The Forecasting Game

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As a pub­lic fig­ure, I’m quite accus­tomed to see­ing my name and face in the media. But it was still quite a sur­prise to load The Syd­ney Morn­ing Herald’s site on Mon­day last week and see my craggy vis­age star­ing back at me from the front page:

The rea­son was Peter Martin’s arti­cle A Keen eye on the global econ­omy: how our fore­cast­ers fared”, which reported the results of the Mel­bourne news­pa­per The Age’s annual sur­vey of eco­nomic forecasters.

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About Steve Keen

I am a professional economist and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous debts accumulated in Australia, and our very low rate of inflation.
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24 Responses to The Forecasting Game

  1. scepticus says:

    Steve from the article:

    Sim­u­la­tions of Lorenz’s model also strik­ingly illus­trated how dif­fer­ent a “lin­ear, equi­lib­rium” world is from a “non­lin­ear, far from equi­lib­rium” one. If the model began in its equi­lib­rium, it stayed there – as in this sim­u­la­tion in my mod­el­ling pro­gram Minsky…Compare this to what hap­pens if one of the vari­ables is a tiny, tiny dis­tance from its equilibrium”

    Hi Steve,

    It seems that two things are con­fused here — chaos and ‘far from TE’ sys­tems. With regard to the behav­iour of Min­sky you seem to describe a chaotic sys­tem, very sen­si­tive to ini­tial con­di­tions. But a far from TE sys­tem (non equi­lib­rium ther­mo­dy­namic sys­tem, or NET) is cre­ated by an exter­nal gra­di­ent — an exoge­nous forc­ing — which for ter­res­trial weather is the solar gradient.

    So are you sug­gest­ing that the human econ­omy is a NET, or just chaotic? The lat­ter can utilise con­served vari­ables with com­plex pos­i­tive and neg­a­tive feed­back loops and mem­ory can it not, while the for­mer requires some kind of irre­versibil­ity in addi­tion to an exoge­nous gradient.

    If the finan­cial econ­omy oper­ates anal­o­gously or exactly as a NET, what is the exoge­nous gra­di­ent that dri­ves flow in the finan­cial econ­omy and what is the loca­tion of and the dynam­ics of the irre­versibil­ity? Does Min­sky include any processes which are non time-reversible?

    Cheers,

    Scep­ti­cus

  2. Steve Hummel says:

    May I sug­gest that two of the vari­ables in Min­sky be weighted appro­pri­ately in impor­tance as Indi­vid­ual Pur­chas­ing Power (presently inher­ently scarce in com­par­i­son to prices by the real­ity of cost account­ing con­ven­tion) and Tech­no­log­i­cal Inno­va­tion (inex­orable in regard to effi­ciency of production).

    That way not only will fore­cast­ing be sci­en­tif­i­cally improved which is a good thing for prof­its and investors, but the sys­tem will become more humane because its inten­tions will have changed from the will to power of the var­i­ous enti­ties in it to the will to free­dom for the individual.

    All real­i­ties are rel­e­vant and require atten­tive­ness, but the higher instability/asymmetry needed to be aware of are the ones between Sci­ence and Wis­dom, and Power (Con­trol) and Grace (Indi­vid­ual Freedom).

  3. koonyeow says:

    Let’s turn eco­nom­ics from Ptole­maic to Coper­ni­can, Steve.

  4. Steve Hummel says:

    How about if we do both that and also turn it from Old to New Tes­ta­ment. I a non-parochial, mod­ern fash­ion of course.

  5. koonyeow says:

    Par­don my igno­rance, Steve H., but I can’t catch your analogy/metaphor.

  6. Steve Hummel says:

    Ptole­maic to Coper­ni­can is indica­tive of the par­a­digm change in regard to the nature of the cos­mos itself.

    The non-parochial Old Tes­ta­ment (dead let­ter of the law/system) to New Tes­ta­ment (empha­sis on the essen­tial impor­tance of spirit of the law/individual) con­cur­rent par­a­digm change addresses that long stand­ing asym­me­try of power between sys­tem and individual.

  7. koonyeow says:

    I see. Thanks, Steve H.

    My anal­ogy is actu­ally more about the approach to eco­nom­ics, rather than a par­a­digm shift.

    By approach I mean: tin­ker, observe (for pat­terns), hypoth­e­sis, exper­i­ment, reject/refine the hypoth­e­sis, repeat.

  8. kalman says:

    There is a big dif­fer­ences between the USA and Aus­tralia, the USA had a prob­lem with their Sub­prime lend­ing, this was around 10% of loans, this played a part in expand­ing the bub­ble.
    Here in Aus­tralia we don’t have the 10% sub­prime prob­lem, here we have around 80% of bor­row­ers sub­prime and also our real-estate is around 250% more expen­sive than at the height of the USA Ponzi boom. We will have a dev­as­tat­ing col­lapse of around 75% in nom­i­nal terms. Here on the Gold Coast QLD prices have caved in dur­ing the last two years, a min­i­mum of 20% and some 60%.
    Please don’t think that peo­ple are flood­ing Aus­tralia buy­ing our expen­sive pro­duce, ser­vices or assets, that is only a real estate’s wet-dream, if you drive around you can see all the busi­nesses going bust thanks to the over­in­flated AU$. Every coun­try is doing its best to devalue its cur­rency to help kick start the econ­omy, it is amaz­ing how stu­pid our gov­ern­ment is to be the only place on earth to do the oppo­site, I can under­stand the aver­age knuck­le­head cit­i­zen cheer­ing this on, so they can spend more on eBay but they will lose their job because of Aus­tralian com­petive­ness.
    This phe­nom­e­non man­i­fested itself pre­dom­i­nately as a result of our ” Lucky Coun­try Sta­tus” mean­ing we had such a good life here, astro­nom­i­cal wages, 0 % unem­ploy­ment for peo­ple who want to work, mas­sive hand­outs, basi­cally we are the Fat lazy sloth of the world. You see when you live in a Coun­try where there is war or was in your life­time, or a coun­try where peo­ple starved to death like India, China, Pak­istan most of the world, than you are a bit more hum­ble and real­ize that you need to work for money not just expect it for noth­ing like dur­ing this Real estate Ponzi Scheme. Aus­tralia and Canada are the last ones still stand­ing in the dark, we will real­ize dur­ing the next 20 years what the con­se­quences are of this mas­sive over spend­ing and arro­gance.
    If you can sell up now and walk away with a small loss just do it, it is bet­ter to be on Zero and free than to be bank­rupt and a Zom­bie , you won’t even be able to rent after that!! If you can walk away with a profit than buy Pre­cious Met­als and rent for 5 years, wait until there is blood on the streets. Just like there is on every other coun­try now.

  9. Steve Hummel says:

    Post to Mish Shedlock’s blog:

    Elim­i­nate the “there” that is the source of the prob­lem, i.e. the per­sonal debt. That enables a reset. Then, in order to end the inevitable re-build up of debt insti­tute a citizen’s div­i­dend which elim­i­nates the need to bor­row to escape the aus­ter­ity the sys­tem enforces. Remem­ber, the mid­dle class of Amer­ica from 1946–1970.…was an anomaly.…not a nor­mal fea­ture of the sys­tem. Stop wor­ship­ing the sys­tem as it is, start cor­rect­ing it.

    Econ­o­mists must stop pass­ing tech­no­log­i­cal inno­va­tion and the real­ity of the effects on indi­vid­ual incomes that the rules of cost account­ing enforce on the econ­omy as mere exter­nal­i­ties. They are oper­a­tive fac­tors on both the sys­tem and the indi­vid­u­als within the systems.

  10. Steve Hummel says:

    In response to Andrew Lainton’s very promis­ing study here:

    http://andrewlainton.wordpress.com/2013/01/16/modelling-the-pin-factory-understanding-the-division-of-labour-using-a-stock-flow-model-part-1/#comment-8296

    This:

    Sounds like a poten­tially enlight­en­ing exper­i­ment. (It was actu­ally what C. H. Dou­glas did almost 100 years ago.) Don’t for­get to fac­tor in the ever present com­mer­cially ENFORCED REALITY of the inher­ent scarcity of incomes in com­par­i­son to prices required by cost accounting’s rules. (prof­its of course are not wages, and only momen­tar­ily “solve” things for busi­nesses while the ongo­ing effects are born by actual peo­ple) That fac­tor and that fact always seems to get missed by econ­o­mists (except by C. H. Dou­glas), and will make the REAL price infla­tion­ary nature of the sys­tem for BOTH indi­vid­u­als AND busi­nesses appar­ent. Eco­nom­ics is com­pli­cated and has numer­ous pos­si­ble prob­lems and causes of prob­lems, but money is basi­cally accoun­tancy and an unrec­og­nized or unac­knowl­edged flaw there, because it is a part of the very “woof and warp” of the sys­tem itself, is by def­i­n­i­tion a ROOT cause and will desta­bi­lize the econ­omy and rob indi­vid­u­als of pur­chas­ing power.

  11. Steve Hummel says:

    Oh, and mak­ing a sweat­shop, low tech exam­ple your model may lack a cer­tain sym­me­try with present real­ity, but if you’re real con­sci­en­tious about mod­el­ing the cost account­ing effects as per above….the same cen­tury old con­clu­sions ought to still be there.

  12. peterjb says:

    Turn­ing eco­nom­ics into a sci­ence” com­plete with $ sign

    http://www.youtube.com/watch?feature=player_detailpage&v=Gc9736gkFhw#t=126s

    This must be the most Vul­gar and Crasse depic­tion of any­thing to do with eco­nom­ics that I have ever seen. And, a claim that a soft­ware mod­el­ling tool can con­vert a pseudo based reli­gion into a Science.?

    And, down­load­ing and run­ning this “Min­sky” I am advised, will clearly indi­cate a seri­ous devo­lu­tion in the pro­gram devel­op­ment and pre­sen­ta­tion, from the orig­i­nal soft­ware and code, which was called QED. In every aspect.

    I hope that those fund­ing this work don’t expect that $ sign to become a profit reality.

    I repeat: Vul­gar and Crasse.

    Ho hum

  13. Ted Stead says:

    Steve, good arti­cle, but just won­der­ing where we are at with the Aus­tralian credit impulse/accelerator. Will you have an update of this any time soon?
    Cheers.

  14. koonyeow says:

    Title: Time Will Remove The Frag­ile and Main­tain The Robust

    There was a time when clas­si­cal ther­mo­dy­nam­i­cists did not accept Boltzmann’s atomic inter­pre­ta­tion of the 2nd Law. Of course, we now know that time has proven Boltz­mann to be cor­rect; just as time has proven that I am a skirt chaser.

    There was a time when peo­ple did not know why the tool is called Min­sky. Of course, time will prove that Min­sky was born out of Finan­cial Insta­bil­ity Hypoth­e­sis and Mon­e­tary Cir­cuit Theory.

    Steve will only be dis-credited if he turns neo-classical or Min­sky is no longer open source (I will have to swal­low one bot­tle of vodka in one minute if Steve turns neo-classical).

  15. Steve Hummel says:

    Why is it that the house­hold econ­omy is not com­pletely anal­o­gous to the national econ­omy? It’s because the indi­vid­ual can­not cre­ate and destroy money, but the FED/Private Banks/Government can do both of these….and then the FED/Private Banks/Government fail/refuse to keep that cre­ation and destruc­tion in sta­ble bal­ance by NOT enabling the indi­vid­ual to always have enough money to liq­ui­date pro­duc­tion as it comes to the mar­ket. It fails to do this by not financ­ing the gap between total prices and incomes pro­duced in each productive/financial cycle. Veloc­ity does not suf­fi­ciently add indi­vid­ual income to rec­tify this ever present scarcity and hence the only way the sys­tem can con­tinue is with the con­tin­ual build up of debt. And a con­tin­ual build up of debt as we see is very problematic.

    The FED/Private Banks/Government fail/refuse to do this because if it did allow such financing….the Pri­vate Banks, who not coin­ci­den­tally are the most pow­er­ful of that tri­umvi­rate, would lose the greater part of the tremen­dous mar­ket that is con­sumer finance itself. And that wouldn’t be good for their bot­tom line. Also, they would actu­ally lose con­trol of the system…to the needs and desires of the mon­e­tar­ily and eco­nom­i­cally freed individual.

    Again, why do the mass of indi­vid­u­als not have the abil­ity to liq­ui­date pro­duc­tion as it comes to the mar­ket? Because the effect of the rules of cost account­ing is vir­tu­ally ALWAYS a scarcity of total indi­vid­ual incomes in ratio to total prices WHICH IS CONTINUALLY ENFORCED WHENEVER, AND ACTUALLY BECAUSE, MONEY IS CHURNED THROUGH COMMERCE BY EITHER BANK LOAN OR GOVERNMENT SPENDING and so pro­hibits it from being pos­si­ble EXCEPT AND ONLY MOMENTARILY under the most extreme and/or neg­a­tive cir­cum­stances like huge gov­ern­ment deficits dur­ing a depres­sion or when the nation is engaged in total war. In addi­tion to this, fewer and fewer indi­vid­u­als can actu­ally find jobs because tech­no­log­i­cal inno­va­tion is reduc­ing the need for their efforts and inputs.

    And so we see that we have both a self inter­ested minor­ity ENFORCING an inher­ently unbal­anced and increas­ingly unsta­ble SYSTEMIC sit­u­a­tion and an inex­orable exac­er­ba­tion of same due to the inex­orable march of tech­ni­cal efficiency.

    And yet this could be rec­ti­fied by sim­ply chang­ing the con­sumer finan­cial par­a­digm from employ­ment and loan ONLY to employ­ment where avail­able, UNIVERSAL DIVIDEND and loan if desired and cred­itable. This would be a free and free flow­ing econ­omy as well as the indi­vid­ual set free. Fur­ther­more, the indi­vid­ual would be much more empow­ered to deter­mine who remains in busi­ness through the exer­cise of his/her suf­fi­cient pur­chas­ing power money-vote rather than the self inter­ested minor­ity of finan­cial and cor­po­rate enti­ties like we see presently.

  16. Lyonwiss says:

    Peterjb Jan­u­ary 17, 2013 at 11:35 am

    Eco­nom­ics is not, and has never been, a sci­ence. Econ­o­mists do not under­stand what sci­ence is. They merely imi­tate physics with math­e­mat­i­cal mod­els. But with­out any­thing remotely like a law, hav­ing the cer­tainty and pre­ci­sion of those in physics, eco­nom­ics can­not pos­si­bly make fore­casts, because the mod­els have to be based on real laws to have any deduc­tive valid­ity. I’m writ­ing an aca­d­e­mic paper on this subject.

  17. Steve Hummel says:

    Money is basi­cally accoun­tancy. If the rules and effects of account­ing, specif­i­cally the rules of its sub­set cost account­ing, are not rec­og­nized and com­pen­sated for then con­fu­sion, author­i­tar­i­an­ism and half @ssed the­ory arises. Most “emer­gent” qual­i­ties in eco­nom­ics arise as a result of fail­ing to model these ever present monetary/accounting effects. Eco­nom­ics itself has many things which do have to be mod­eled in the attempt to fore­cast and invest, but if the above most basic facts are not modeled/accounted for.….then there is insta­bil­ity and con­se­quently fore­cast­ing is difficult.

    Last but not least the human­ity of the sys­tem must be stressed more so than even the sta­bil­ity and work-ability of same. This has always been a prob­lem which has been neglected and even denied by the more cul­tur­ally hide­bound. The sys­tem can never be com­pletely free with­out the indi­vid­ual being so as well. The best way to insure that our economic/financial/monetary sys­tems are humane is to base them on the deep­est con­den­sa­tions of human wis­dom instead of lesser abstrac­tions like profit or employ­ment. Profit and employ­ment are fine as sec­ondary or ter­tiary con­sid­er­a­tions, but again, they pale in com­par­i­son to the deep­est of wisdom’s con­den­sa­tions which are the ideas, val­ues, pur­poses and most impor­tantly the expe­ri­ences of Faith as in Con­fi­dence, Hope, Love and Grace. All of the world’s wis­dom tra­di­tions will be found to have these or their cul­tural equivalents.

    And the process of deriv­ing poli­cies from these is no more dif­fi­cult than deriv­ing them from profit or employ­ment as pri­mary ideas. The only thing that is really nec­es­sary is to be thor­ough and con­sis­tent in doing so. Man’s species des­ig­na­tion is homo sapi­ens, wise and dis­cern­ing man. It’s time we crafted sys­tems aligned with and based on that wis­dom. The bet­ter to cre­ate more of the fruits of such both indi­vid­u­ally and systemically.

  18. Bhaskara II says:

    Kalman,

    I found your com­men­tary on the state of the econ­omy and your opin­ion on the future inter­est­ing and novel from media reports. If I remem­ber right, you might have seen eco­nomic prob­lems first hand unfold in var­i­ous times and places in the world.

    Cer­tainly one could be con­cerned about high pur­chase priced highly lever­aged real estate, for sure. We have recently seen the prob­lems become obvi­ous in other places.

    On pur­chas­ing pre­cious met­als now:

    I included some gold charts and links. Some charts are log­a­rith­mic. In log­a­rith­mic charts expo­nen­tial growth fol­lows strait line with the slope indi­cat­ing the expo­nen­tial growth rate. In the 1970s decade gold went up to about $850 or so and near 1980 it plunged and went down with some wig­gles for two decades. (Past per­for­mance doesn’t guar­an­tee future per­for­mance. ) Yet in the 1980s and 1990s we cer­tainly had infla­tion in the pos­i­tive range, prices went up sig­nif­i­cantly in the two decades. So, it is pos­si­ble for gold to go down in addi­tion to up. Do you have a rea­son that it might be safe to put value in now with out it going down sig­nif­i­cantly? If one had bought near the top one could quickly have lost a sig­nif­i­cant value.

    http://en.wikipedia.org/wiki/Gold_as_an_investment Two gold charts

    Also, I think in 2008 lots of things went down tem­po­rally includ­ing pre­cious met­als. Plat­inum dropped spec­tac­u­larly. I think plat­inum went down even more because car man­u­fac­tur­ing stalled and it is used in cat­alytic con­vert­ers for cars. But I’m not sure why the drop. Could the cat­alytic con­verter folks have had to sell their stocks of plat­inum? Not that things would nec­es­sar­ily play out the same way.

    In our case now do you think pre­cious met­als is def­i­nitely not going to go down a lot but keep ris­ing? Rather than drop some time? Do you think it is a safe spec­u­la­tion from here? I’m elic­it­ing your opin­ion on what, when, where, how, and why? Have you seen some thing sim­i­lar and does it apply to the US, Aus­tralia, other places today.

    If gold does go or cur­rency down spec­tac­u­larly, or other prob­lems do you think there would be any thing to notice ahead of time? Have you seen such indi­ca­tors in some other places?

    If your short of time you could name the event and or time and place and I could go read up.

  19. Bhaskara II says:

    Kalman,

    I found your com­men­tary on the state of the econ­omy and your opin­ion on the future inter­est­ing and addi­tion­ally novel from media reports. If I remem­ber right, you might have seen eco­nomic prob­lems first hand unfold in var­i­ous times and places in the world.

    Cer­tainly one could be con­cerned about high priced highly lever­aged real estate, for sure. We have recently seen the prob­lems become obvi­ous in other places.

    On pur­chas­ing pre­cious met­als now:

    I included some gold charts and links. Some charts are log­a­rith­mic. In log­a­rith­mic charts expo­nen­tial growth is on a strait line. The slope gives the expo­nen­tial growth rate. In the 1970s decade gold went up to about $850 or so and near 1980 it plunged and then went down with some wig­gles for two decades. (Past per­for­mance doesn’t guar­an­tee future per­for­mance. ) So, it is pos­si­ble for gold to go down in addi­tion to up. Do you have a rea­son that it might be safe to put value in now with out it going down sig­nif­i­cantly? If one had bought near the top one could quickly have lost a sig­nif­i­cant value.

    http://en.wikipedia.org/wiki/Gold_as_an_investment Two gold charts
    http://www.newworldeconomics.com/archives/2011/060511.html A long run com­modi­ties chart.

    Also, I think in 2008 lots of things went down tem­po­rally includ­ing pre­cious met­als. Plat­inum dropped spec­tac­u­larly. I think plat­inum went down even more because west­ern car man­u­fac­tur­ing stalled and it is used in cat­alytic con­vert­ers, but I’m not sure. Could the cat­alytic con­verter folks have had to sell their stocks of plat­inum or they sold high ear­lier? Not that things would nec­es­sar­ily play out the same way.

    In our case now do you think pre­cious met­als are def­i­nitely not going to go down a lot but keep ris­ing? Rather than drop some time? Do you think it is a safe spec­u­la­tion from here? I’m elic­it­ing your opin­ion on what, when, where, how, and why? Have you seen some thing sim­i­lar and does it apply to the US, Aus­tralia, other places today.

    If gold does go up or cur­rency down spec­tac­u­larly, or other prob­lems do you think there would be any thing to notice ahead of time? Have you seen such indi­ca­tors in some other places?

    If your short on time you could name the event time and place and I can go read up.

  20. Bhaskara II says:

    Kalman,

    I found your com­men­tary on the state of the econ­omy and your opin­ion on the future inter­est­ing and novel from media reports. If I remem­ber right, you might have seen eco­nomic prob­lems first hand unfold in var­i­ous times and places in the world.

    Cer­tainly one could be con­cerned about high priced highly lever­aged real estate, for sure. We have recently seen the prob­lems become obvi­ous in other places.

    On pur­chas­ing pre­cious met­als now:

    I included some gold charts and links. Some charts are log­a­rith­mic. In log­a­rith­mic charts expo­nen­tial growth is on a strait line. In the 1970s decade gold went up to about $850 or so and near 1980 it plunged and went down with some wig­gles for two decades. (Past per­for­mance doesn’t guar­an­tee future per­for­mance. ) So, it is pos­si­ble for gold to go down in addi­tion to up. Do you have a rea­son that it might be safe to put value in now with out it going down sig­nif­i­cantly? If one had bought near the top one could quickly have lost a sig­nif­i­cant value.

    http://en.wikipedia.org/wiki/Gold_as_an_investment Two gold charts
    http://www.newworldeconomics.com/archives/2011/060511.html A long run com­modi­ties chart.
    {Try­ing to put up other graphs}

    Also, I think in 2008 lots of things went down tem­po­rally includ­ing pre­cious met­als. Plat­inum dropped spec­tac­u­larly. I think plat­inum went down even more because west­ern car man­u­fac­tur­ing stalled and it is used in cat­alytic con­vert­ers, but I’m not sure. Could cat­alytic con­verter folks have to sell their stocks of plat­inum or sold high ear­lier? Not that things would nec­es­sar­ily play out the same way.

    In our case now do you think pre­cious metal are def­i­nitely not going to go down a lot but keep ris­ing? Rather than drop some time? Do you think it is a safe spec­u­la­tion from here? I’m elic­it­ing your opin­ion on what, when, where, how, and why? Have you seen some thing sim­i­lar and does it apply to the US, Aus­tralia, other places today.

    If gold does go or cur­rency down spec­tac­u­larly, or other prob­lems do you think there would be any thing to notice ahead of time? Have you seen such indi­ca­tors in some other places?

    If your short on time you could name the event time and place and I can go read up.

  21. Bhaskara II says:

    Very sorry about repeats, I was get­ting errors and no indi­ca­tion of a post when posting.

  22. Bhaskara II says:

    Gold Chart(s):

  23. Bhaskara II says:

    Kalman,

    Haven’t been able to upload charts. No mat­ter link could suffice.

  24. Bhaskara II says:

    Kalman,

    Here are plots links I found to replace the plots I could not upload for you.

    Sub­ject: His­tor­i­cally gold can go down in addi­tion to up:

    Gold log-plots: Rise before 1980, peak near 1980, and a fall after 1980. An exam­ple of a time when gold didn’t go up for­ever (in US$) and actu­ally went down later that we might have a mem­ory of. For log plots need to read the scales to see whats going on.

    http://gold.approximity.com/since1968/Gold_USD_LOG.html
    Notice the dis­tance from 1980 top to bot­tom near 1982 is the same as the dis­tance between the 500 and 200 mark on the ver­ti­cal scale. So (trough price/ peak price)=200/500=2/5=40% of peak. Notice the scales dou­ble for the same ver­ti­cal length, look at the dis­tances between 50,100,200 and 500,1000, 2000 all the same dis­tance for 2 times. Or same dis­tances n times dis­tance. The bot­tom of the graph is near 25 a half of 50.

    http://goldsilverworlds.com/wp-content/uploads/2012/07/gold_price_chart_200_years_1800-2012.gif Shows rise-peak-falls in 1815, 1863, 1940s and 1980. And rises near 1834, 1933, the decade of 1970s,and the decade of 2000s. After 2013 what could gold do? I can’t tell the future. Expo­nen­tial rises in 70s and 2000s are almost con­stant slope lines. Slope indi­cates con­stant % growth rate per year, equiv­a­lently con­stant expo­nen­tial growth rate. Expla­na­tion of log plots are in high school higher alge­bra text­book or higher math books in the sec­tion on log­a­rithms and exponents.

    http://goldsilverworlds.com/wp-content/uploads/2012/07/gold_price_trendline_2000-2012.gif
    Plots price 2000-end of 2012. The price is almost dou­bled every 4 1/3 years. Or, had a near con­stant growth rate of 17.4% per year growth com­pounded along the strait line. For a total gain of times 1700/250=6.8 times the near year 1999–2000 low. Future may or may not reflect the past. You can see gold price has moved approx­i­mately hor­i­zon­tally after the 2011 peak.
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    Why use Log-scale graphs in addi­tion to lin­ear scale graphs?

    1. Shows con­stant % growth rate as a sloped strait line. Or, con­stant expo­nen­tial growth. A higher growth rate is steeper upward slop­ing line. Faster decay is a steeper down­ward slop­ing line
    2. The same ver­ti­cal dis­tance on a plot is a con­stant mul­ti­plier when going up or a con­stant divi­sor when going down. So, if it goes down by 1/2, to go up 2 times would be the same dis­tance upward. That would be the same for any divisor/multiplier such as 1/10th and 10 times.
    3. Good for long term time series with expo­nen­tial growths. It will stretch out the the lower end and com­press the upper end. Exer­cise com­pare Dow-Jones index in log scale to reg­u­lar lin­ear scale. You will see no detail in the dis­tant past in the reg­u­lar lin­ear scale plot. This prob­lem mainly has to do with con­stant infla­tion rates actu­ally being an expo­nen­tial effect.
    4. Warn­ings: Usu­ally an upward slope does not go on for­ever for real things mea­sured in real units.
    5. Strange­ness: There is no, 0, zero. Because there is no log(0). As you go down you just divide by a num­ber for each dis­tance which will get close to zero but never will.
    6. More info on log plots can be found in an alge­bra text book or higher math that has a sec­tion on log­a­rithms.
    7. Log plots many times can be really cool to use espe­cially look­ing at the past. But, pre­dic­tions from them using expo­nen­tial rates are highly sus­pect. Noth­ing real goes up expo­nen­tially for­ever. On could be tempted to draw a strait line into the future that will could never hap­pen. That is because on the log plot a strait line looks lin­ear but it actu­ally rep­re­sents expo­nen­tial growth. This could be demon­strated by look­ing at the debt to GDP ratio on a log plot before, dur­ing , and after the 1930s, and 2008.

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