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Tackle Today: Physics & Central Banks

December 5, 2019

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Tackle Today: Physics & Central Banks

« The price of envy. »

As described in yesterday’s article (read it here), the main purpose of Physics is to understand how the Universe behaves by studying the matter, its motion, energy and force, and its behavior through space and time.

Then we have economists. Envious as they are of physicists, they simply do not care about the “obsolete” Austrian School and their “human behavior nonsense”. Simplicity is for Da Vinci and Steve Jobs; they want complexity.

Although there were various statements added by physicists during the centuries, the Second Law of Thermodynamics states, in its simplest form, that an isolated system becomes more complex as more energy is added to it. This is an irreversible course as the arrow of time moves only forward and, as it proceeds and more energy is further added, the more complex and disordered the system becomes. Entropy never decreases over time and the system’s original state is forever lost. In such systems, particles have no “future memory”, so everything in the future is pure conjecture.

Then we have Central Banks with their economists and policymakers. The tools they used—and are still using—to stabilize the world’s economy after the fateful market crash of 2008 added energy and complexity to a system that was already too complex and damaged. 

Because the particles in this system have no “future memory”, we can’t predict what is going to happen. The path that lies ahead is opaque.

More liquidity is added, negative interest rates spread like a disease and long strategies craving for easy money push the market to new highs. The system’s entropy only increases; the original state is forever lost.

The arrow of time and envy move only forward, never back.


Chart of the Day

Total assets of central banks worldwide from 2002 to 2017

Statistic: Total assets of central banks worldwide from 2002 to 2017 (in trillion U.S. dollars) | Statista

This statistic presents the total assets of central banks worldwide from 2002 to 2017. In 2017, the assets of central banks globally amounted to 30.1 trillion U.S. dollars.

Source: statista.com


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