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This website is an independent online research project of Michio Suginoo, CFA.
It does not represent any corporate entity.

Themes

My intent in creating this website is threefold:
  • to put the evolution of our contemporary political economy into a historical context;
  • to analyze the paradoxical mechanisms embedded in human economic enterprises;
  • to study how unfolding innovations transform our contemporary socio-economic landscape.
In other words, it is an attempt of Applied History and Contemporary Analysis with an intense focus on Paradox.

For my first intent, I find it imperative to incorporate long-term (secular and/or supra-secular) cycle perspectives into our thinking. (here, “cycle” refers to a recurrent, pendulum-like rhythm that is irregular in both time and amplitude scales.) The business cycle provides us with a meaningful framework to capture recurrent economic rhythms within a stable economic, political, and social paradigm. Nevertheless, such a paradigm is not an eternal set of conditions: it keeps transforming. Heraclitus’ analogy—“we cannot step in the same river twice since the water is in constant flow, nevertheless we identify it as the same river”—reminds us that a paradigm is a process in a constant state of flux. Toward the end of a given paradigm, the business cycle starts breaking down. Its breakdown foreshadows a paradigm shift. In order to capture paradigm shifts, we would need a broader/longer synoptic framework, secular cycles—debt cycle, bond yield cycle, monetary policy cycle, monetary regime cycle, innovation cycle, etc—than business cycle.

In order to illustrate my second intent, I would like to mention Hyman Minsky, an American economist in the last century. Minsky encapsulated the paradoxical dynamism of a debt fueled bubble cycle in his emblematic phrase: “stability is destabilizing”. In this phrase, he reflected that the very cause of bubble, excess leverage, is built-up during a prolonged period of stability: a persistent low risk perception incubates the very risk of instability in an endogenous manner.

Overall, needless to say, the future does not exist in the past, although the past can tell us what may be repeated in the future. In addition, uncertainty is deeply embedded in the very architecture of reality, as German physicist Werner Karl Heisenberg elucidated in the world of quantum physics; in the world of economics, so did John Maynard Keynes.

It would be imperative for us to understand the evolution of our political economy through three dynamics: recurrences, evolution and uncertainties.

I hope that you enjoy my contents.

Thank you very much.

Michio Suginoo,
CFA Charter-holder (Credential: https://basno.com/qsouz72l)

Footnote about Innovation:

Innovation could play a brittle double edged sword (with negative as well as positive edges) in unfolding the course of our civilization. Human collective behaviors are vulnerable to falling prey to own self-delusion. We, collectively as a society, often recklessly pursue benefits of innovations, while blind-holding ourselves to ignore risks embedded within the very architectures of innovations that we adopt.

Although the innovation itself can be only neutral, what evils innovation enables human to commit are very important ethical agendas. Importantly, it is human, the user of innovation, that can determine the fate of innovation, thus, the fate of our civilization. (Say a knife is an innovation. While a mother can use a knife to prepare foods to feed her family she loves, a mad man can use the very same thing to murder his neighbors. It is not the knife, but human behaviors, which determines the fate of both.) 

Thus, an essential question is "What do we want to achieve with innovation?". We need to reflect Aristotelian teleological pursuit in answering that question. In practice, it would be imperative to promote Aristotelian phronesis to pursue ethical practical wisdoms in our development and use of innovation. 

2025

Paradigm Shift of Intelligence: Towards “Organic Intelligence (OI)"  beyond AI

What is the next paradigm of Intelligence?

​Here is a notion that ‘nature’ is a super-intelligent system, which can identify problems and optimize solutions by itself within in order to sustain itself.
Is 'super-intelligence of nature', or call it "Organic Intelligence (OI)", more intelligent than human intelligence and AI. 

Beyond AI, is "Organic Intelligence (OI)" the next paradigm of higher intelligence that we should explore?

2023

LinkedIn Articles

Proposal for AI based Monetary System of the Future: Beyond Myth of the Gold Standard and Bitcoin & Failure of Contemporary Monetary Policy

A desirable monetary system has to meet a certain set of necessary conditions. Apart from satisfying other necessary conditions of money such as a medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment, it has to be ELASTIC and SCALABLE.

Elastic currency is a currency that can expand and contract flexibly according to given prevailing economic conditions. For example, when the monetary system needs to increase its liquidity during systemic economic distresses, a desirable monetary system needs to be able to expand its liquidity flexibly. Of course, it also needs to be able to contract in times of economic Euphoria.

Scalable currency is a currency that can scale (up-scale and down-scale) its supply in proportion to changes in the real demand for money (e.g.: due to real economic expansion).

The gold standard failed to devise elasticity and scalability within its prototype architecture. Thus, when it needed those features, it compromised its own principles and degraded into oblivion.

When we see the current monetary system in advanced economies as a by-product of historical evolution of monetary system, it has made a reasonably successful advancement in engineering elastic and scalable currencies.

Nevertheless, elasticity and scalability are merely necessary conditions for a sound monetary system to serve the highly interconnected complex global economies. Despite with necessary conditions satisfied, our contemporary monetary system is not meeting sufficient conditions to be a sound monetary system. As a matter of fact, it is failing since monetary authorities miserably failed to conduct sound monetary policy decision-making in managing elastic and scalable currency that they had engineered.

In other words, the primary problem of our contemporary monetary system is not elastic and scalable currency itself, but rather the human limitations in managing it.

As a pragmatic solution, I propose Causal AI based Data-driven Monetary Decision-Making System (CAI-DDMDMS) to minimize (if not eliminate) human involvement in decision-making and enhance the transparency and the integrity in the conduct of managing the elastic monetary system.
Go to the article. Proposal for AI based Monetary System of the Future: Beyond Myth of the Gold Standard and Bitcoin & Failure of Contemporary Monetary Policy

Sub-contents

Postmortem Business Model Analysis of Twitter1.0 (before acquisition): a case study of a failed digital platform model

Digital platform business emerged in the age of big data and transformed the landscape of scalable business models. It is one of new phenomena in the new industrial revolution.

A successful digital platform has to have a business model design that generates two types of economies of scale: supply-side economies of scale and demand-side economies of scale.

Supply side economies of scale are all about designing a low-cost producer, thus, production efficiencies. They are driven by low marginal cost of production, ideally zero, simply because it leads to a decreasing average cost of production as the production volume rises.

Demand-side economies of scale are about scaling demand through positive network-effects at the customer side. In other words, they are “driven by efficiencies in social networks, demand aggregation, app development and other phenomena that make bigger network more valuable to their users”. (Parker, Van Alst, Choudary , & Van Alstyne, 2016)

It sounds very simple and easy. In reality, however, it is very difficult to design a successful digital platform business model.

Twitter before the acquisition by Elon Musk miserably failed to attain these two desirable features of a successful digital platform business model—namely supply-side economies of scale and demand-side economies of scale. As a result, it registered negative operating net income for 2 years, 2020 & 2021.

This blog is a post-mortem analysis of the business model of the historical Twitter before the acquisition. And it intends to identify what went wrong with the historical Twitter based only on the information available in the public domain and contemplate their potential solutions.

I hope that this analysis serves as a rough guide to navigate the readers in assessing the way Elon Musk is re-designing and re-engineering the business model of Twitter today. Needless to say, Elon Musk is an intelligent business man. Nevertheless, he is not perfect.

Read this article at LinkedIn: https://www.linkedin.com/pulse/postmortem-business-model-analysis-twitter10-before-suginoo-cfa/?trackingId=TD5dk3zod7B28vC98GzKWA%3D%3D

2022

Article at Towards Data Science

I contributed the following 4 articles at Towards Data Science.

Risk Implications of Excessive Multiple Local Minima during Hyperparameter Tuning

Model selection is an important process in the model development domain of Machine Learning applications. Risks of overfitting and underfitting need to be addressed using hyperparameter tuning. 
 ​
This blog questions our epistemological limitation during model selection process in ML development domain and the risk of model instability because of the epistemological limitation. 

This is a highly technical reading at Towards Data Science. 

Native XGBoost API

I contributed two articles regarding XGBoost algorithm.
  1. XGBoost: its Genealogy, its Architectural Features, and its Innovation: Introductory Overview of XGBoost algorithm.
  2. ​​Pair-Wise Hyperparameter Tuning with the Native XGBoost API​: This article demonstrates how to implement hyperparameter tuning for the native XGBoost API. And the result of the implementation is further discussed in another article:  Risk Implications of Excessive Multiple Local Minima during Hyperparameter Tuning

ESG in the context of Data Science

All You Can Game Buffet: Model Risks in the Climate-Related Physical Risks

Climate risks are difficult to model, thus, vulnerable to model risks.  Unfortunately, without a solid standard on climate risk models, climate models are subject to abuses for discretionary manipulations (political or/and business). It could increase the risk of GREENWASH.

Any model has its inherent limitations embedded on its own architecture. Therefore, it is imperative for us to understand those inherent limitations of a model in use and the limited implications of its outputs.

I hope that this post serves a basis for checklist for those involved in the production and the use of a model to assess the climate-related physical risks.

Read this article at Towards Data Science: ​https://towardsdatascience.com/all-you-can-game-buffet-model-risks-in-the-climate-related-physical-risks-8445d5f96c18

2021

In search for Elastic Currency and Scalability
Historical Lessons for the Future of Money:
Limited Gold Supply was a Perennial Problem for the Gold Standard.

Advocates of the gold standard often regard limited supply of gold as one of the primary merits of the system, an effective check on inflation. In the same analogy, many Bitcoin enthusiasts boast the upper limit of its supply as a merit of the system and often portray Bitcoin as an ideal money of the future.

​This essay intends to challenge the notion as misapprehension, articulating that limited gold supply was a perennial problem throughout history of the gold standard for a different reason, lack of liquidity/scalability. When the system needed to expand liquidity, it either failed to do so or fundamentally impaired its adjustment mechanism by allowing governments to resort to liquidity substitutes through other means. In hindsight, it is ironic to see that it was inflation what imploded from within the Bretton Woods System, arguably the last generation of the gold standard. The gold standard was materially compromised and no longer possessed its emblematic ability, check on inflation, at the end of its life in 1971.

In brief, apart from three basic functions of money—unit of account, medium of exchange, and store of value--elastic money and adequate liquidity-scalability proportionate to the global economy are two necessary conditions for the future of money. And neither the gold standard nor Bitcoin possess them. Click here.

2019

Economic Catastrophe and Monetary Big Bang: a quick look at the genealogy of Contemporary Monetary System and its impasse

In some cases in history, economic catastrophes caused tectonic paradigm shifts in monetary regime. When that happens, an economic catastrophe in one generation could determine the system design of the monetary regime of the next generation in one way or another. In other words, in such a case, the new monetary system is designed to cope with the economic problems that have infested the previous generation.

As an example, the current monetary regime—fiat money system that is managed by the central banks' price-stability oriented monetary policy—came into being out of the hyperinflation of 1970s. It has an intense focus on the stability of inflation. It is an irony that it is struggling to cope with the deflationary environment of the post financial crisis of 2007/2008. Is the current problems foreshadowing the elements of the next generation of monetary regime?

This article will have a quick look at the genealogy of the current monetary regime. Click here.

A Call for A New Monetary Regime:
Liberation from Zero Lower Boundary

Zero lower boundary has been already breached in the sphere of monetary policy in some countries: e.g. Denmark, Japan, Sweden, Switzerland, and the eurozone (Martin & Wigglesworth, 2019). And the blackhole of negative interest rates has been expanding beyond policy rates targeted on reserves held by commercial banks at central banks. It has already penetrated both deposit and lending rates in the private sector. How far can the convention of zero lower boundary be breached?

Cash excruciates central bankers under negative interest rate regime. Its physical and non-interest-bearing features create the asymmetric architecture of our contemporary monetary reality. While central bankers could raise interest rates as high as they wish in their efforts to contain inflation, they face zero lower boundary (ZLB) in their battle with deflation.

There are two solutions at least to liberate central bankers from ZLB: Central Bank Digital Currency and Two-tier systems. You can find it out more here.

New Series

Zeitgeist Zero Hour

If democracy were the mother of liberty and equality, toward the end of her life, she would conceive in her matrix (uterus) the foetus of tyranny, demagogues, to ultimately defeat herself. Tyranny—the regime of fierce terror—would be the direct offspring of the most cherished regime of freedom, democracy.

This is an illustrative summary of the terminal symptom of democracy diagnosed by pre-eminent intellects in antiquity—Socrates, Plato, and Polybius—about 23 to 25 centuries ago. In more plain words, democracy is doomed to degenerate into either tyranny or ochlocracy (mob rule); and the rise of demagogues is an omen for the paradigm shift.

Behind their argument, three primary factors—moral depravation, personal pursuit for wealth, and use of violence—play a significant role in impairing the rule of law, further, ultimately in driving a paradigm shift in constitutional foundation.

Ancient intellects in general had a propensity to interpret wealth in moral term. Simply put, personal pursuit of wealth (money) could corrupt individuals, thus, impair the moral conduct among people, and ultimately, with use of violence, ruin the entire social construct, particularly its constitutional arrangement.

Thus, it provokes collective behavioural change of a society, destroys a given constitutional foundation, and triggers a paradigm shift in political, economic, and moral order.

Especially, Socrates, Plato and Polybius perceived such a series of chain reactions as a part of the process of a super-structure, call it 'constitutional cycle'.

Motive

The primary objective of this writing project is to expose the readers to historical perspective of democracy and encourage them to contemplate the followings:
  • Our past: How we arrived to our current political, economic, and moral order
  • Our present: Implications of our contemporary political, social, and economic developments from historical view
  • Our future: What may occur in the future with references to historical knowledge as a guide
  • Reflection: What we might be able to do in order to preserve our democracy

Simply put, it is an attempt of Applied History—an application of examined historical knowledge to analyse our contemporary issues as a state of flux.

This project does not intend to propose any definite answer. Instead, it intends to provide the readers with organised informational materials that would encourage them to proactively contemplate their moral judgement and conduct in their daily life.

What to cover:

With this motive, the proposed research project intends to explore moral, political, and economic implications of our highly monetised contemporary democratic world through historical comparisons with relevant experiences from Greco-Roman world to the age of Modernity. It explores three spheres below:
  1. Theoretical perspective shaped by intellects from the past—e.g. Socrates, Plato, Aristotle, Polybius, the three founding-fathers of US, and Alexis de Tocqueville
  2. Empirical perspective based on historical experiences from Greco-Roman world to the age of Modernity
  3. Reflections of these two perspectives on our modern and contemporary reality

In economic term, these intellectual giants in antiquity remind us that economy has never operated independently from politics and morality of our society. Simply put, a better understanding of the course of political development and moral transformation would be critical in analysing changes in our economic reality; and vice versa. In this context, in economic term, the project treats ‘money’ as ‘non-neutral.’ That is to say, over a long scale of time, money would transform ‘real economic reality’ organically interacting with political, and moral reality: ‘money’ is not ‘neutral.’

This project will be divided into several stages. For 2019, this project conducts its first stage to:
  1. have an overview of theoretical views of prominent intellects in antiquity,
  2. do ‘reality check’ of their views against Greco-Roman historical experiences,
  3. identify the shortcomings of the theoretical views and explore possible applications of their thoughts with some modifications and adjustment.

Then, at its second stage, we move on to the age of Modernity—the period roughly specified between the time of Machiavelli (1469-1527) and the time of Martin Heidegger (1889-1976)—and reflect my findings from the Greco-Roman world to this epoch.

Thereafter, I would like to reflect those findings on our highly-monetised contemporary democratic reality.

Now, the links in the Title and Images below take you to my draft writings on the first phase. New contents are added on piecemeal basis.

Zeitgeist Zero Hour:
Return of Tyranny

Intellects in antiquity, Socrates, Plato and Polybius, diagnosed terminal symptoms of democracy: democracy is doomed to degenerate into either tyranny or ochlocracy (mob rule); and the rise of demagogues is an omen for the paradigm shift.

Does this notion, especially rise of demagogues, cast a parallel to our contemporary political reality? Is our contemporary reality experiencing a recurrence of Zeitgeist (the spirit of epoch) in our own context?

If our reality is a by-product of three forces—recurrence, evolution, and endogenous dynamic—can we EVOLVE out of a vicious cycle?

This series, ‘Zeitgeist, Zero Hour,’ is a partial summary preview, or ‘synopsis’ if you like, of my forthcoming ‘self-publishing’ project. To view its first content, please click: "Zeitgeist, Zero Hour: Return of Tyranny.

Zeitgeist Zero Hour:
Socrates' Constitutional Paradigm Cycle

  • Democracy is doomed to degenerate into tyranny; and the rise of demagogues is an omen for the constitutional paradigm shift. (Plato, Book VIII)

This controversial diagnosis of a terminal symptom of democracy was made by Socrates, the Greek philosopher (circa 470 – 399 BC).

Behind his controversial remark, Socrates shaped a panoramic conceptual framework to capture constitutional paradigm shifts. He perceived his time of democracy as a part of the super-structure of his constitutional paradigm cycle.

Cut a long story short, he stylised his political regime cycle (I use the two terms— ‘constitution’ and ‘political regime’—interchangeably throughout the reading) as follows: in chronological order, ‘just Kingship/Aristocracy,’ Timocracy, Oligarchy, Democracy, and Tyranny.

What is the logic behind his cyclical model? Why tyranny has to come out of democracy, according to Socrates? This reading will have an overview of Socrates’ conceptual framework of constitutional paradigm cycle. To view this content, please click: "Socrates' Constitutional Cycle".

Intrinsic Value and Limitations of Socrates Cycle

Plato’s fictional Socrates in his masterpiece, ‘the Republic’, articulated that the disintegration starts from the decay in social moral order, and as a result, the moral decay destabilises political order from within. According to him, Western Civilisation starts from just kingship/aristocracy, then travels through timocracy, oligarchy, and democracy, then finally degenerates into tyranny to complete its one life cycle. This is a notion of the constitutional (political regime) cycle formulated by Socrates—call it Socrates Cycle.

Nevertheless, Socrates Cycle is not a good accurate prediction model of political regime transformation, but a single-scenario-based simulation. And the scenario is a special case that traces Socratesian natural (uninterrupted endogenous) decay of social moral order in a civilizational scale. Spcrates, by presenting Socrates Cycle, warns us that civilisation can disintegrate from within, even without any interruption from exogenous factors.  The Socratesian caveat is paramount.

In order to appreciate the paramount intrinsic value of Socrates Cycle, we need to understand its limitations. This reading goes over its limitations and explore a potential use of Socrates Cycle.

Contrast between Socrates/Plato and Aristotle

While Socrates casted fatalistic and monolithic dispositions in his analysis and elaborated his thoughts in dialectic form, Aristotle, in contrast, embraced freedom of choice and diversity (pluralism) and articulated the importance of particularity of historical experiences.

There are conspicuous differences in thoughts between Socrates and Aristotle. Despite the contrasting differences between these two intellects, I tend to see that their thoughts are in some respects complementary than confrontational. That is to say, while Aristotle raises our consciousness in capturing the contingent particular nature of our reality, Socrates unveils the imperative general nature of social moral decay. Of course, that is not to say, these two are absolutely complementary; in some respects, they disagree fundamentally and cannot reconcile each other.

This reading lists up some illustrative differences between these two intellects in antiquity and goes over my personal interpretation on those differences.

Series: Zeitgeist Zero Hour

Book I: Can we preserve democracy?

Chapter 1: Terminal Symptom of Democracy in Ancient World
Part 1: Theoretical Views of Ancient Intellects

If democracy were the mother of liberty and equality, toward the end of her life, she would conceive in her matrix (uterus) the foetus of tyranny, demagogues, to ultimately defeat herself. Tyranny—the regime of fierce terror—would be the direct offspring of the most cherished regime of freedom and equality, democracy. This grasps the terminal symptom of democracy diagnosed by pre-eminent intellects in antiquity—Socrates, Plato, and Polybius.

On the other hand, Aristotle vigilantly illuminates contingent particularity of our reality. He demonstrates not only that one political order could transform into various paths, but also that we can even manage constitutional transformation.

In my view, these two perspectives are rather complemental than confrontational for the benefit of our analysis. If we can learn from the caveats of imperative cause and explore alternative outcomes by particularity, we might be in a better position in shaping future.

This reading summarises the views on democracy of three intellects in antiquity, Socrates/Plato, Polybius, and Aristotle.

Chapter 2: Aristotle's Wisdom
Part 1: 'Paradox of Equality' and 'Aristotelean Paradox Management'

Equality is one of the primary principles of democracy. Aristotle illuminated the paradox of equality: how two principles of equality--numerical equality and proportional equality—confront each other and provoke factions in democracy. He further articulated that the paradox, if not properly managed, could impair and destroy democracy.

Socrates diagnosed an ominous terminal symptom of democracy—democracy is destined to degenerate into tyranny. And demagogues play a significant role in the transition.

How did Aristotle see Socrates’ fatalistic diagnosis of the terminal symptom of democracy? Is the cataclysmic change in constitutional order (political regime) ‘'a grandeur of ‘historical necessity’?’ Against fatalism, can we preserve democracy? If possible, how? Aristotle suggested, the paradox can be managed to preserve democracy.

Ladies and gentlemen, welcome to the world of paradox that we live in.

Chapter 2: Aristotle's Wisdom
Part 2:  Aristotelean Preservation of Constitutions

To Aristotle, political chaos—e.g. civil wars, revolution, and anarchy—is the ultimate villain. In this respect, Aristotle’s mind intensively was preoccupied with ‘the prevention of the worst case scenario’. As a result, his preoccupation—to avoid political chaos—shaped his pluralistic view about a good government: any form of constitutional order can be far much better, if not the best one, than a state of chaos. In this light, he explored possibilities to preserve any given constitution and formulated his principles for the preservation of constitutions. This reading outlines the following four primary principles for the preservation of constitutions, then presents his action guidelines at the end:
  1. Principle of Justice: Pursuit of ‘Common Good’
  2. Principle of ‘Inclusive Governance’
  3. Principle of ‘Middle Way’ (‘the Golden Mean’)
  4. Subordination of Laws to Constitution

Chapter 3: Contemporary Liberal Representative Democracy

How can we preserve our contemporary Liberal Representative Democracy?

Equal civic rights, the rule of law, and freedom of expression are the three core principles of our liberal representative democracy. And the preservation of these core principles is imperative for the preservation of our contemporary democracy, articulates Prof. Angie Hobbs, the Professor of the Public Understanding of Philosophy at University of Sheffield. She further warns us of the hidden danger of the seductive and deceptive mantra chanted by demagogues: ‘the will of the people’.

Hannah Arendt (1906-1975), a Holocaust survivor and Jewish German thinker, based on her observation of how Adolf Hitler hijacked the post Weimar Republic democracy in Germany, left us her caveat.

We as voters have responsibility to maintain vigilance to prevent ourselves from falling prey to demagogues’ deception and from cooperating with demagogues in incubating ‘fantasy’ about ‘the will of the people’ to defend these three core principles of liberal representative democracy.

This reading seeks inspirations for the preservation of our contemporary liberal representative democracy from their warnings
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2018:


Japan's Sovereign Debt Magic:
Sovereign Debt Monetisation

by Michio Suginoo

Although monetisation is far from the best practice in sovereign debt management, it has its role to alleviate and even manage a crisis situation. So, simply put, it is a crisis management tool. In this sense, Japan, at its current phenomenal sovereign debt level, is conducting a crisis management through monetisation. Although Japan shouldn’t be praised for monetisation, the government shouldn’t be deprived of this crisis management tool to get out of its deep indebtedness.

As a precaution, monetisation is not without risk. Monetisation itself has an inflationary implication by its design. Once the secular cycle of interest rates makes its turn and interest rates start rising, monetisation and the new rising interest rate cycle might cause a mutually reinforcing inflationary momentum. At the current level of Japan’s government debt, a 100 bps increase in the interest rate could hypothetically wipe out 23% Japan’s tax revenue. Thus, a rise in interest rates, increasing the cost of Japan’s future funding, is a compelling real threat.

How can we predict the forthcoming secular reversal of the interest rate cycle? It is very difficult to predict a secular turning point, according to the following comment by Kyle Bass.
“Black-Scholes model dramatically misprices risks at a secular turning point. It’s analogous to driving a racing car with a rear-view mirror. It is a beautiful thing, if you are trying to run a hedge portfolio and look at these kinds of risks.“ (Kyle Bass: GGRPrivate, 2013, YouTube @21:50)

Toward the future, how will it play out? Once called a rising sun, would Japan descend to a setting sun in the face of rising interest rates? Or, can Japan restore its position with a massive ‘Debt Magic” before the secular interest rate cycle takes its turn? Nobody knows as of today.

Click here to view the content.


Perplexing Sovereign Debt to GDP Ratio:
Between 237% (2017) Japan and 59% (2018) Argentina,
which is more Risky?

by Michio Suginoo

In tems of ‘Gross Sovereign Debt to GDP ratio,’ Japan has the world top position of 237% in 2017; and Argentina has 56% in 2018. Apparently, Japan is far more indebted than Argentina. On the other hand, the credit ratings of their sovereign bonds cast a totally different story: Japan’s government bonds possesses an investment grade rating; Argentine government bond, a speculative/non-investment grade rating. Isn't it perplexing?

The denomination of sovereign debt, although it is not the only driver that divides economic dynamics between Japan and Argentina, is a fundamental difference in the construct of their sovereign debt management dynamics.

Together with given distinct monetary conditions, foreign-currency denominated debt has deprived Argentina of its sovereignty over fiscal and monetary policies. While Japan has so far enjoyed its sovereign discretion over fiscal and monetary policies, there is no guarantee that its rating would remain an investment grade in the future. Should it ruin the public confidence in its own currency, it has to face future funding problem. Despite of the presence of the risk on the horizon, there is no prognosis of its materialisation yet. For the time being, its monetisation can conveniently eat up the non-government liability portion of its legacy debt.

Click here to visit the content.

New Site Launch @
www.monetarywonderland.com

Enter the Monetary Wonderland, Part 1:
Deflationary Wonderland of Japan & Inflationary Wonderland of Argentina

by Michio Suginoo

Monetary conditions affect our psychology. A change in monetary conditions can transform our collective social behaviours, dictating our perceptions about political economy. This is a simple statement. But to capture what it means, it requires some explanations.

In my case, I learned this notion through my own real life experience in two extreme monetary realities—deflationary Japan (1998-2011) and inflationary Argentina (2011-2014).
I outlined some aspects of the notion based on my contrasting experiences in these two countries.

Click here to visit the content.

Enter the Monetary Wonderland, Part 2:
Cycle of Paradox

by Michio Suginoo

Our monetary reality demonstrated a Cycle of Paradox.

The divorce of behaviours between asset prices and consumer prices trapped central banks in a paradoxical situation. The architecture of our contemporary fiat money also played a significant role in separating the price behaviours between consumer prices and asset prices.

As our deflationary reality evolves, the unfolding monetary conditions progressively became difficult for conventional monetary policy to restore the economy. As a result, unconventional QE, without delivering its intended result, has piled up a massive amount of monetary base—which includes reserves—in the system. Now, the historical scale of economic imbalance exposes us to an uncharted risk on the horizon, uncontrollable inflation. We are facing the problem of which Masaaki Shirakawa, ex-governor of Japan, has warned us from earlier days.

This reading will illustrate the paradoxical cycle of our 'Monetary Wonderland' along with the historical episode of Japan since the 70s.

Click here to visit the content.

Is It Time for a New Monetary Regime?
by Michio Suginoo
published at 'Actuaries Digital'

This article highlights the monetary regime cycle since the 19th century and contemplates the prospect of forthcoming paradigm shift in monetary regime: here published at 'Actuaries Digital.'
Paradigm Shifts in Monetary Regime along the Bond Wave

Since the 19th century, the monetary system has transformed from metallic standards to fiat money. In its passage, the paradigm shifts in monetary regime took place around the reversal of the bond yield cycle in the core global power states (call it the bond wave)—namely UK until the early-20th century and US thereafter.

The recent extended period of low US Government bond yields might imply that we are near a reversal of the bond yield cycle. Is it time for a paradigm shift in monetary regime?

This blog reviews historical paradigm shifts in monetary regime and contemplate the forthcoming transition in monetary regime.
Blog Series "Confusing Blockchain"
In the ocean of blockchain topics in the web space, we frequently encounter blockchain-idealists’ mantras. Some cast a radical notion that a blockchain-base distributed system can eliminate rent-seeking middlemen and, as a result, deter, or even eliminate an abuse of system by monopolist and oligarchs.

However, the reality of blockchain as of today is far from, is even contrary to, such radical notions. The gap between the popular blockchain-idealist’s mantras and reality has caused confusions about blockchain.

Despite the gap, their beautiful mantras continue to echo and have strong influence in shaping our collective perception about and our collective behaviour toward blockchain.

Are they hypnotising us with those deceptive mantras? Or, are we in the middle of a long journey to realise such a radical revolution in the way we organize transactions?

This blog explores causes of the gap from the following perspectives:
  1. Linguistic ambiguity;
  2. Limitations of consensus protocols (Trilemma and Concentration Curse);
  3. “Disintermediation” Myths of blockchain;
  4. “Autonomous Self-regulating Governance” Myths of blockchain.

The following 4 blogs share a part of my journey in understanding causes for the gap. Although it does not aim to cover a comprehensive list of issues, it intends to promote a better understanding about the confusion.

In writing up this blog series, I refer to existing views expressed by specialists. Here are examples: Alex de Vries; Gideon Greenspan; Primavera de Filippi; Amira B. Soulami; Oriane Esposito.
Blog 1:
Chapter 1: Linguistic Ambiguity
The first blog examines linguistic ambiguity as a source of the gap.
Blog 2:
Chapter 2: Limitations in Consensus Protocols (Trilemma and Concentration Curse)

The SECOND blog of the series, “Confusing Blockchain,” examines the limitations of consensus protocols (Trilemma and Concentration Curse)
Satoshi Nakamoto contemplated a peer-to-peer monetary system, Bitcoin, using Proof of Work consensus protocol. In designing his plan, he contemplated a conditional guarantee of the integrity of the P2P system’s security. In other words, without satisfying those conditions Nakamoto assumed, the integrity of a P2P system’s security can be impaired.

Limitations present in existing consensus protocols leads to trilemma, in which it is impossible to satisfy three desirable goals: high scalability, low physical cost, and firm conditional integrity of the system’s security.

Under the trilemma constraint, economic and technical asymmetries inherent in the ecosystem, together with intensive competitions, create entry barriers. The resulting reality is a “Concentration Curse” and fails to meet the conditions Nakamoto contemplated. A pure P2P system that he contemplated is not attainable as of today. The only options left to us is compromised P2P systems.
Blog 3:
Chapter 3-1: Blockchain Myth-conception Part 1:
Disintermediation Myth—Distributed Kingdoms of Intermediaries

This THIRD blog of the series, “Confusing Blockchain,” demystifies myths about “Disintermediation” of blockchain.
It, first, examines the mechanism of “Concentration Curse” and questions the fundamentalistic notion of a pure P2P system and “Total Disintermediation.”

After having observed breaches of the pre-conditions that Nakamoto demanded for his pure P2P system, the world is now dealing with more realistic, but compromised forms of P2P paradigm with “Distributed Intermediations.”
Blog 4:
Chapter 3-2: Blockchain Myth-conceptions Part 2
“Autonomous Self-Regulating Governance” Myth-conceptions

This FOURTH blog of the series, “Confusing Blockchain,” examines myths about “Autonomous Self-regulating Governance” of blockchain
It demystifies three myth-conceptions (myths arising from misconceptions):
  1. Smart Contract Security Myth-Conception;
  2. Immutability Myth-Conception;
  3. Byzantine Fault Tolerant Myth-Conception 

The integrity of a Smart Contract’s security is only guaranteed within the architecture of the blockchain, in which the Smart Contract’s codes are embedded. Once it is required to interact with external systems, the integrity of its security can be compromised. Developing secure interfaces for Smart Contracts exposes the system to unknown risks.

Cases of fork in reality simply repudiate the immutability of historical transaction records in blockchain paradigm.

The last section challenges the very foundation of the cryptographic architecture of consensus protocols, the viability of Byzantine Fault Tolerant framework.
2017:
Monetary Regime Cycle and BitCoin
This is my very first blog in this web site. And I choose the topic of international monetary regime cycle.

The cycle of long-term bonds’ yields often captures paradigm shifts in our social, political, and economic reality. This is the cornerstone-premise of my writing up this blog.

Using the framework of long-term bonds’ yields cycle, this blog attempts to capture the historical paradigm cycle of monetary regime. Further, I am hoping that our historical understanding on this topic would help us better understand our current monetary situation and contemplate its future evolution. (Monetary Regime Cycle and BitCoin)


on
Monetary Paradox

Shirakawa's
Monetary Policy ParadoxーPart 1
General Perspective: Architecture of Monetary Policy Paradox

A success in the conduct of conventional monetary policy can defeat itself. Shirakawa’s Monetary Policy Paradox demonstrates how monetary policy, in its very pursuit for creating economic stability, can create new incentives among economic agents to engender economic imbalance and economic instability.
 
Monetary policy’s success in containing inflation feeds very causes of financial crisis—an extension of leverage and its consequence, asset bubble. It is so effective in causing economic instability. Once its consequential financial crisis unfolds, monetary policy loses its effectiveness in containing new problems. It creates a self-defeating cycle.
 
In the long run, monetary policy could merely end up transferring economic imbalance from one area to another within the economy. (Click here to Architecture of Monetary Policy Paradox)

Shirakawa’s
Monetary Policy Paradox－Part 2
Particularities in Empirical Monetary Policy Paradox:
Japan’s Experience (1980s-2000s)

The previous reading, Shirakawa's Monetary Policy Paradox—Part 1, mainly outlined the general architecture of Shirakawa’s Monetary Policy Paradox. It provides us with a general framework of monetary policy paradox, focusing on general economic factors. However, in reality, a particular set of conditions could alter the course of economic events and create a particular path for an unfolding financial crisis in the aftermath of a bubble burst. Particularity is always present in economic condition or social and political conditions. For example. foreign demand can alter the domestic economic conditions. As another example, policy responses are influenced and constrained by particular social and political conditions, which could significantly differ from one country to another. In order to better analyse each case of financial crisis, it is imperative for us to distinguish between the general architecture of Shirakawa’s Monetary Policy Paradox and a particular set of relevant conditions that each case imposes.
 
Empirical study on specific historical experiences can provide materials for us to understand how particular conditions can shape the course of events along the general architecture of monetary policy paradox. This reading explores Shirakawa’s Paradox from an empirical point of view and projects it over the chronology of a specific historical experience of Japan during the period between the 1980s and the 2000s. (Click here to Particularities in Empirical Monetary Policy Paradox)


Series Zeitgeist:

When Democracy fails 1:
Ephemeral Democracy and the road to Tyranny
in light of Socrates’ Political Cycle from Plato’s “the Republic”

In Plato's “the Republic,” Socrates illustrates how society can transform through 5 political regimes in the following order--Aristocracy, Timocracy, Oligarchy, Democracy and Tyranny. Overall, Socrates reveals how ephemeral each regime is: each regime is merely a part of the entire process.

As a part of his exposition, Socrates illustrates his view on the rise and fall of Democracy. In his exposition, an emergence of demagogues plays a significant role in reducing Democracy into Tyranny. In this reading, we glimpse Socrates’ view on how Democracy emerges and descends.

The first two sections of this writing brief Socrates’ arguments along the passage of political cycle through regime changes. Section 1 summarises Socrates’ view on how society transform through the first three regimes—Aristocracy, Timocracy, and Oligopoly—before arriving at Democracy: in a way this section portrays the backdrop of the subject of our interest—rise and fall of Democracy—in Socrates’ synthesis. Section 2 focuses on our main theme, Socrates’s synthesis how Democracy arises from Oligarchy and descends into Tyranny. And the additional remark addresses Socrates’ synthesis regarding how change takes place. (Click When Democracy fails 1: Ephemeral Democracy and the road to Tyranny in light of Socrates’ Political Cycle from Plato’s “the Republic”)


When Democracy fails 2:
 “Socrates-Homer Hypothesis”:
A Historical Analogy with
Socrates’ Decline of Democracy &
Sidney Homer’s Interest Rate Supra-Secular Cycle

In this reading, in order to better capture Socrates’ implications about the decline of democracy, we explore some Roman historical narratives relevant to the decline. In this attempt, we also revisit the hypothetical framework of the civilization cycle implied by Sidney Homer to better understand the historical frame of the decline of democracy.

Section 3 visits relevant historical narratives and contemplates Socrates’ view on the decline of democracy through historical analogies. Section 4 makes a brief review on Sidney Homer’s hypothetical framework that interprets Western Civilization cycle from the perspective of interest rate cycle. Thereafter, I propose a hypothetical method, Socrates-Homer Hypothesis, to make historical analogy, by integrating Socrates’ view and Homer’s view.

Homer’s implication is that the state of money, when expressed in the cycle of interest rates, might reveal stages of the western civilization cycle. Incorporating Socrates’ synthesis into Homer’s hypothetical framework, Section 4 of this reading attempts to capture Socrates’ synthesis of the decline of democracy along the evolution of interest rates’ supra-secular cycle.

(Click Socrates-Homer Hypothesis: A Historical Analogy with Socrates’ Decline of Democracy & Sidney Homer’s Interest Rate Supra-Secular Cycle)


When Democracy fails 3:
Rise of Demagogue in Post-Dark-Age Western Civilization
Socrates-Homer Hypothesis in Modern Context

Somehow Socrates' story from the ancient Greek world about 2,400 years ago still resonates with our modern life. This reading further explore the notion of “Socrates-Homer Hypothesis” in our modern time.

Section 5 traces the best credit frontier in the post-Dark-Age Western world and places our epoch in the perspective of “Socrates-Homer Hypothesis.” Section 6 contemplates on Crassus-Trump analogy articulated by John David Ebert and explores its implication on the Socrates-Homer Hypothesis in the post-Dark-Age Western world.  (Click When Democracy fails 3: Rise of Demagogue in Post-Dark-Age Western Civilization Socrates-Homer Hypothesis in Modern Context )  
2016:

The Bond Wave

The bond wave－defined as the secular rhythm of bond yields or long term interest rates－reflected paradigm transformations (both recurrences and evolutions) of other economic and political dynamisms: from regime change in currency exchange to political cycle. (Here, the term “cycle” conveys a notion of irregular but recurrent dynamics: irregular both in period and magnitude.) It is a complex rhythm which expresses both indisputable uncertain irregularities and equally undeniable pendulum-like recurrent dynamics.

This series explores a hypothetical notion of the bond wave: the state of money, when expressed in interest rate cycle, reflects the state of social, political, and economic reality.
Introduction 1
Sidney Homer's "Saucer":
Supra-Secular Rhythm of Interest Rates
and the Evolution of Civilization
Sidney Homer (1902–1983), one of the most distinguished, innovative bond investment experts of his time, discussed the hypothetical relationship between the cost of financing and the development of ancient western civilizations. And Homer illustrated his notion by projecting in a chart the centennial minimum interest rate floor (let us call this concept the “lowest interest rate frontier”) throughout three ancient civilizations: Babylonian, Greek, and Roman. His chart of the lowest interest rate frontier demonstrated the presence of a common supra-secular rhythm among all three civilizations.

Homer’s implication is that the state of money, when expressed in the supra-secular cycle of interest rates, might reveal stages of the western civilization cycle. Homer extended his analogy to the Post–Dark Age Western world. We can draw inferences relevant to our own time using Homer's analogy.
THE BOND WAVE:
Its Indisputable Uncertainty and Irregularity &
Equally Undeniable Pendulum Recurrent Dynamics
This series explores the notion that the state of money, when expressed in interest rate cycle, mirrors the state of social, political, and economic reality.

Bond wave demonstrates a complex rhythm that expresses both indisputable uncertain irregularities and equally undeniable pendulum-like recurrent dynamics. This section overviews those features and builds the foundation for bond wave mapping, which is illustrated in the following case studies―Regime Change in International Monetary System, Price Cycle, Private Debt Cycle, Fiscal Cycle.
The Bond Wave Mapping
To capture recurrences and evolutions in the secular rhythm of the bond wave, I devised a simple technique called “bond wave mapping.” This technique captures the interactions of secular rhythms between the bond wave and other metrics. This simple method—primarily using crude data—enables us to extract hidden information about the bond wave as historical facts, loosening the confines of economic doctrines.

In brief, the bond wave is a manifestation of socio-economic and political realities. Bond wave mapping provides a heuristic way to apply historical analogy to make inferences about our present and future based on our past.
 
The following contents are sample exercises showing the use of bond wave mapping to extract the hidden implications of this complex secular rhythm.
"Bond Wave Mapping": Case Study 1
Paradigm Transformations in
International Monetary Regime
along the Bond Wave
Looking back, the paradigm transformations in currency regimes, or international monetary systems, show patterns along the bond wave. The past five bond waves have mirrored the tendencies of the rhythm in international monetary arrangements to manifest milestone events in regime transformations at both extreme ranges—top and bottom—of the bond wave. As of this writing, given our position within the bottom range of the bond wave (in terms of bond yield levels), we are compelled to ask a legitimate question about whether we may be entering a new paradigm in the international monetary system.
"Bond Wave Mapping": Case Study 2
Price & Inflation Cycles
along the Bond Wave
In the past, the bond yield’s behaviour relative to price behaviour demonstrated two fundamentally distinct paradoxes: Gibson’s Paradox (for more than two centuries between the 18th century and the 1970s) and Shiller’s Paradox (since the 1980s). The shift in the paradoxical nature of the bond wave confirms the historical fact that an established relationship between behaviours of the bond yields and price can break down. Along with this relationship, war cycles also demonstrated a shift in their established relationship with price behaviour (the inflation cycle).  In addition, along the bond wave, the behaviour of deflation changed as the paradigm shifts in the currency regime took place.This content examines these transformations in the relationship between the bond wave and price behaviour.  About the prospect of the relationship, what can we learn from the past? (click: Price and Inflation Cycles along the Bond Wave)  
"Bond Wave Mapping": Case Study 3
Secular Rhythms of the Transformations
in Private Debt along the Bond Wave
The bond wave located two systemic financial crises—the Great Depression and the Global Financial Crisis—in analogous bond wave locations (in the middle of the two bull waves: the Vacuum Wave [1920-46] and the Globalization Wave [1982-ongoing as of September 2016]) and demonstrated a remarkable synchronization with the private debt-cycle. Along the bond wave, we explore similarities and differences in the behaviours of private debt cycles for these two systemic financial crises.

In addition, this case study revisits the mechanisms of systemic financial crisis addressed by three economists: Irving Fisher, Hyman Minsky, and Richard Koo. (Click: The Private Debt Cycle along the Bond Wave)
"Bond Wave Mapping": Case Study 4
Government Intervention Cycle along the Bond Wave－
Fiscal (Sovereign Debt) Cycle &
Debt Magic (Negative Real Yield) Cycle
The primary purpose of sovereign debt has changed from war finance to fiscal expansion in the past. Along with this transformation, the emergence of massive sovereign debt issuance shifted from the top range to the bottom range of the bond wave.

Before that, WWI, a hegemonic war, tended to coincide with inflationary environments. This inevitably caused a notable surge in sovereign debt at the top range of the bond wave. 

In modern times, a massive fiscal expansion tends to emerge in the aftermath of a systemic financial crisis, in other words, during a deflationary environment. This inevitably triggers a drastic surge in sovereign debt at the bottom range of the bond wave. Moreover, some governments deploy “inflating away,” a technical default, in the context of sovereign debt management.

These dynamics―war cycles, private debt cycles, sovereign debt cycles, and “Inflating Away” ―were interrelated and demonstrated some patterns in the rhythms in the behaviour of massive government interventions in the past. This content, with bond wave mapping, attempts to make inferences about what the past might illuminate about the prospects for massive- scale government interventions. (click: Government Intervention Cycles along the Bond Wave) 
"Bond Wave Mapping": Case Study X
Political Cycle
along the Bond Wave
Under Construction
Michio Suginoo, CFA® (Chartered Financial Analyst)
Founder of www.reversalpoint.com
Owner of www.monetarywonderland.com
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