Dear Paul,

I hope that my following comment to the Federal Reserve and Congressman Pete Stark (and Delegations of Chinese Congressmen and Chinese Commerce Departmentcan) be of some help to you on your dealing with economists. My other comment on a Permanent Stable Economic System could also provide some ideas to challenge them. Have a good time in San Francisco and a Happy Jumpulse New Year.

Best regards,
Hugh

From Regulation To Deregulation To Regulation By Non-Violable Laws Of Nature

What could be more important than solving the current financial crisis is changing the economic system in the aftermath of the crisis. Regulated central planning system lasts roughly forty years, and unregulated free market, eighty years, before a complete collapse.

Almost everyone agrees that more regulation is needed after the current crisis. The only remaining question is: "How To Regulate?"

Before going back to the old economic system of regulation by man-made laws, Post-Science Institute, which has predicted the S&L Crisis and the Subprime Woe with its solution of value, would like to propose a new economic system regulated by non-violable laws of nature, such as the solution of value and the quantity theory of value, which can be represented by the equation Price x Quantity = Velocity of Circulation of Money x Money Supply, which is strongly promoted by the late Milton Friedman. The new economic system can well be called the Post-Friedman Economics putting the development of economic systems in the proper historical and knowledge perspective.

The current financial crisis is caused by incorrect prices determined by uninformed market participants. Thus, the solution of value for determining the correct price is at the heart of the problem and the cure of most financial crises. The correct solution of value must be used by all market participants, including the government, in order to have a correct market price.

Being completely mathematically rigorous, the post-science solution of value is a non-violable law of nature in social science, as gravitation is a non-violable law of nature in science. After the verification of its mathematical rigor, the solution of value should be used by all market participants so that the market price will always be correct.

The difficulty of the popular acceptance of the solution value lies in its involvement of infinity. Value is defined as the sum total of benefits and losses to infinity in time. Infinity, according to the author of the book "Theory Of Value" Gerard Debreu, can only be handled with mathematics.

Most people, especially, politicians and their watchdogs, reporters, would prefer to avoid mathematics. However, reality is infinite in time and space. The financial crisis offers an opportunity for the world to advance from the current Age of Science to the Age of Post-Science, where exists relevant knowledge of non-violable laws of nature in social science, such as value, and of the fundamental requirement in life and computer science, namely, complete automation. ### Hugh Ching, Post-Science Institute 1-2-2009

Jan. 5, 2009

Dear Paul,

After two days at the annual meeting of economists, I got to meet almost everyone I hope to meet and a quick update on my knowledge of economics. Most important, I was very happy to see my old friend Kenneth Arrow 87 in surprisingly good health. Describing movingly his friend "Leo" Hurwicz, he had tears in his eyes at the end of the speech. He blunted refused to take picture with everyone, but said "ok" to me to take the only picture. We chatted a few times. When I showed him a picture of Milton Friedman having dinner with me and a delegation of Chinese Planning Committee in a book published by my student, he got my joke that its "The Last Supper."

Many economists spoke for fiscal policy, and about an equal number, against. As a mathematician, I commented almost at all the session I attended on the lack of rigor, in addition to handing out my rigorous solution of value and my proposal on an economic system based on non-violable laws of nature.

I strongly believe after this fresh interaction with economists that mathematical rigor, not just mathematical description, should be adopted by future post-Friedman economists, who should add mathematically rigorous solutions to the deregulated Free Market of Friedman and not to go back to ad hoc regulations. Kenneth Arrow and his students in mathematical economics might provide the lead in this direction, with Arrow as the leader. I hope that you can interview Arrow. I have the feeling that he would be just as unwilling about expose himself on TV as in pictures. But, for the benefit of the society and the solution to the current financial crisis, he should stand up and be counted. This is just my view.

Thank you Paul for asking the brave question of "Why didn't you WARN us?" (My email in June of 2006 was responded by the Fed with the message "?we do not with to continue the dialogue" meaning with Alan Greenspan. But, when I wrote the Fed a year later, the reply was "our comments will not be ignored." The Subprime Woe initially flared up in July and August of 2006! Two weeks after our exchange.) I and all your readers are looking forward to your interviews; we all appreciate your fine contribution on the current financial crisis.

Best regards,
Hugh

Paul,
Thanks for being one of the few guys who speaks a language I can understand without the need to resort to jargon. Economics are difficult enough so thanks for giving some much needed clarity on the subject. Keep up the great work my friend.

Dear Paul,

After very, very heavy partying in New Year celebration (until 4 AM), I had to fight off a developing flu with elderberry juice, which stopped the flu, but still left me with a weak recovering body. Your post on the annual meeting of the economists in San Francisco (right at my doorstep) led me to decide to use the recovery period to attend the economic conference instead of doing my regular routine of going dancing during weekend (I invented the Jumpulse Dance for power rap music).

I must thank you for a truly exciting and rewarding weekend (Sat.-Mon.) in the intellectual engagement. In the future, I shall switch to more of this type of intellectual exercise, if it is brought to my doorstep.

The highlight of the first day is meeting you in person. The second day is meeting my friend Kenneth Arrow in person. On the third day, I attended three sessions on Financial Crisis. The first session detailed how the US is doing what it has told the Japanese not to do ten years ago during the Japanese banking crisis. The second session ended in an intense criticism and thorough dismissal of one of the few innovations for the crisis: Buying You Own Mortgage (BYOM). The third and the last session of the conference was the most suitable for me: The contribution of knowledge to the current crisis.

The presenter of the BYOM paper has a perfectly logical argument that before a house is foreclosed the owner should be given a chance to buy back the mortgage at the "market" price of the house. The proposal is practiced in Denmark and would stop many unnecessary foreclosures, which are generally a loss-loss situation for both the owner and the bank. But the discussant (who comments on the paper and is usually an economist more senior than the presenter in the same field) completely discredited the innovation as non-workable. As a practitioner with long experience in stock trading and very long experience in real estate trading, I pointed out at the session that both the presenter and the discussant miss the crucial point: The Auction Price. They both miss the point because I suspect that they have never sold a single house; they lack practical experience in real estates.

What causes the real estate market to crash is real estate auctions, not just foreclosure. The auction, when in significant number, typically depresses the price by over 50% of the market price under normal sale condition. For example, using a realistic case, a condo sold for $160,000 might now have a appraised price of $90,000, but an auction price of just $40,000. If the auction price, instead of the market price, is used in the BYOM proposal, the presenter has a theoretical logical and practically significant innovation for the current crisis.

The final Crisis session was presented by several well-trained young intellectuals from famous universities. They began with the statement that when the government starts to ask theoreticians for help, we know that the problem is really serious. The data presented were of the highest caliber, and the discussants were among the sharpest and deepest thinkers in the conference. However, I managed to get in my last disturbing question, as usual, by asking them, all of them, if a correct solution of value can be found which can flatten out the oscillating price curve to a straight line, what would be the effect of this solution of value on their conclusion? Basically, they have no answer.

The problem of today's economists is that they have no practically experience and think about economics using method they learned from their teachers, who are also without practical experience. If they have practical experience, they would know that the crisis starts with the wrong price, as all real estate brokers and appraisers know. More precisely, the Fed was not aware, as I describe to the audience in the session, that every percentage change in interest rate translates into 9% change in price. Having raising the fed rate from 1% to 5 ?% lowered the price by about 50%. The cure of the financial crisis is to determine this straight line of correct price and to stop the instability from determining the price.

Not having business experience and, thus, without actual data, the theoretical economists have to use qualitative concepts, such as preference ordering, uncertainty, risk, shock, etc. But, what is interesting is that the quantitative methods and solutions from Post-Science Institute, which I founded, agree with their conclusions, if their methodology is mathematically rigorous, such as those produced by Arrow and Gerard Debreu, and their students.

What I left out in my "question" is the left side of the Quantity Theory of Money: Price x Quantity = Velocity of Circulation of Money x Money Supply. Even if the monetary problems are solved, the demand for money would not be there because of the lack of revolutionary innovations, which can generate demand and raise the Price of the Quantity. Next year in Atlanta, these young men will again present their views on the old and new issues. However, as I point out to several new friends I made at the conference, the real discussion is at the Federal Reserve and the Treasury, and submitting papers to conference is when there is nothing of substance to say and usually are outdated by the time of the conference. Accordingly, most of the sessions I attended have presenters from the Federal Reserve, so I would still be communicating with the Federal Reserve even at the conference. Even though I spend most of my time dealing with the Federal Reserve and the Treasury, but I still managed to present my views at the conference by asking the last question, which is often the only question due to time limitation. You readers, if they have some significant solutions to present, they can also try my method.

Thank you again for calling me to the opportunity to participate in the exciting intellectual exercise and to learn about the latest developments in economics.

Best regards,
Hugh