Tuesday, January 26, 2016

The Future is Blivets

[Die Zukunft heißt Blivet]
[Il futuro è nel Blivet]
[L’avenir est aux blivets]
[先物取引はブリヴェットなり]

If you have been paying attention, you may have noticed that the global financial markets are currently in meltdown mode. Apparently, the world has hit diminishing returns on making stuff. There is simply too much of everything, be it oil wells, container ships, skyscrapers, cars or houses. Because of this, the world has also hit diminishing returns on borrowing money to build and sell more stuff, because the stuff we build doesn't sell. And because it doesn't sell, the price of stuff that's already been made keeps going down, lowering its value as loan collateral and making the problem worse.

One solution that's been proposed is to convert from a products economy to a services economy. For instance, instead of making widgets, everybody gives each other backrubs. This works great in theory. The backrub industry doesn't generate an ever-expanding inventory of backrubs that then have to be unloaded. But there are some problems with this plan. The first problem is that too few people have enough money saved up to spend on backrubs, so they would have to get the backrubs on credit. Another problem is that, unlike a widget, a backrub is not a productive asset, and doesn't help you pay off the money you had to borrow to pay for the backrub. Lastly, a backrub, once you have received it, isn't worth very much. You can't auction it off, and you can't use it as collateral for a loan.

These are big problems, and one proposed solution is to create good, well-paying jobs that put money in people's pockets—money that they can then spent on backrubs. This is best done by investing in productivity improvements: send people to school, invest in high tech and so on. It's an intuitively obvious idea: productive workers are easier to employ than unproductive workers, because the stuff they make ends up cheaper, and people can afford to buy more of it. Whether they do buy more of it is debatable, especially if there is more than enough of it already and nobody has any extra money saved. Still, the theory makes sense.

But this theory doesn't seem to be working all that well: no matter how much money we put into automation—robotic assembly lines, internet-based virtualization, what have you—the number of unemployed workers isn't going down at all. And it's even worse with driverless cars. In theory, they are great: if the driver doesn't have to do the driving, then she can spend the time giving her passengers backrubs. But no matter how much money we throw at driverless cars, the number of unemplyed drivers, or unemployed massage therapists, isn't going down.

But even if we give up on trying to stimulate demand through job creation and just let everyone starve, we can still put our faith in rich people. There are people who are as rich as entire countries! Surely they can spend and consume on everyone else's behalf, and make the economy boom. But it turns out that it's very hard for just one person to consume as much as an entire country. To make that happen, it's necessary to pay people to consume on one's behalf. But if other people can spend your money just like you, then that defeats the purpose of being wealthier than everyone else, and all that hard work of swindling people and of gaming the markets would turn out to have been in vain.

* * *


But here is a solution that is so stunningly simple and elegant that somebody must have thought of it already. Alas, make a note: I am the first!


A Blivet

The solution is this: sell everything and go long blivets. Blivets are geometrically impossible objects: they can be drawn, but, by their nature, they cannot be manufactured. This solves a major problem with the futures markets, which is that people can actually take delivery of their futures contracts. This means that the stuff being speculated on actually has to exist. And this means that what some people have the audacity to call “the real economy” actually has to exist. What a nuisance!

For example, the gold futures market trades 300 times more gold than physically exists. [Update: the number just went up to 542.] This means that if just 0.3% [Update: 0.18%] of futures contracts resulted in deliveries, the vaults would be empty and there would be nothing to trade. The horrible thing is, unreasonable people, who take delivery of their gold, do exist: the Chinese, the Russians and various other nations with cash on hand or US Treasuries to liquidate keep doing this. Promoting “regime change” and looting various countries' gold reserves helps a bit (Iraq, Libya and Ukraine have been looted already; Syria should have been looted by now if it weren't for those pesky Russians!). But the eventual outcome of all this is force majeur: somebody wants to take delivery, but the vaults are empty.


Source: Zerohedge

A similar problem exists with the biggest futures market in the world: in crude oil. Here, traders have been having a merry old time taking advantage of a notional glut, driving the price of crude lower and lower. They could drive it as low as $1 a barrel, but then what? The problem is, nobody on earth can produce oil that cheaply, and so a day will come when somebody will demand delivery on their $1/bbl crude contract, and the only response will be an echo, as tumbleweeds blow across the abandoned oil fields.

You should have guessed the moral of the story by now: if you are going to “ephemeralize” the entire economy—the workers/consumers along with their productive capacity—you better switch to trading in things that are ephemeral too, or you'll risk a market implosion, deflation, deleveraging and financial collapse followed by poltitical, commercial, social and cultural collapse in four-part cacophony with many screaming refrains and a shrieking, tumultous coda. I am not kidding. I wrote the book on that.

This is where blivets would be such a great help. A blivet is by definition a “paper blivet” because a “physical blivet” is a physical impossibility. If you demanded physical delivery of your blivets, people would simply laugh at you, twirl their fingers around their temples and roll their eyes. That would be cra-cra, like demanding your rights under the US constitution, or pretending that climate change is a conspiracy theory.

Blivets are composed of the purest financial ether—even more ethereal than Bitcoins (those long strings of magical digits that get their value from an algorithm, a block chain, and a “coolness factor”). Bitcoins are ethereal too, but they have to be physically mined by burning lots of electricity in running big computer farms, and this causes a big problem: Bitcoins are scarce.

Now, some people claim that scarcity is what gives things value, but that's clearly nonsense. Look at the US dollar: the number of dollars has been expanding out of all proportion to the growth of the US economy, but has there been any hyperinflation? Of course not! The problem isn't with printing money; the problem is with giving it to regular people, who don't know that they should only invest it in blivets. Instead, they do economically destructive things—like buying food for their children and heating their houses during winter. That's what causes hyperinflation, not the money-printing! There are only two potential problems with money-printing: not printing enough money, and not printing it fast enough.

There are still a couple of problems with my proposed blivetization of the global economy, but these too can be solved by dint of financial innovation.

First, there is the problem of the blivet futures market potentially going down instead of up. We don't like it when markets go down; so how do we prevent that from ever happening? Here's an idea: introduce the so-called Schrödinger's Blivet: if you are short blivets, then, when your contract expires, the clearing house may demand that you deliver on it, in which case a simple rule applies: based on a flip of a coin, it is determined whether your blivets exist or not. This requires those who are shorting blivets to maintain a rather large reserve, and would make them a lot less interested in wrecking the market. Because of this, blivet prices may stagnate sometimes, but over time they should go up monotonically.

Second, there is the problem of where to get additional capital to sink into blivets. You've liquidated all your other holdings, you are long blivets, but how is the blivet market supposed to expand? If it doesn't expand, then that means a lack of growth, and we don't like it when there isn't growth. With all other productive capacities idled and no wealth generation occurring outside the blivet market, where is that new investment capital going to come from? Here's an idea: it's called Auto-Rehypothecation. Whenever you pledge blivets as collateral for a loan (which you invest in blivets, of course) the loan itself automatically becomes available to be used as collateral for another loan.

Thanks to these financial innovations, blivet valuations should go through the roof in no time, and keep going. In fact, they may go up so high that it may become necessary to start quoting blivets in scientific notation instead of simple decimals. Eventually it may even make sense to drop the mantissa and just quote the exponent. Why, with all physical constraints removed, the number of blivets being traded will be set free to exceed the number of atoms in the observable universe!

Problem solved! I'll take 1082 blivets, please!

31 comments :

Unknown said...

Brilliant!

Ravi Uppal said...

Knock Out .

Rhisiart Gwilym said...

A four-LOL post! :0)

R.J.Cavazos said...

Brilliant! A great analogy for the completely abstract worlds of economics and politics! Forget Potemkin Village--we have Blivet economics and politics! Great in paper and theory but an actually willo wisp....

Rob Rhodes said...

I'm going to get a step ahead on this and invest big in M.C. Escher buildings. Everybody knows the real Bitcoin is in real estate.

Sparks McCoy said...

Hilarious. If only David Bowie was still alive, he was strolling through a blivet fortune in the Labyrinth like a weird, glam rock scrooge Mcduck.

Michael Rynn said...

I noticed there is no possibility of economic growth for investment in reserves of depleting resources. Also the arable soil and reliable water possibilities are very much all bought up, and we are forcing ourselves to destroy the last remnants of native ecosystems, for want of something new to exploit. Money itself is becoming the equivalent of bhlivets. Having a war and getting all cities and infrastructure obliterated appears the only possible way to make room for more economic growth. At least backrubs / massage appear to do the least harm. They might distract from the necessity of local warfare and a fast population short during the collapse.

Alex said...

The theory that the Evil Empire is doing these idiotic "regime changes" to loot gold is an interesting one because it makes sense.

onething said...

"Whenever you pledge blivets as collateral for a loan (which you invest in blivets, of course) the loan itself automatically becomes available to be used as collateral for another loan."

I like it! An idea whose time has come.

D. George said...

A fantastic way to get rid of the Masters of the Universe, who can trade blivets intergalactically while the human race goes back to farming, making stuff, playing dressup (for the girls) and having parties.

marxmarv said...

Which means the defining national product of the USA will be a blivet E. (Read it aloud.)

Ien in the Kootenays said...

One of the best posts ever. Priceless.

Unknown said...

Fiat money or blivets. I can't see how the ruling CIA/Mossad party would be bothered. Because remember: blivets too, are property of the state. Trespassing the opaque and arcane blivets rules & regulations is considered anti-blivetic behavior, i.e. treason, and punishable by law.

_smr

Brian Davey said...

I think you have earned a Nobel Prize in economics with this.

Bryan Hemming said...

Of course, the blivet is a marvellous idea, but cannot work in a local seige economy, where barter can often be the last resort. Obviously, in an economy involving goods, such as food, which can either perish or get eaten, has to depend as much on honesty and goodwill as much as anything else. After all, in a financial system where evidence of businesemen taking a real haircut disappears within weeks, trust can evaporate just as quickly.

But there is a way of tackling this problem, as shown by the fragile economy a small mountain village in Andalusia developed in The Little Pueblo Franco Forgot. Unfortunately, it has a very sad ending:

https://olafmosely.wordpress.com/2014/05/23/the-little-pueblo-franco-forgot/

jiri said...

Produce. consume. produce. consume.

So simple, and yet made so complex.

Current levels of productivity are high enough that 1 billion people working full time can produce enough for everyone on the planet.

It will be interesting to see if the powers that be can get out of their intellectual straightjacket to find a solution.

sv koho said...

Dimitri I agree with you sometimes and sometimes not but I never ignore you or miss your writing which sometimes is exceedingly clear and perspicacious. This time you knocked it outta da park. This post gets saved in my special folder of brilliant posts and I may even have to have it converted into a clay tablet so it can last for millennia!

Fred Mispel said...

Move over Janet!

Mister Roboto said...

That's really it in a nutshell: The global economy depends on growth, and we've grown as much as we can, so all that's left for the rentier-class is trading pieces of paper increasingly abstracted from the real economy.

Dammerung said...

Stop giving people ideas!!

Philip Kienholz said...

But, but, but -- sputtering like Scrooge McDuck awakening from a dream of counting chocolate Easter eggs into a la la land of even less reality -- how could wealth be counted? Would there even be wealth? How could one be distinguished from all the rest? Would we need to accept interdependence? Non-duality? The absurdity of a natural wolrld indistinguishable from me? I insist on retreating back to my gooey dream where I need have no part of this blivetizized globule you propose, with its nevertheless humorous aridity.

Nathan said...

Dmitry, this essay should be Dr Seussed into the second act of The Lorax. Once the final Truffela Tree has been chopped to make the final Thneed, the Once-ler moves onto Blivets. Nobody needs a Thneed! It's Blivets that rivets us now...

Unknown said...

I'm confused. In what way would blivets be meaningfully different than tech stocks?

Harsh Navani said...

Nice

Unknown said...

Brilliant! what most Americans lack, from their TV-lined jails/debt structures - perspective.

Christopher Browning said...

Jesus. That made an awful kind of sense the first time through. That's why I'm reading it again.

jeremy said...

Your idea of using Schroedinger gave me an idea: Blivets should be sold in units of i which is the square root of -1. I'm looking forward to the consequences of this, such as Blivet entanglement, etc. Staring at a Blivet is like collapsing the wave function where you see either two or three tines, and Blivets with more tines are certainly a possibility, the 2 tine one representing a ground state with creation and destruction operators operating on higher order Blivets. Even a financial field theory could be brought to bear on this, leading to Blivet cyclotrons. A whole new financial world awaits us!

RML said...

Heard rumor that there is an infinite number of blivits on
Mars. You can see them via the photo-enhanced Rover pics.
They're like everywhere.

The latest quantum physics' models indicate an abbondanza of trans-dimensional blivits...like out to the 12th dimension
and stuff.

And this idea in CH bringing to vote to "give" every citizen a
base living of $2500 (dollars or franks?) per month. When
this reaches the good 'ol US of A, of course it will be
doubled, but there will be the proviso that every penny of it
will have to spent -- no hording. And, best of all, at least
half will have to be invested in (long) blivits.

In irons no longer, the on-shore breeze is picking
up...wafting that lovely fragrance of over-the-horizon
blizits just waiting for the taking.

Fair winds to you, sir.

Christopher Browning said...

The only hoarding going on here is rice, pasta & beans, buddy.

elementalwolfess said...

I've got billions in ethereal bitcoin dollars and want to invest ALL of it in your blivets -- please contact me to set up a time when I can turn over my ethereal bitcoin dollars in trade for your ingenious blivets! Thank you!

Qoheleth said...

And what, Mr. Keynes, do you propose we do when some clear-thinking investor cuts three ovals and a trapezoid out of cardboard, connects them with wires in the fashion shown in the picture, presents the resulting blivet at his local futures house, and demands delivery of ten sexvigintillion more just like it?