Money and Debt
There are people who abhor debt and who see all kind of evils that come with consumer credits. While there are a lot of reasons for one to think that way, we must realize that in our economy money and debt are intricately linked.

Assuming that you are a financially responsible person that saves on a regular basis, while you watch your net cash position grow, do you realize that somewhere else, be it the governments, companies or consumers, someone must be adding the same amount of debt (or reducing the net cash). All the money and debt must sum up to a constant as long as the Federal Reserve is not monetizing debt. For new money to be created someone must take out new debt. And if someone pays down his debt the total money in the system is reduced.

How counter-intuitive one might say. Does it have to be like this? Why can't we all be cash positive? Yes it is possible to forbid debt and use money for trade only. And it is even possible to pool money resources through stocks instead of debt. However assuming we are living in a productive economy that net add products over time, we must create new money or we will have deflation. In a deflation, people simply holding cash without investing get a free ride. Assuming we can agree that we don't want deflation, we must somehow inject new money to represent our new net worth through our productivity and award people who contribute to the productive economy appropriately. One way to do it is to assume we can have an all-knowing bureaucracy who can decide how exactly new money (representing resources) can be allocated. Well that model is called the "socialist command (or planned) economy". And we all know how well that worked, or I hope so. Another way is to attache a value to the new money and sell it to the highest bidder. The value is the interest rate and the selling is debt creation. You see when someone takes out a debt, he must decide that his return is higher than the cost (the interest rate his loan bears). Do we recognize capitalism here? In a way capitalism is the flip side of democracy. We are letting each person decide in their own way how new money should be best spent, and in the process accomplishing the resource allocation problem for the economy. And that is why debt is so integral to a growing economy. It creates money and allocates resources in a distributed fashion, not through a central command. Like in a democracy, there are uninformed voters, special interests etc, in our capital allocation scheme there are uninformed consumers, overgreedy myopic businessmen, gamblers etc. But just like we haven't found a better political system than democracy, we haven't found a better resource allocation scheme than capitalism.

A related question is whether it is better to tie our money creation to gold. The answer is a decidedly no. You see in our current system we have a central bank that controls money creation through interest rates. At least they are trying to monitor the economy and price levels and trying to make the economy as a whole run as smoothly as possible. They may do a poor job but at least they are some kind of built-in feedback self regulation. If we instead turn to gold we basically throw away our control and tie our fate to gold prodution. If new gold can not be found as fast as economy grows we have deflation. Otherwise we have inflation. (Yes the gold rush of the West did cause inflation!). Not to mention that gold is a metal of marginal utility and we will be dedicating a significant portion of our resources to find new gold. For the most part of human history, the quest for gold brought more destruction and pain than good. We certainly do not want to go back to that.

Market Inefficiency?

By definition a well functioning market is efficient at matching supply with demand, and therefore we should presume that market is efficient at pricing any asset at a given moment. Even for assets that are relatively inliquid and non-transparent like the real estate, we can still presume that the average pricing is set correctly to balance demand and supply.

I cringe when people claim that a certain property is mispriced and therefore there is an opportunity to make money on it. I believe in market efficiency. While even if there is mispricing I believe I will be the last one to know about it and won't be in a position to take advantage of it and I believe most people are in the same boat.

Do we then despair that there is no investment opportunity other than for the professionals? No far from it. I just want to caution the thinking that one can get a bargain for nothing. There is always something traded and we want to be aware of the additional factors other than asset and dollar changing hands.

Chimp Genome
Thanks to JZ I learned that the complete chimpanzee genome is out in Nature. The articles comparing chimp genome to ours are fascinating. It will take me a long while to digest them, but the first thing that came to my mind is that in face of this how anyone could doubt our kinship with the chimps, and, by extension, evolution. It is a total waste of time to argue with ID. You can never convince people who do not want to be convinced. As for school curriculum, let's just put all these new facts that no one can argue with into the textbooks. Even my kindergartener would find ID totally contrived if they ever succeed in putting ID into the textbooks as well. Plus there are already all kinds of indoctrinations going on anyway, the foremost being the daily Pledge of Allegiance. What more harm could ID do?

Neutron Stars and Black Holes
My five and half year old boy loves science too. He is currently infatuated with astronomy. He did get quite upset after he read that our solar system won't last forever and it took me a while to calm him down. Now he obsesses about neutron stars and black holes. These are truely mind-boggling stuff even for a quasi-physicist. When I studied physics my interest was mainly down on the earth. The other day he asked me what the temperature is inside the neutron stars and the black holes. This was beyond the encyclopedia he was reading, so we tried to look up the answer on the web. I can't say we got a straight answer.

This lecture note says the surface of the neutron star is 1000000 K. But it also says that it has crystalline iron crust. Hmm, is iron solid at this temperature? Because of the incredible pressure caused by the gravity? And how hot does it get inside for protons and electrons to get crushed into neutrons?

Black holes get even more confusing. This link first says:"It turns out that all the possible standing wave states are equally probable." Okay that seems to say that the temperature inside is infinite. But then it goes on to calculate the temperature to be: "if we measure the mass-energy M of a black hole in units where the mass of our Sun is one, then the absolute temperature of the black hole is 6 × 10-8 / M Kelvin". So now it says the temperature is at close to absolute zero. Ha! I am guessing that the second temperature is what appears to us. Since an ideal black hole would not let anything out it should appear to be at absolute zero. The little radiation loss due to QED makes it appear to have a wee bit thermal temp above zero. But how come inside the black hole its temperature is infinite? Simply due to the singularity? How does one reconcile the two?

I am asking an old friend who is an astrophysicist to see if he knows. If I get answers I will post them here.

Hi universe :)

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