Jul

7

 The lesson of Greece is that there is no solution, beyond inflation. When governments promise benefits more than they can afford, despite the sophistication used, the end has to be inflation. In this case the inflation has been the seen in the exchange rate. Cooperation for Europeans with the US and the world has gotten expensive.

It has been suggested that better cooperation could help. Peter G. suggest that defection is optimal for a one time occurrence of the "prisoners dilemma". But it is not the only time it is optimal. Peter G. is right that the "Tit for Tat" strategy is the "winning strategy" on a form of the prisoners dilemma repeated. But it is not the winning strategy if the outcome and motives are not knows a priori. In such a world the winning strategy evolves. If I do not know the outcome and your motives, a "bad" outcome generally should be forgiven. I should assume you tried your best but it simply was not in your control. If we continue to cooperate the odds will be in our favor long term. This is "generous forgiveness" evolves into "always forgive". Always assuming the other side is not deceiving you have the benefit of lower policing cost. Who wants to read all those agreements "accepting"and software updates for instance. But this quickly brings us back to the defection or survival of the fittest/war or deception strategy. If all accept that there is no need for police/due diligence , or certain agents are above the law or above failure, we are in the "always forgive" strategy. Have we entered into Too Big to Fail era? Are we in Greek national accounting era, the nation's cooperation is assumed, no need for due diligent/accounting can't be questioned? For a good summary of the evolution of cooperation see Martin Nowak, 26:33 minutes.

So the end is near. Lately we saw who the markets are betting on in such a survival of the fittest world, the US. But a 30 year bull bond market must end IF we cannot afford the boomers benefits. Have we entered into a period of where we cannot afford it? Has technologies hedonistic benefits left inflation a thing of the past, for the population as a whole? Rather than predict when the bull bond market will end let me say, that it is simple calculation to find the upper bond of this bull market: A 10 year bond today is at 2.28 % yield, if rates were to go to zero for all 10 years of the curve the gain would be 10 years x 2.28 % = 28 % yield. The 30 year is at 3.07 % so 3.07 X 30 year = 92.1 %. The end is near.


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