The Basel Algorithm

Robert W. Harms, President, Iscient div. of LitA pg

The world's most potent and increasingly complex algorithm grew out of real (grey-matter) intelligence and took 100 years to understand, massage, and finesse to manifest in silence - without fanfare or accolade in the time of COVID-19, 2020

In 1910, following another near cataclysm of the US and European banking system, Paul Warburg facilitated, on JP Morgan's private resort on Jekyll Island, the invisible crafting of the Federal Reserve concept and machinery. This secret program (instruction set) would rule the Turing Machine of the US Treasury and remove the burden of all major international banks from having to confront the elected stewards of the body politik. The new program was based on the same model of control as the centralized Bank of England (whose mischievous architect was the inexorable Nathan Rothschild). After a couple of years of insidious lobbying of and in turn by the US Treasury Department, the Federal Reserve Act became law, and the central banking system - the lender of last resort - immediately became the engine behind the central processing unit for the Bank for International Settlements (BIS), World Bank, IMF and central banks everywhere.

The headquarters of the BIS is in a little building in the center of Basel - a small city that very few know about and even fewer know where about. From the windows of the BIS, one can see the confluence of the borders of Germany, France, and Switzerland - it is a building that everyone ought to care about. This unromantic structure and its monthly charge of brains form the central processing unit and instruction set of the world's most important algorithm.

For two days each month for decades, the Chairpersons of central banks around the world have converged, along with the BIS chair, to examine the information about economies, politics, and financial position (and design) of all important nations. Without formal documentation, the group of untouchable minds take decisions on what to do with the world's money. Their analyses and conclusions become the instruction set for Turing's devices - brains - a grey-matter instrument that preceded the German Enigma and its ever-changing, cryptic calculations.

The process of assimilating all available information, analyzing it and determining the course of action for all central banks, is an algorithm - one which I have taken sole liberty to name 'the Basel Algorithm'. It is approximately one century in the making, during which time it has been used to sculpt and allegedly rescue the world's economy many times over - a process rarely disclosed or understood.

The face of exhaustion - when the formidable mind of Paul Volcker met with the contra-intelligence tactics of US Congress, the weight of the world sat precariously in the balance. Whether hero or a villain, he was lead architect for a decade of Basel Algorithm design and refinement.

What Does it Do?

Standing at the edge (on one side or the other) of a conspirator's universe, imagine just some of the amplifiers and attenuators that central bankers put at their fingertips, and the parameters they control: e.g., choke the UK of pounds and watch the precarious balance of imports and exports heave and contract, its inflation and trade sent into turmoil along with currency exchanges; over-supply Germany with Euros and elevate the cost of all Krupp manufacturing for the world's mines; increase the central bank interest rates, and independent banks follow suit, thereby putting pressure on lending and interest payments by smaller banks, merchants and individual borrowers everywhere. In each nation, there is a mind-bending, inordinate number of dynamic and immediate inter-related causes and effects, factors, and downstream consequences.

At the more abstract level, the micro and macroeconomic sets of changing conditions have direct, live connectivity and impacts on adjacent and trading nations globally, further compounding the DNA of the algorithm. Instantly, an observer finds her or his limit to their own mental faculties - it is simply not possible to visualize or mental fathom the data in the algorithm, let alone its instruction set or exponentially transcending implications. But, that is how it has been done - by a small group of people, talking casually in a smoke-filled room, with a little scotch after dinner.

The fluidity of international - indeed global - capital flows, is governed by each and any of the aforementioned adjustments. It is a fearsome thought to be those at the control panel where the buttons have infinitely fragile micro-metrics to ignite magnificent forces and the pressures on billions of people. Indeed, high tension and very loud arguments have occurred at the BIS offices in Basel, as the central bankers have been under enormous stresses to ensure that their individual economies flourish (or, at least not perish) while attempting to accommodate the turbulence of each other's worlds and the cohesive international banking system as a living, breathing creature. Ultimately, the group achieves consensus by consensus. They need it. Some necessarily concede more than others.

All in all, the convulsions of policy effects are best described as necessary chaos, like the turbulence behind an airplane wing - the non-linear disturbances in what is ultimately a zero-sum game - giving and taking - and granting the citizens another year of hope against economic peril, or otherwise.

It would take more than all the power of our theoretical computer science to design the perfect algorithm for global monetary policy adjustments, including the self-monitoring and continuous feedback learning processes to keep it current with real-time global events. By extension then - today's Basel Algorithm version cannot be perfect. It contains and produces uncertainty, and with it - enormous risk. Accordingly, it undergoes experimentation and modifications, adjustments and reconfiguration - endlessly.

Grace Under Pressure

The Basel Algorithm has been stress-tested time and again since its original coding in 1910 - tested as a force of heroism and villainy and as a 'last resort' for saving international banking systems such as the major institutional US banks in the 1970's, Argentina and Mexico in the 1980s, the collapses in 1930 and again in 2008. For each of these supernova events, some blame the algorithm - some blame the valve manager. It all depends on your perspective - behind every algorithm is a motive.

Regardless of whether a person damns the intentions of the central banks as malicious new order elites, or considers them the angels of financial salvation to bring solace to nations' economies in times of game-ending gravity - the algorithm is alone in its ubiquity and temporal continuum.

What was, at its inception, a brilliantly constructed fortification from US politics and public influence, has evolved with the support of accelerating computing power and data input granularity to a point where the total fluidity of the world's commerce is dashboarded for the Chairs of controlling institutions. The algorithm's data is acquired and monitored in an endless cycle - ever-increasing in multi-dimensional volume like a cosmic nebula of big data and dark matter. The instructions churn perpetually to correlate data patterns, factors, and consequences - it becomes increasingly 'intelligent' and lights up infographics to grant the Federal Reserve board real-time images of global financial metrics and vital statistics.

Perhaps the most difficult aspect to comprehend is that all algorithms - in fact, all intelligence (real or artificial) - is primarily a function of pattern recognition. Sensory data of sorts are found, assimilated, and studied with the purpose of correlation, differentiation, and pattern finding. All biological neuron-based systems create patterns. All animated activity draws patterns. All humans operate in patterns. All collectives form and behave in patterns. Therefore, machine learning, deep learning, and mutations toward artificial intelligence are based on understanding and creating connections and differentiation in patterns. It really is the coolest thing. If one datum is similar to another but different again from a third - it is the beginning of a level of a pattern. The measure of intelligence may be considered as the degree of pattern identification by the algorithm.

To imagine the Basel Algorithm at work is to envision an astonishingly beautiful creation of logic and abstraction. Its arches, curves and strong core are ever-shifting and adapting to its environments and circumstances. Over the last century, it has galvanized to the function and purpose of all key socio-economic factors on the planet. From a purely scientific perspective - the algorithm is a majestic, nearly organic lifeform that communicates with a select few in the position of ultimate control. As the father Rothschild - Amsel Mayer - is credited: 'He who controls the supply of money (Feds) need not bother themselves with those who make the rules (politicians)'. It has been the mantra of the Rothschild empire - it is neither good nor bad in itself - it is simply the means to an end - like all algorithms with any degree of complexity.

Beauty, Strength, and grace in a (nearly) perfect, thinking model

To the rescue of many folks in 2020, like the financial collapses and near collapses in years past - the latest Basel Algorithm edition is busily working for the world's central bankers in calibrating monetary policy scenarios during the time of Covid-19. The mainstream media is excited to herald the calm and quiet voice of the central bankers who declare that they have 'all their tools' to the reassurance of billions of people caught at the precipice. Almost none dare to probe the dark operation of the system that decides if we get more fiat or we don't, and at what interest rate. And that is pretty much all they need.

But, monetary policy tools are neither the beginning nor the end of an algorithmic sequence - they are simply the valve in the very middle. Loosen the valve to relieve the banks, the governments, the merchants, and the citizens - enticing the fire-breathing inflation dragon out of its den. Tighten the valve, and another dragon - the self-correcting economy - flies in to incinerate the homes of millions of innocent families. Tough call. We need an algorithm.

In order to keep all of us focused on economic recovery and the promise of prosperity, central banks must not show their prescient compromises to the public. After all, what results might come eventually (and they must come) from the algorithm instruction set to prescribe our collective finances as we come face to face with unfathomable debt? Next president's problem (although she/he has no hand on the valve handle).

(c) 2020, R W Harms

From Jekyll to hide (behind the pretext of a federal government institution), the algorithm behind the ever-fragile economy has continued to be forged and sculpted over two days each month in Basel for decades

post-script 1: Over many years, the face of the Basel Algorithm has changed - Volcker to Greenspan to Powell. Curiously, these faces and voices have become more gentle and quiet with each nomination, while their potency has compounded in stride with national debts.

post-script 2: A curious note for another discussion - the US Congress on several occasions has nearly wrestled control away from the central banks. Can it be imagined what politicians might do with the only control valve in the world's economy? A many-headed hydra playing with dragons.

post-script 3: Please contact the author for suggested reading