The Recession is Over, Or is it, – The Domino Effect


Image result for The Domino EffectAfter we have defined economy as a multidimensional irregular lattice, we can now apply other principles and see if the theory works correctly.
What about fractals, This is simple, number of connections (dependencies) for every node is defined by the principle of importance, as I stated before, if the less important connections are taken into account, then number of dimensions would be too high to make any practical use of the model. But what is “importance”, Well, if some sort of a connection is negligible for a large corporate entity, the same connection could be important for the individual. For example, if I buy my daily paper from a particular newsagent every day, then for me it is a viable connection, but in the eyes of global economy it could be easily ignored. Therefore if we “magnify” the connections we would see that every level or node of our lattice has exactly the same connection structure as, for example, connection of major manufacturer to the printing company is an equivalent to our connection to the newsagent. The only thing, this level of magnification does not allow us to get analytics in place. But after applying the magnification we can see that from the top nodes to bottom nodes the system repeats itself both globally and locally. This is exactly how the fractals are working – magnifications should show virtually same structure. And this carries another predefinition – if system somehow changes it’s shape then all levels are changing their shapes (take a note of this important statement!).
But it should be a difference between nodes and there is a difference. Supernodes are holding the most of the connections we are considering in our model and therefore supernodes should be followed very closely. But at the same time supernodes are equally dependent from ordinary nodes, as if the majority of ordinary nodes change their “shape” it will eventually bring the equal change to a supernode, based on our fractal approximation.
Now few words about domino effect (or principle), I think everyone have seen the show when structures are built out of domino and the when a single piece is dropped the whole figure is starting to fall down. Exactly the same principle could be applied to our nodes, if one of them is dropped the ripples are starting to move across the whole lattice dropping more and more nodes from all levels.
It might now sound strange, but this reaction could be started by virtually any node (butterfly effect) but with the higher probability for supernodes. When connections are broken then the system is not disintegrating, it is simply moving into new state with new (maybe lesser) connections until next configuration is stabilised. When any level stabilises the new configuration, fractal model simply moves the remaining chaotic layers into the same type of configuration until the entire lattice is stable again.
Now you can easily apply this theory to what happened two years ago. The overpriced property market (and as a result, derivatives, guilty of making supernodes even more super) went through the stage where further value increase was impossible, but was still required by multiplying connections (derivatives) spread through the supernodes.
At first the lower level nodes started to drop and cut economical connections or show inability to create the same number of connections as required by the fractal similarity (people unable to get on the property ladder – no connection, unable to pay for the greatly overpriced properties – broken connection, etc.) And because the lower-level nodes started to move, the high level supernodes had no chance to avoid the tendency to get into the same configurations (unable to create new derivatives and unable to pay or receive payments for older ones – very rough approximation). The entire system started to slide into new state with lower equity and lower number of connections.


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