyperbola condition $x^+ x^- = 1$ .
Zero Velocity ( $r \rightarrow \infty$ ): As the radial distance approaches infinity, the parameter $\rho$ approaches $0$ . On the hyperbola, this maps to the point $(1, 1)$ , where $x \to 0$ in Minkowski space.
The Event Horizon ( $r \rightarrow R_s$ ): As $r$ approaches the Schwarzschild radius, $\rho$ approaches $-\infty$ . This causes $x^+$ to approach $0$ and $x^-$ to approach $\infty$ , mapping the event horizon to the asymptote of the unit hyperbola.

Summary of Features

Feature	Schwarzschild Position	Hyperbola Position ( $x^+, x^-$ )	Minkowski Equivalent
Zero Velocity	$r \rightarrow \infty$	$(1, 1)$	$x \rightarrow 0$
Event Horizon	$r \rightarrow R_s$	Asymptote ( $x^+ \rightarrow 0$ )	$x \rightarrow t$

Feature

Schwarzschild Position

Hyperbola Position (

x^+, x^-

)

Minkowski Equivalent

Zero Velocity

$r \rightarrow \infty$

(1, 1)

$x \rightarrow 0$

Event Horizon

$r \rightarrow R_s$

Asymptote (

x^+ \rightarrow 0

)

$x \rightarrow t$

Tracking the divergence

2026-02-18T21:24:00.004-05:00

Note: This post was created with assistance of Google Gemini/

Tracking the divergence: The Buffet Indicator

The Buffett Indicator—the ratio of total stock market capitalization to Gross Domestic Product (GDP)—is essentially a thermometer for the Two-Cycle model.

It measures the size of the Financing Cycle (the valuation of all public companies) relative to the Production Cycle (the total value of goods and services produced).

1. The Ratio as a Cycle Tension Gauge

n a balanced economy, the two cycles should grow in roughly the same proportion. When the ratio deviates significantly, it signals that the cycles have decoupled.

The Baseline (Historical Norm): Historically, a ratio of 70% to 80% was considered "fair value." This represented a healthy symbiosis where the financing cycle provided capital to, and derived its value from, the production cycle.
The Modern Surge (2020s): We have seen the indicator soar to nearly 200%. This suggests that the financing cycle has become a "superstructure" that is twice the size of the actual industrial and service-based foundation it rests upon.

2. Why the Indicator Stays High (The Passive Anchor)

The passive investment trap you mentioned earlier acts as a structural support for a high Buffett Indicator.

Decoupling from Reality: GDP (Production) is limited by physical constraints—labor, energy, and materials. Market Cap (Financing) is limited only by liquidity and the "zeitgeist."
The Momentum Loop: Passive flows force money into the market regardless of GDP growth. This inflates the numerator (Financing Cycle) while the denominator (Production Cycle) struggles with the "drain" of capital and labor shortages.

3. The "Decumulation" Threat to the Ratio

As the Boomer generation begins to sell assets to fund their lives, the Buffett Indicator faces a "reversion to the mean."

The Squeeze: To pay for a $100 grocery bill (Production Cycle), a retiree must sell $100 worth of stock (Financing Cycle).
The Multiplier Effect: If everyone tries to do this at once, and there aren't enough "active" buyers to replace them because the younger generation is smaller or has less disposable income, the market capitalization must shrink.
The Re-balancing: This effectively "deflates" the financing cycle while the money flows into GDP via consumption. The Buffett Indicator drops, not necessarily because the economy is failing, but because the Two-Cycle System is re-synchronizing.

4. The Political Fallout of a Falling Ratio

Because the "Vested Interests" and "Legacy Language" define a rising stock market as "success," a falling Buffett Indicator—even if it represents a healthy return to the production cycle—is often treated as a national emergency.

The Policy Trap: When the ratio starts to fall, the "Financing Cycle" elite use their political power to demand interventions (like lower rates or liquidity injections) to push the indicator back up, further delaying the needed rebalancing of consumption and investment..

Ratio State	Cycle Relationship	Political Response
Low (<70%)	Financing cycle is "starved"; production cycle is dominant.	Stimulus to encourage investment.
High (>150%)	Financing cycle is "bloated"; production cycle is hollowed out.	Protection of asset prices (Financial Dominance).
Mean Reversion	Money flows from Finance \rightarrow Production.	Crisis management; attempt to "save" the index.

A Secular Bear Market: the Battle between Hype and Reality.

The "Buy the Dip" (BTD) mentality has been hard-coded into the zeitgeist over a 40-year bull run. However, in the model, the demographic "drain" acts as a persistent gravity that eventually exhausts the BTD "airbags."

1. The "Conditioned Response" vs. The "Structural Drain"

The psychological phenomenon you're describing is a collision between Recency Bias and Demographic Necessity:

The Muscle Memory: For 40 years, every "snap" (2000, 2008, 2020) was met with central bank liquidity and a younger Boomer cohort still in their "accumulation" phase. This rewarded BTD behavior, turning it into a dominant market strategy.
The Demographic Gravity: Now, the largest pool of capital (retirees) is no longer looking for "entry points"—they are looking for exit ramps. Every time the market "snaps" back up, it provides a liquidity window for retirees to sell their shares to the BTD crowd at a slightly better price to fund their healthcare and consumption.

2. The Anatomy of a "Fading Rally"

In a production-dominant era, the Buffett Indicator reverts to the mean through a series of lower highs and lower lows:

The Snap: A shock (interest rate spike, geopolitical event) causes a sharp drop in the financing cycle.
The Rebound: The BTD crowd and algorithmic passive flows rush in, sensing a "bargain" based on legacy valuation language.
The Grind: As the rally matures, it hits the "Booms-Day" wall. Retirees, needing cash for the Production Cycle (real-world goods), sell into the strength. Because the pool of sellers (decumulators) is structurally larger than the pool of new buyers (accumulators), the rally loses momentum and "fades."

3. The Shift in "Relative Value"

As this process repeats, the "Zeitgeist" begins to change. Investors realize that the Financing Cycle is no longer the place where wealth is created, but where it is being liquidated.

Financing Cycle: Becomes a "Value Trap." Assets look "cheap" compared to 2021 levels, but they fail to grow because the capital is being diverted.
Production Cycle: Becomes the "Growth" engine. While the stock market grinds, the price of "real things" (labor, energy, domestic manufacturing) rises.

Era	Market Behavior	Driver	Outcome
1982–2021	"Buy the Dip"	Boomer Accumulation	Rising Buffett Indicator
2022–2040	"Sell the Rip"	Boomer Decumulation	Falling Buffett Indicator

The "Snap" That Finally Sticks

The final transition to the "inevitable rebalancing" likely occurs when a "snap" is so deep that it breaks the BTD psychology entirely—a moment where the "Vested Interests" lose their ability to use monetary policy to rescue the financing cycle because doing so would trigger hyper-inflation in the (now scarce) production cycle.

Policy Trap

For 25 years, the Federal Reserve had a "cheat code." Because the Production Cycle was globalized and demographic trends were disinflationary (a surplus of workers), the Fed could print money to rescue the Financing Cycle without causing immediate "Main Street" inflation.

In this model, that era is over. We are entering a regime where the Fed must choose between Asset Price Stability and Price Stability—and for the first time in generations, they may be forced to choose the latter.

1. The Death of the "Fed Put"

The "Fed Put" (the expectation that the Fed will lower rates or print money whenever the stock market drops) relied on a specific environment: Low CPI Inflation.

The 2001/2008/2020 Logic: When the market snapped, inflation was near 2%. The Fed could flood the Financing Cycle with liquidity to stop the bleeding because there was no "cost" in the Production Cycle.
The New Constraint: As Boomers retire, they stop producing but continue consuming. This creates Structural Scarcity in the Production Cycle. If the Fed prints money to save a crashing stock market today, that liquidity will immediately chase a dwindling supply of goods, sending inflation to politically "suicidal" levels.

2. The Japan Comparison: A Warning of "Pushing on a String"

In the Two-Cycle model, Japan’s failure wasn't just a lack of "will," but a Demographic Sinkhole:

Financing Cycle Saturation: The Bank of Japan (BoJ) bought everything—bonds, stocks, ETFs. They successfully inflated the Financing Cycle's size, but they couldn't force that money back into the Production Cycle because there were no young entrepreneurs to borrow it and no growing consumer base to buy the output.
The US Difference: Unlike Japan (which faced deflation), the US faces "Shortage-Driven Inflation." If the US tries Japan-style intervention now, it won't result in "stagnation"; it will result in a Currency Crisis, as the money trapped in the Financing Cycle tries to exit into a Production Cycle that cannot scale up fast enough to meet demand.

3. The "Inflation Guardrail"

Tariffs and production bottlenecks will discourage intervention. This creates a pincer movement on the Financing Cycle:

Force	Impact on Financing Cycle	Impact on Production Cycle
Tariffs	Lowers corporate margins (Less "yield").	Increases cost of living (Inflation).
Retiree Spending	Liquidates assets (Selling pressure).	Increases demand for services (Labor shortage).
Central Bank	Cannot "Buy the Dip" without fueling CPI.	Forced to keep rates high to "protect the dollar."

4. The 1929 Parallel

The 1929 crash was the "Snap" that ended the Investment-Heavy era of the 1920s. However, back then, the government had no "safety net," leading to a brutal 80% decline.

Today's Risk: Our current system is far more "brittle" because it is levered. If the Fed is "inflation-locked" and cannot intervene during the next 20% "Snap," the Passive Investment algorithms—which assume the Fed will always save the day—could trigger a cascade of selling that looks more like 1929 than 2008.
The Outcome: The "Great Re-Pricing"

If the Federal Reserve is forced to stand aside during a market crash to keep inflation from hitting double digits, we will see the fastest reversion of the Buffett Indicator in history.

This isn't just a market crash; it's the forced migration of capital. Money will leave the "Vertical" Financing Cycle (stocks/bonds) and be forced into the "Horizontal" Production Cycle (commodity production, automation, local manufacturing) because that is where the only "real" returns will be found.

A Tale of Two Bubbles

2026-02-18T21:22:00.000-05:00

Note: This post was created with assistance of Google Gemini.

In the two-cycle model, the shift from the 2008 Owner-Occupied Bubble to the 2026 Institutional Rental Bubble is a perfect case study of how the Financing Cycle "learns" to colonize new areas of the Production Cycle when old ones are exhausted.

Wall Street didn't just solve the foreclosure crisis; they financialized the resulting trauma.

1. The 2008 Bubble: A "Horizontal" Failure

The 2008 crisis was a failure of the Production/Consumption Cycle's debt capacity.

The Mechanism: Money was pushed down into the hands of individual consumers (subprime borrowers) to keep the consumption cycle spinning.
The Result: When the borrowers couldn't pay, the "horizontal" flow of cash stopped. Because the financing cycle had "wrapped" these mortgages in complex securities (MBS), the entire financial system froze.
The "Zeitgeist" Shift: After 2008, the zeitgeist became Anti-Ownership. The "American Dream" of a mortgage was seen as a trap, creating a generation of "forced renters."

2. The 2026 Bubble: A "Vertical" Capture

The current bubble is a Vertical Financing story. Instead of lending to the consumer, the Financing Cycle became the consumer.

The Mechanism: Institutional investors (private equity, mega-landlords) used their access to low-interest capital to buy Single-Family Homes (SFH) in bulk. They aren't buying "shelter" (Production); they are buying a "Yield Stream" (Finance).
The Arbitrage: They outbid families because their cost of capital is lower. A family pays a 7% mortgage; a hedge fund borrows at 3% or uses cash. This allows the fund to pay a higher price for the same house while still hitting their "Financing Cycle" return targets.

3. The Current "Snap" in 2026

We are currently seeing the exact "fading rally" and "overpayment" phase you described. In early 2026, the data shows the "Financing Cycle" is hitting a hard wall:

The Rental Yield Squeeze: As of February 2026, median home prices have risen so much faster than wages that prevailing rents are beginning to fall or stall (0–1% growth).
The "Exit" of the Mega-Investor: Large institutions (those with 1,000+ homes) have become net sellers for six consecutive quarters. They are trying to "lock in" profits before the cap rates (yields) become unattractive compared to high-interest treasury bonds.
Political Retaliation: The "Rejectionist" movement you predicted has arrived. In January 2026, the White House issued an executive order, "Stopping Wall Street from Competing with Main Street Homebuyers," specifically aimed at banning large-scale institutional SFH purchases.

4. The Demographic "Inverse"

The 2008 bubble popped because the buyers ran out of money. The 2026 bubble is popping because the landlords are running out of yield.

Early Entrants (2012-2015): Bought at $150k, rent at $1,500. Yield is 12%. (Profitable).
Follow-on Buyers (2022-2024): Bought at $450k, rent at $2,200. Yield is 5.8%. (Barely profitable).
The 2026 Reality: If the "Production Cycle" (wages) can't support $2,200 rents, the value of the "Financing Cycle" asset (the house) must collapse to match the real-world cash flow.

Summary of the Two Bubbles

Feature	2008 Bubble	2026 Bubble
Primary Driver	Consumer Debt (Production Cycle)	Institutional Equity (Financing Cycle)
Key Instrument	Subprime Mortgages	Single-Family Rental Securitization
Vulnerable Party	Individual Homeowners	Institutional Portfolio Values
Exit Strategy	Foreclosure / Default	Selling to Heirs / New "Passive" ETFs

The "long lag" of politics is finally catching up. For a decade, politicians ignored the "corporate landlord" trend because it kept home prices high (benefiting Boomer voters). Now that it has made housing unaffordable for the entire workforce (the Production Cycle), the "manifesto" of banning Wall Street from housing is becoming the new political baseline.

Nominal GDP-Linked Preferred Stock

2026-02-11T13:59:00.003-05:00

Stability in Growth: Introducing Nominal GDP-Linked Preferred Stock

Note: This post written with assistance from Google Gemini.

In the banking world, a common challenge is the pressure from regulators to increase capital exactly when the cost of raising equity is at its peak. To address this, the concept of Nominal GDP-Linked Preferred Stock offers a strategic hedge.

How It Works

This security is designed with a face value, a maturity date, and a target Nominal GDP. Its outcome depends on economic performance:

Strong Economic Growth: If the reported Nominal GDP exceeds the target before the maturity date, the security pays out its face value in cash. In this scenario, it performs much like a bond.
Sluggish Economic Growth: If the target is not met by the maturity date, the security converts into common stock. The conversion price is based on the average price from the previous calendar month.

Why It Matters

For investors, purchasing this security is essentially a bet that a recession will not occur before maturity. For banks, it provides a crucial safety net: since loan losses often correlate with slower economic growth, this security automatically adds common stock capital precisely when the bank is most likely to need it.

By linking capital to the broader economy, Nominal GDP-Linked Preferred Stock offers a way to synchronize financial stability with economic cycles.

Savings and Japan model

2026-02-03T19:47:00.001-05:00

Note: This post written with assistance rom Google Gemini.

When a financial system is rigged to provide cheap credit to industry, the "subsidy" for that growth usually comes directly out of the pockets of household savers.

The Math of Inefficiency

If a person has a specific goal—say, a retirement fund that generates $30,000 a year—the interest rate dictates their lifestyle:

Feature	Efficient System (3% Return)	Inefficient System (1% Return)
Capital Required	$1,000,000	$3,000,000
Consumer Impact	Lower savings rate; higher consumption.	High savings rate; suppressed consumption.
Systemic Result	Balanced growth	Export-led growth (due to low domestic demand).

In the second scenario, the consumer isn't just saving more because they want to; they are saving more because they have to. This creates a massive pool of cheap liquidity that the state can then "direct."

The Japanese Life Cycle: From Factories to "The Bubble"

The Japanese model you described is a classic case study in the transition from reconstruction to maturity:

The High-Growth Era (1950s–1970s):

The "Main Bank" system channeled those high household savings into Keiretsu (conglomerates). This worked brilliantly while Japan was "catching up" and building heavy industry.

The "Wall" and the Bubble:

By the 1980s, industry was mature and didn't need as much capital for factories. However, the high savings rate persisted. With nowhere productive for the money to go, it flooded into real estate and stocks, creating the 1989 peak where the Tokyo Imperial Palace grounds were famously "worth more than all of California."

The Hollowing Out:

After the crash, Japanese firms moved production to SE Asia (the "Flying Geese" model) to remain competitive, effectively exporting their deflationary pressures and overcapacity.

The Hidden Cost: Financial Repression

This dynamic is often called Financial Repression. By keeping interest rates artificially low (below inflation or market equilibrium), the government effectively transfers wealth from households to the corporate/state sector.

While this jumpstarts industrialization, the long-term "hangover" is a permanent slump in domestic consumption—a challenge China is currently grappling with as it tries to pivot away from the same investment-heavy model Japan used.

Chinese Money Supply and PPI

2026-02-01T15:19:00.002-05:00

Note: This post was created with Google Gemini.

Imagine you could add up the cash accounts of all Chinese Property Developers (both private and state-owned companies), let's call that the money supply for Residential Investment..

The Capital Flow Breakdown

In this model, the "Money Supply" functions like a closed-loop hydraulic system. When the pressure (cash) drops, the physical output (steel and concrete consumption) must contract.

Source of Cash (Inflow)	Use of Cash (Outflow)	Physical/Macro Impact
Pre-sales (Consumer confidence)	Land-use Rights	Local government revenue & infrastructure funding
Bank Loans/Bonds (Credit) \|	Construction Costs	Demand for Steel, Copper, and Concrete
Refinancing	Debt Servicing	Financial stability and bond market yields

The Transmission to the Real Economy

As you noted, the reduction in this money supply has a direct, lagging effect on industrial commodities. This is why we've seen such a divergence between different economic indicators:

The PPI (Producer Price Index) Connection: Since concrete and rebar are foundational to construction, the property slump creates a deflationary "sink" in the PPI. When developers can't start new projects, the demand for these materials vanishes, forcing prices down.
The "Three Red Lines" Impact: By capping the leverage (the bank loan and bond side of your equation), the state effectively turned off the "extra" money supply. This forced developers to rely almost entirely on pre-sales.
The Pre-sale Trap: Once consumers saw developers struggling to finish projects, pre-sales cratered. This choked the final remaining source of the money supply, leading to the "unfinished apartment" crisis.

Summary Table: PPI Changes (Year-over-Year, Dec 2025)

Material Category	PPI Change (YoY)	Connection to the Mode
Building Materials & Non-metals	-6.4%	Direct reflection of halted construction (Concrete/Cement).
Ferrous Metals (Steel)	-4.7%	Weakness in structural frames and developer credit.
Non-Ferrous Metals (Copper)	+7.8%	Divergence due to EV/Green energy demand.
Overall PPI	-1.9%	Broad industrial deflation, heavily weighted by property.

The Copper and Steel Divergence

It’s worth noting that while concrete is almost entirely tied to domestic shells (construction), copper has a bit of a "hedge" because of the green energy transition (EVs and solar). However, steel remains the canary in the coal mine for your residential investment model; without those cash accounts being replenished, the steel mills simply lose their biggest customer.

The Insight: You’ve identified why China’s current deflationary pressure is so "sticky." Because the money supply for residential investment is tied to land value, and land value is falling, the collateral for the entire system is shrinking. It’s not just a liquidity crisis; it’s an equity evaporation.

Based on the most recent data from the National Bureau of Statistics (NBS) and market indices as of late 2025 and early 2026, the PPI for construction-related sectors confirms the model of a "choked" money supply leading to falling industrial prices.

The data shows that while the broader PPI is showing signs of narrowing its decline, the specific materials tied to the "Residential Investment Money Supply" (concrete, cement, and steel) remain in a clear deflationary trend.

Building Materials (Concrete & Cement)

Concrete and cement are the most direct proxies for the "Construction Outflow" theory because they cannot be easily exported or stockpiled long-term.

PPI for Non-Metallic Mineral Products: This category (which includes cement and glass) fell by 4.5% to 5.0% year-on-year throughout the second half of 2025.
Purchasing Price Index: The price paid by industrial producers for building materials and non-metals fell by 6.4% year-on-year as of December 2025.

Cement Price Index: As of January 29, 2026, the specific cement price index remains depressed at approximately 98.55, indicating that the lack of new housing "starts" continues to suppress demand.

Ferrous Metals (Steel)

Steel is highly sensitive to the credit-driven portion of your model (bank loans and bonds).

PPI for Ferrous Metal Smelting and Pressing: This sector saw an overall decline of 7.7% in 2025.
Recent Trend: While there was a slight month-on-month "narrowing" of the decline toward December 2025 (dropping only 4.7% YoY in that month), the aggregate for the year reflects the massive reduction in residential structural demand.

The Copper & Non-Ferrous Divergence

In support of the theory that different materials reflect different parts of the economy, Non-Ferrous Metals (like Copper) have actually risen.

PPI for Non-Ferrous Metals: Rose by 7.8% year-on-year in late 2025.
Why? While residential investment is down, copper is being diverted into the "New Three" (Electric Vehicles, Lithium batteries, and Solar). This confirms that the deflation you identified is specific to the Residential Investment Money Supply, not necessarily a total industrial collapse.

The "Money Supply" Lag

The data reflects exactly what you described: the "Three Red Lines" and the collapse of pre-sales (the "Inflow") have reached the "Outflow" stage. Even with recent government efforts to provide "White List" funding for unfinished projects, the PPI for concrete and steel remains negative because that cash is being used to finish existing shells rather than start new ones, which requires far less bulk material.

Two Cycle Economic Model

2026-01-31T12:30:00.006-05:00

Note: this post was produced with assistance from Google Gemini.

The "Two-Cycle" model highlights a critical tension: money is not a monolithic pool; it flows through two distinct circuits with very different velocities and outcomes.

Two Cycles sharing one pool of money.

1. The Production/Consumption Cycle (The "Real" Economy)

This is the horizontal flow of money. It represents the classic circular flow where households provide labor to firms, and firms provide goods and services to households.

Money Usage: Buying groceries, paying rent, manufacturing machinery, and paying wages. Note that money flows in one direction while goods and services flow in the opposite direction.

Key Driver: Velocity of Money. In this cycle, money needs to move quickly to sustain growth. If money "stagnates" here, we see recessions or unemployment.
Inflation Connection: Prices in this cycle are sensitive to the supply of goods vs. the amount of money people have to spend (CPI).

2. The Financing Cycle (The "Asset" Economy)

This is the vertical or "capital" flow. It involves the creation and exchange of financial instruments—stocks, bonds, real estate, and derivatives.

Money Usage: IPOs, secondary market trading, mortgage-backed securities, and debt refinancing. Note that cash flows in one direction and securities( (Stocks, Bonds,and Loans) i the opposite direction
Key Driver: Asset Appreciation and Yield. Here, money is often "parked" or leveraged to create more money without necessarily producing a physical good.
Inflation Connection: This cycle experiences Asset Price Inflation. When the money supply favors this cycle, the stock market or housing prices may skyrocket while the "Real Economy" stays flat.

The Regulatory Policy and Zeitgeist

Regulatory policy and the zeitgeist (the spirit of the times) dictate how money is shared between these cycles. This is historically evident:

Era	Dominant Cycle	Regulatory/Zeitgeist Focus	Result
Post-WWII (1950s-60s)	Production	Keynesianism; focus on full employment and industrial output	High middle-class growth; lower wealth inequality
Late 20th Century (1980s-2000s)	Financing	Financialization; "Greed is Good"; deregulation (Big Bang/Glass-Steagall repeal)	Massive stock market growth; housing booms; rising inequality
Post-2020 Era	Tension	Shift toward "Industrial Policy" (production) vs. massive liquidity in markets.	High asset prices vs. supply chain-driven CPI inflation.

The "Drain" Problem

One of the biggest challenges in the two-cycle model is the leaking of money from the Production cycle into the Financing cycle. When wealthy individuals or corporations earn money in the production cycle but don't reinvest it in labor or equipment—choosing instead to buy back shares or invest in real estate—the Production cycle "starves," leading to stagnant wages despite a booming stock market.

In this model, the Baby Boomer generation acted as a massive "vacuum" for several decades, pulling capital out of the production/consumption cycle and locking it into the financing cycle.

As they move into their 80s and 90s, we are approaching a structural "Phase Shift" where that money must flow back down to the real economy.

1. The Accumulation Phase: The "Great Drain" (1980–2020)

During this period, the zeitgeist was defined by Financialization.

The Mechanism: Boomers, the largest workforce in history, moved into their peak earning years. Encouraged by 401(k) tax incentives and a shift from pensions to defined-contribution plans, they funneled a massive portion of their wages (production cycle) into stocks and bonds (financing cycle).
The Result: This created a global "Savings Glut." The financing cycle became hyper-saturated with cash, driving down interest rates and inflating asset prices (stocks/real estate) while wages in the production cycle remained relatively stagnant.

2. The Retirement Phase: The "Reverse Flow" (2025–2045)

We are now entering what economists call the "Great Decumulation." The drain is not just slowing; the valves are reversing.

Decumulation of Assets: To pay for healthcare, travel, and daily living, retirees must sell the assets they accumulated. This moves money from the Financing Cycle (selling a stock) back into the Production Cycle (buying a meal or paying a nurse).
The Inflationary Impulse: Unlike the previous 40 years, which were disinflationary (lots of workers producing, lots of savings), this era is potentially inflationary. You have more people spending (consuming) and fewer people working (producing).
The Labor Shortage Effect: As Boomers retire, the "Production Cycle" faces a shortage of labor. To keep the cycle moving, firms must raise wages. This "starves" the profit margins that the Financing Cycle relies on, further shifting the power balance back to the real economy.

3. The "Inheritance" Wildcard

There is a catch: the $84 trillion wealth transfer.

While money leaves the financing cycle via consumption, a massive portion will be passed down to Millennials and Gen Z.

If the zeitgeist remains financialized: The heirs will simply reinvest the money, keeping it in the financing cycle and maintaining high asset prices.
If the zeitgeist shifts toward "tangible" needs: (e.g., housing, starting businesses, or climate adaptation), we will see a massive liquidation of financial assets to fund "real world" projects.

Summary of the Cycle Reversal

Factor	Accumulation Era (Boomer Peak)	Decumulation Era (Now/Future)
Money Direction	Production \rightarrow Financing	Financing \rightarrow Productio
Asset Prices	Structural Headwinds (Upward)	Structural Tailwinds (Downward/Flat)
Labor Market	Surplus (Low wage growth	Scarcity (Higher wage pressure)
Interest Rates	"Lower for Longer"	"Higher for Longer" (to attract scarce capital) \|

While the demographic shift provides the mechanical impetus for reindustrialization (the "pull" from the production cycle), the political architecture created by 40 years of financialization acts as a powerful brake.

In your "Two-Cycle" model, the financing cycle hasn't just grown larger; it has achieved regulatory capture. The interests that thrive on asset price inflation and low-interest-rate liquidity are now structurally opposed to the "messy," lower-margin, and labor-intensive needs of the production cycle.

The Conflict of Interest

The Financing Cycle and the Production Cycle have fundamentally different needs. Reindustrialization requires shifting priorities in ways that the financial sector may view as a threat:

Priority	Financing Cycle (Vested Interests)	Production Cycle (Reindustrialization)
Capital Allocation	Stock buybacks, M&A, and derivatives. \|	SNew factories, R&D, and physical infrastructure.
Interest Rates	Low rates (to keep asset prices high).	Real" rates (to encourage disciplined investment).
Labor	Labor as a cost to be minimized (outsourcing	Labor as a critical resource to be trained (onshoring
Time Horizon	Quarterly earnings and short-term "exits."	Multi-decade capital cycles (Steel, Chips, Energy)

How Vested Interests Slow the Shift

Political power currently flows through the Financing Cycle, allowing it to "starve" the Production Cycle through several mechanisms:

The "Shareholder Primacy" Trap: Corporate boards are often legally or culturally pressured to prioritize immediate stock price over long-term industrial capacity. Even if a firm should build a new domestic plant, the financing cycle rewards them more for using that cash to buy back shares.
Regulatory Friction: Financial lobbyists often resist the very industrial policies (like tariffs, subsidies, or capital controls) needed for reindustrialization because these policies disrupt the global "frictionless" flow of capital that financial firms profit from.
Asset Price Sensitivity: If the government aggressively diverts money to production (e.g., through high taxes on financial gains or massive industrial spending), the stock market may "tank." Because so many people’s retirements are tied to the financing cycle, politicians fear any policy that hurts asset prices, even if it helps the real economy.

The "Breaking Point"

Despite these vested interests, the inevitable thesis holds weight because of Externalities. When the Financing Cycle grows too large relative to the Production Cycle, it creates crises that the financial cycle cannot fix:

Supply Chain Fragility: You can't "print" a semiconductor or a gallon of fuel during a shortage.
Social Instability: A hollowed-out production cycle leads to populism and political unrest, which eventually threatens the stability of the financing cycle itself.
National Security: Nations are realizing that "financial power" is hollow if it is not backed by the "industrial power" to defend oneself.

The New Zeitgeist: "Securitized Production"

We are seeing the early stages of the financing cycle trying to co-opt reindustrialization. Instead of fighting it, Wall Street is attempting to turn "Infrastructure" and "Green Energy" into new financial products (like ESG funds or private equity infrastructure deals). This allows them to stay in power while ostensibly supporting the production cycle.

Schwarzschild coordinate transform

2025-11-04T15:00:00.001-05:00

https://www.youtube.com/watch?v=tthnUOIvnyU&t=337s The first two metric are the same but diiffer by a coordinate transform. https://drive.google.com/file/d/1f40H1J9NaxDSEump54XqsNX_gQAnDN4K/view?usp=drive_link

Inflation stories

2022-06-06T17:38:00.000-04:00

Stock market investors are trying determine when inflation will peak and how quickly it will return to what the Federal Reserve considers "price stability." But one mistake that investors make is thinking that inflation is one thing. Currently there are three different stories that threaded together form the inflation spike.

The first inflation story is the infamous supply chain. The interruption of production, the surge in demand as the economy reopened and the lack of transport capacity in ports, rails and trucking caused prices to rise. As the meme goes, this inflation is 'transitory'. Eventually, the supply chain issues will be fixed in time though if the solution involves building more warehouses, training new drivers and expanding ports, it may be years rather than weeks before all the problems are behind us.

The second inflation story is energy prices. In the short term, this is impacted by geopolitical events. But in the longer term, there is also the lack of refinery capacity. More drilling does not help if the excess oil can't be refined into useful products for consumers. While demand destruction by a global recession will provide some easing of inflationary pressure from the energy sector, that also will take a long time to develop.

The third inflation story is worse. The retirement of the baby boomers is leading to a labor shortage, with job opennings outnumbering unemployed workers by a factor of two. Average Hourly Wage has risen more than five percent over the last twelve months according to the May Employment report as workers switch jobs for higher wages or better working conditions. Even worse the labor shortage may run for decades, though investment in automation and machine learning may mitigate this effect.

So the three inflation stories will run for different lengths. The supply chain effect on inflation may have peaked already, energy inflation may rise further but has limited room to increase before demand destruction kicks in. Wage inflation may have a much longer duration. This suggests that the Federal Reserve may remain restrictive for much longer than investors are currently anticipating.

World War III

2022-05-06T13:38:00.001-04:00

Pundits are debating the question of whether the Ukraine invasion could escalate into World War III. The question I want answered is "How do we know that we aren't already in World War III?" Putin has hinted that he see NATO as an existential threat to the Russian Federation, as in the meme from old Western films "This town isn't big enough for the two of us." Putin may feel that Europe isn't big enough to accomodate the Russian Federation and NATO, one of the two must eliminate the other. In this context, World War III may have begun in 2008 with the invasion of Georgia and continued with the annexation of Crimea and the creation of the Donbas vassals. Western histories will talk about the World War II beginning with the invasion of Poland, but the annexation of Czechoslavia and Austria as well as Japanese agression in China are really the early part of the War marked by Allied passive acceptance. And so the European Union and NATO accepted the annexation of South Ossetia and the annexation of Crimea and Russian subversion in eastern Ukraine. Why not give up these areas in return for access to Russian energy resources? Why not allow Russia to integrate Ukraine and Moldova, because, you know, war is bad for business? And Finland and Sweden, and Poland, Slovkia and Romania... We may have been at War with Russia for fourteen years but were decieved into believing we are at peace due to a lack of a formal telegram from the Russian Foreign ministry announce their intension to destroy NATO (not quite cricket!) If Putin believes that conflict is inevitable until either NATO or the Russian Federation is destroyed, then that is the only end game that he will allow us to play to.

Serendipity

2022-02-03T09:50:00.000-05:00

In 1492, Columbus discovered America

Except he didn't know he discovered America. He died believing that he had sailed to the spice islands. The continent was named by another explorer who name it after himself.

In 1915, Einstein discovered the Higgs field

Except he didn't know that he discovered the Higgs field. He died before Peter Higgs theorized the existance of the field in order to explain the mass of the electron. In time the Large Hadron Collider who uncover evidence of the Higgs boson, confirming the existance of the Higgs field.

The main equation of General Relativity is Einstein's Field Equation which describes the curvature of spacetime that creates the effect that we call gravity. But the theory doesn't address how spacetime is warped by matter. The Higgs field already has a funtion in adding mass to elementry particles, it is reasonable to assert that the warping of spacetime is a side effect of providing inertia to the electron. This is what I call the Higgs Particle Space Interaction.

But Einstein Field equation requires a second function of the Higgs field. THere must be a Higgs Space Space Interaction in order to keep the continuity of the spacetime curvature. It is only when you account for both of these interations that you get the gravity that we are all familar with.

Hyperbolic Cosmology Pt.2

2021-12-26T16:17:00.001-05:00

The plot below is a possible diagram of the universe. The simplest possible hyperbolic configuration. The blue represents the section of the manifold for the current time. The red lines represent the Event Horizons. Where the two Event Horizon join is the singularity at the beginning of the Universe, sometimes referred to as the Big Bang. The scales are in fractions of the apparent size of the Universe (A_U)

While the blue line appears circular, that is due to the scale being apparent distance and not actual distance as a spaceship flies. The line is actually infinite and hyperbolic, with the metric tensor shrinking the further from the origin it goes. The space dialation causes the Universe to appear to be bounded, despite being infinite.

In addition, curvature and time dialation cause light to be red shifted the further the source is from the observer, without needing any expansion of space. This geometry also eliminates the need for cosmic inflation because the curvature causes the CMB to appear larger than it actually is.

Price Drift Update

2021-12-06T09:47:00.003-05:00

This chart shows the Federal Reserves preferred measure of inflation against where that index would be if it followed the long term target for inflation. This target was first announced in January 2012 and that is the red line (where the FOMC expected prices to be at that time.)

The next (yellow) line is based on January 2017, five years after targeting inflation. Obviously, inflation targeting failed for the first five years with inflation unshooting the 2% inflation target. To date, the annualized rise in prices since 2012 is just 1.73% through October.

The final green line is based on February 2020, just before the pandemic. Note initially, inflation fell, but by April 2021 the price index was above the target pre-pandemic target and by June 2021 it was above the 2017 target. The Chairman of the Board of Governors is ready to retire the term 'transitory' now, but the FOMC needs to decide whether they care about inflation in the short term or whether their target is the medium term inflation trend.

Hyperbolic Cosmology pt. 1

2021-12-04T01:45:00.000-05:00

Curvature	Bounded?	Volume
Zero (Euclidian)	Unbounded	Infinite
Zero (Euclidian)	Bounded	Finite
Positive (Spherical)	Unbounded	Finite
Negative (hyperbolic)	Bounded	Infinite

In a spherical space, such as the surface of the earth, you can travel in any direction and not reach an edge and yet the total volume/area is finite.

In a hyperbolic space, you can travel in any direction but you will never approach the apparent boundary. The space appears bounded but the volume/area is infinite. This is possible because the space is larger than it appears.

Special Relativity: Constant Acceleration

2021-11-20T11:33:00.000-05:00

Problem

Twins Al and Bob agree to participate in an experiment. Al remains on Earth while Bob travels on a spaceship. At time t=0, Bob and his spaceship are at rest relative to the Earth and the spaceship accelerates at one Earth gravity (assume an acceleration of 9.8m/sec²) and maintains a constant rate of acceleration.

Note: The rate of acceleration will be constant in Bob’s frame of reference but not in Al’s frame of reference due to time dilation.

After ten seconds, what velocity is Bob’s spaceship traveling with respect to the Earth? Give the answer for Newtonian mechanics and Special Relativity.
After ten million seconds, what velocity is Bob’s spaceship traveling with respect to the Earth?
How long does it take Bob’s spaceship to reach 5% of the speed of light with respect to Earth?

Question 1

Newtonian calculation

Since acceleration is a=9.8, after ten seconds velocity = a*t = 9.8*10 = 98 m/sec

Using Addition of Velocity (not recommended)

After the first second, we add 9.8 m/sec to the starting velocity of zero, giving a velocity of 9.8 m/sec. The second second we add 9.8 to 9.8 and get approximately 19.6 m/sec. Repeating this process eight more times gives us 97.7 m/sec.

Using Hyperbolic Velocity Transform

v=c*tanh(t*tanh^-1(a/c)) = 299792.458 km/sec* tanh( 10*tanh^-1(.0098 km/sec /299792.458 km/sec))=98 m/sec

Question 2

Newtonian calculation

Since acceleration is a=9.8, after ten million seconds velocity = a*t = 9.8*10,000,000 = 98,000 km/sec.

Using Addition of Velocity

Not going to bother since ten million floating point calculations will eat up any accuracy.

Using Hyperbolic Velocity Transform

v=c*tanh(t*tanh^-1(a/c)) = 299792.458 km/sec* tanh(10,000,000* tanh^-1( .0098 km/sec /299792.458 km/sec))=94652.2959 km/sec

Question 3

Newtonian Calculation

t=v/a=5%*299792.458 km/sec/9.8m/sec= 1,529,553.36 sec

Using Hyperbolic Velocity Transform

t=tanh^-1(0.05)/tanh^-1(a/c)= 1,530,829.90 sec

Inflation Update

2021-11-12T21:45:00.000-05:00

Since people are worried about inflation it is time to update our graph tracking Nominal GDP across for inflation regimes: 1948-1965, 1965-1982, 1982-2007 and 2007 to date. People tend to ignore Nominal GDP but it is important to the banking system because loans are paid back with nominal dollars not real dollars. If loans grow faster than nominal GDP, then the risk to the banking system increases.

The blue line shows Nominal GDP growth over the previous year. The red line shows the average Nominal GDP growth over the entire span. The yellow line show the average growth rate in each inflation regime. Note that the late 60's and 70's show a much higher rate of Nominal GDP growth and the period since the financial show a lower rate of Nominal GDP growth.

So does the recent uptick in Nominal GDP growth indicate that more inflation is ahead? Probably not. While Nominal GDP growth spike recently, the pandemic cause a bigger drop in Nominal GDP than the financial crisis. Nominal GDP drops are rare. Most likely, Nominal GDP will grow at a more moderate pace over the next year. The Federal Reserve should not overreact to the current inflation scare. While rising prices are not pleasant, raising interest rates will not have a near term effect on the problem and can cause issues further down the road.

Price Drift Update

2018-03-27T18:17:00.000-04:00

This is an update to a previous chart with the latest inflation data and the inflation forecast from the Mar 2018 FOMC summary of projections. First note how the projection of the price level for Dec 2019 has changed over the two years from Mar 2016 to Mar 2018. The forecast from 2016 is above the target for 2016, but the forecast from 2017 is much lower and the most recent forecast is lower still but by a smaller margin. Note that the forecast for Dec 2020 from the latest projection is below the target based on 2018 price level.

Even as they lower expectations they still are not able to hit their inflation target, but insist that raising interest rates now is "neccessary" to prevent inflation from overshooting (in some time frame after 2020 when inflation magically reappears despite tight monetary policy.)

Money Supply Deceleration

2018-02-03T16:11:00.002-05:00

The deceleration of the growth in the money supply is not unexpected but still worrying, though m2 money velocity may be bottoming out. Still it doesn't support claims of accelerating inflation.

Price Drift Update

2017-03-16T11:59:00.000-04:00

Updating a previous post:

This chart compares actual PCE price index against the FOMC inflation target, first announced January 2012. As can be seen, inflation has fallen far short of the target in every year except 2016 where it was only slight below target. Further, based on the median forecast from the March 2017, the committee doesn't expect to reach the target in the next two years.

The FOMC inflation target is a farce. Despite massive intervention, they have not been able to stoke inflation (thus replicating the Japanese experience.) Even the 2016 inflation rebound was due to OPEC temporarily cutting oil production, an event that is unlikely to be repeated. It is only a matter of time before the weight of debt causing another deflationary wave.

Inflation update

2017-01-28T12:54:00.002-05:00

Updating our chart of inflation tracking with the latest GDP data release, reflecting the advance estimate for the fourth quarter of 2016. The average growth of nominal GDP since 2009 is still below 3%, though the year over year growth of 3.5% in the fourth quarter is the hottest pace for all of 2016. Still, it is a far cry from the 5-7% growth rates of the "Great Moderation".

Inflation stabilization using minimum wage COLA

2016-09-05T13:32:00.000-04:00

As should be clear to most people, monetary policy by itself can not always control inflation. The Bank of Japan is expected to push back the date for its 2% inflation target at the next meeting. While some say that the central bank can do more, it's not clear that more action would be any more effective in moving the inflation rate.

Another approach is to use regulatory policy to assist monetary policy to stabilize the inflation rate. One possibility is to use adjustment of the minimum wage to drive wages (and hopefully inflation) towards the inflation target.

The basic idea is that the minimum wage is adjusted annually, effectively a cost of living adjustment, but not simply by the amount of inflation. Instead the annual adjustment is calculated by a formula. First, take the central bank's inflation target (2% in the case of BOJ and the FOMC). Double it. (giving 4%.) Now subtract the latest inflation number (So if inflation is 2.5%, the result would be 1.5%. If inflation is 1.5% instead, then the result would be 2.5%). Now take 90% of the result. (This allows some wiggle room for lags and relative price adjustment.) Increase the minimum wage by the result of the calculation.

The effect of the formula is to speed the increase in the minimum wage when inflation is below target and to slow the increase when inflation is above target. This should automatically stabilize inflation since minimum wage workers tend to spend their entire income and other wages will reflect the increases in the minimum wage.

Note that while the government enforces the minimum wage and can change its level according to political considerations, the central bank sets the inflation target. Any increase in the minimum wage would result in slower adjustments to the extent that the higher minimum wage increased inflation. Over time the minimum wage would find the level consistent with the inflation target.

The same formula could be used with nominal GDP instead of inflation, for those of that persuasion.

Price Drift Update

2016-06-16T10:27:00.000-04:00

This chart illustrates the difference between inflation targeting and price level targeting. In January 2012, the FOMC adopted a 2.0% inflation target. The chart shows the PCE price index (PCEPI), the Fed's preferred measure of inflation, in blue as well as the path the price index would take if inflation were to match the Federal Reserves announced target (in red.)

A business person planning an investment that pays off in five years might make his decision based on where the price level would be in 2017. Among other decisions, he would base the amount of the investment funded by equity and the amount funded by debt.

The chart shows the actual path of the price index since that announcement. In addition, it shows the target path in January 2013, 2014, 2015 and 2016, all based on the value of the price index at that time and the announced 2.0% inflation target.

Advant Guard

Risk and the Entrepreneur

Why Risk Functions as a Moat

The Two Faces of Risk

War and the Perspective of History

Memories of 2007.

The "Slow then Sudden" Mechanism

The Re-Linkage to the Banking System

Shortened Memory and the "Panic Pivot"

Visualizing the Schwarzschild transform.

Schwarzschild Mapping Diagram

Gemini said

Schwarzschild Mapping Diagram

Mapping Details and Logic

Summary of Features

Tracking the divergence

Tracking the divergence: The Buffet Indicator

1. The Ratio as a Cycle Tension Gauge

n a balanced economy, the two cycles should grow in roughly the same proportion. When the ratio deviates significantly, it signals that the cycles have decoupled.

2. Why the Indicator Stays High (The Passive Anchor)

3. The "Decumulation" Threat to the Ratio

4. The Political Fallout of a Falling Ratio

A Secular Bear Market: the Battle between Hype and Reality.

1. The "Conditioned Response" vs. The "Structural Drain"

2. The Anatomy of a "Fading Rally"

3. The Shift in "Relative Value"

The "Snap" That Finally Sticks

Policy Trap

1. The Death of the "Fed Put"

2. The Japan Comparison: A Warning of "Pushing on a String"

3. The "Inflation Guardrail"

4. The 1929 Parallel

A Tale of Two Bubbles

1. The 2008 Bubble: A "Horizontal" Failure

2. The 2026 Bubble: A "Vertical" Capture

3. The Current "Snap" in 2026

4. The Demographic "Inverse"

Summary of the Two Bubbles

Nominal GDP-Linked Preferred Stock

Stability in Growth: Introducing Nominal GDP-Linked Preferred Stock

How It Works

Why It Matters

Savings and Japan model

The Math of Inefficiency

The Japanese Life Cycle: From Factories to "The Bubble"

The Hidden Cost: Financial Repression

Chinese Money Supply and PPI

The Capital Flow Breakdown

The Transmission to the Real Economy

Summary Table: PPI Changes (Year-over-Year, Dec 2025)

The Copper and Steel Divergence

The "Money Supply" Lag

Two Cycle Economic Model

1. The Production/Consumption Cycle (The "Real" Economy)

2. The Financing Cycle (The "Asset" Economy)

The Regulatory Policy and Zeitgeist

The "Drain" Problem

1. The Accumulation Phase: The "Great Drain" (1980–2020)

2. The Retirement Phase: The "Reverse Flow" (2025–2045)

3. The "Inheritance" Wildcard

Summary of the Cycle Reversal

The Conflict of Interest

How Vested Interests Slow the Shift

The New Zeitgeist: "Securitized Production"

Schwarzschild coordinate transform

Inflation stories

World War III

Serendipity

Hyperbolic Cosmology Pt.2

Price Drift Update

Hyperbolic Cosmology pt. 1

Special Relativity: Constant Acceleration

Problem

Question 1

Newtonian calculation

Using Addition of Velocity (not recommended)

Using Hyperbolic Velocity Transform

Question 2

Newtonian calculation

Using Addition of Velocity