The collapse of modern economies is inevitable. The bust is to take place in a few, a dozen or so years. This results from the analyzes published by scientists from the Institute of Nuclear Physics PAS in Krakow.
The visions of Poles are really frightening. Maybe because they give dry data and people who are hard to accuse of quackery or attempt to gain cheap popularity. Black Monday, the bursting of the internet bubble or the collapse of the Lehman Brothers bank – with what awaits us, these events are to appear in the future as sneezes or a slight cough of economies. Such a vision emerges at least from multifractal analyzes of financial markets, presented by IFJ PAN in the letter “Complexity”.
Let’s not have any illusions anymore!
“The data are, unfortunately, quite unequivocally.It seems that from the mid-1920s onwards, a global financial crash of a previously unprecedented scale is highly probable, and this time the change will be qualitative. – tells the media prof. Stanisław Drożdż from the IFJ PAN and Cracow University of Technology.
In its latest publication (available at the link: https://doi.org/10.1155/2018/7015721), researchers analyze various economic data, including Standard & Poor 500 index entries. They took into account the period from January 1950 to December 2016.
What was the main purpose of the study? The idea was to present issues related to the occurrence of multifractal effects. That is, speaking in human language, in which to see the self-similarity, various fragments of the structure under investigation need to be enlarged at different speeds. However, the researchers focused on financial markets and quotations of share prices or stock market indices. Their attention was drawn to the graph of changes in the Hurst exponent, calculated for the S & P 500 index based on multifractal spectra obtained during the analyses.
How to predict the future?
The Hurst exponent assumes values from 0 to 1 and it is used to determine potential changes in the trend of a given phenomenon. For example, if it is equal to 0.5, it defines a fixed phenomenon which – if it is re-examined – shows a similar tendency, in other words – it is immutable. Values below 0.5 indicate already a greater tendency to change. So in practice – in the context of the stock exchange – this means increased uncertainty and nervousness in the markets. Values above 0.5 indicate the tendency of the system to build a trend. So, for example, after the share price increases, we have a better chance of a further price jump.
Translating further into practice, stable markets will have a Hurst exponent of 0.5. And just from 0.5 the Hurst index for the S & P 500 index starts. On October 19, 1987, the famous black Monday collapsed. This event can be seen in the chart – the exponent slightly decreases. Then, however, it remains stable again for over a decade (not counting small fluctuations). At the turn of the century there is already a clear decline, while in March 2000, the internet bubble bursts. The Hurst exponent is again stabilizing, this time for a shorter period. It then grows rapidly to collapse after the bankruptcy of Lehman Brothers in September 2008.
Since this event, the Hurst exponent did not return to 0.5, but it is systematically dropping!
“What also strikes the changes in Hurst’s index for the S & P 500 index is the shortening of time intervals between successive busts and the fact that after each break the indicator has never returned to its original level, we have a clear signal that the nervousness of the global market is growing all the time , for decades, regardless of changing people, business entities or technology “- remarked again prof. Drożdż.
Announcement of the apocalypse?
Each subsequent crash was preceded by smaller swings. These, in turn, preceded even smaller fluctuations. So every bust should be bigger and hurt the market more.
However, the IFJ PAN emphasizes that the future of the economy may be affected by changes in the markets. Remember that physics and mathematics are one thing, and financial markets are characterized by a more complex character. The sociology and psychology of the crowd, not just dry numbers, are also involved here.
Cryptocurrencies a drug for all evil?
It turns out that scientists see the rescue of the economy in … cryptocurrencies.
“The problem is that we do not know what and how it would have to affect the global market to prevent the collapse.” The cure could be, for example, the emerging markets of cryptocurrencies, but are they sure to become one? having knowledge of the necessary changes, it would be possible to introduce them in just a few years – and it does not look like we have more. The future of the world economy from the mid-1920s is so dark, “concludes the IFJ PAN.