The recession is over… or is it? – What was the way out?
This is the first test of the theory. Based on our structure what was the best decision? The answer is simple, if the current structure needed to be repaired then it should have been repaired at the level where it started to collapse and connections should have been restored in that particular cluster. In practice it means that the government should have interfered at the lower clusters and underwritten the debts not in it’s own cluster but down up to individuals. Why this solution would have worked? Because by pumping funds (take a note, the amount is exactly the same and equals to the toxic debts at any level) into lower clusters it would create a flow into higher clusters that would have restored the vast majority (if not all!) broken connections. In simple words: if I am given 100 pounds I would either spend it (connection restored upwards through retailers and manufacturers) or take it to the bank (connection again restored upwards), simply because I don’t have any other options. Meanwhile if bank gets 100 pounds it doesn’t mean that they will pass it to me because they have other options in their own cluster. This solution we have calculated based on our new economics theory and as you can see the logic behind it is flawless. At the same time our theory also answers the question why such obvious decision hasn’t been taken. And we have explained it in our previous post.
At the same time even this decision was only temporary, because it would have delayed the new configuration instead of going along with the logic of the structure.
Every scientific model should have at least two distinct features: ability to explain and ability to predict. The first ability is already proven in my previous articles. In my next posts I am again going to put these two features (especially the ability to predict) through the most vigorous tests and see how my theory handles predictions.
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