The Financial Matrix
How Financial Sorcery Conjured a Hyperreal Economy
New to the series? Start with our foundational post on Hyperreality for essential context, or explore the full Table Of Contents.
Part of the Sorcerer’s Apprentice series. Originally released privately on January 13, 2021 as part of a comprehensive white paper. Updated and revised for public release on June 7, 2024, with previously omitted content restored for completeness, edits to improve readability, and enhanced graphics.
Journey into the heart of our financial system to reveal the emergence of a hyperreal Financial Matrix—a simulation that has taken on a life of its own, untethered from the real-world economy it once aimed to represent.
High Altitude—Financial Markets Between Reality & Simulation
We find ourselves captivated by Michael Najjar’s artwork (above) entitled “high altitude—financial markets between reality and simulation”. In this visually arresting piece, Najjar digitally reshaped the terrain of a (real) mountain by re-mapping it to reflect the (virtual) data mountains of world stock market indices over the past decades—the mountain apex marks the peak that preceded the 2008 Crisis.
Najjar’s art evokes Baudrillard’s retelling of Borges’ fable in which the cartographers of a powerful Empire created a map of its territories so intricately detailed that the map was as extensive as and indistinguishable from the Empire itself.
As the actual Empire collapsed, its citizens unwittingly began to live within the symbolic abstraction that they themselves had forged; the map was so vividly real to them that they entirely forgot the reality of the collapsing Empire outside of the map’s boundaries. They exchanged the real for mere symbols of the real (a map), yet all of their actions remained constrained to the map, rather than the real territory it once represented.
The Financial Matrix
Similarly, we investors now find ourselves inhabiting just such a meticulously constructed map long after the Empire has collapsed. Like the woman in The New Yorker cover, we too have become so transfixed by the virtualized symbols and representations flashing on our screens that we have long since lost sight of and neglected the real-world substance that the symbols were intended to represent. We have become so convinced that “the medium IS the message” that we have forgotten to seek and tend to the meaning that the message was originally supposed to convey in the first place.
A new kind of financial market has emerged—a hyperreal Financial Matrix—that bears only the most superficial resemblance to its predecessor and instead more closely resembles the virtual markets found within videogames such as Roblox, Second Life or World Of Warcraft (which themselves tend to suffer bank runs, hyperinflate, and collapse).
This Financial Matrix operates according to its own self-referential logic and is untethered not only from its historic purpose of coordinating the “real” economy it was meant to represent, but from any semblance of objective reality at all.
The survival of the Financial Matrix has become the all-consuming obsession of central bankers and policymakers—as starkly illustrated by the fixation of leaders like Donald Trump on stock indices as the supreme symbolic measure of both his own and the nation's success.
This myopic focus is amplified by the Federal Reserve's explicit statements and actions—making it abundantly clear that the Fed must sustain this Matrix at any cost, lest the carefully constructed hyperreality collapse in upon itself. The videogame-like Matrix is the economy now.
So great is our dependence on the price of the S&P 500 that a hostile actor need not resort to conventional warfare to bring us to our knees; the mere placement of a sufficiently large sell order—or even the artful dissemination of a sufficiently credible piece of disinformation—could potentially trigger a catastrophic "flash crash" that would reverberate across the globe, leaving economic devastation and social upheaval in its wake. Pixels on a screen are now able to wield more power than bullets on a battlefield.
The Sorcerer’s Apprentice
It is difficult to avoid drawing parallels between today’s hyperreal Financial Matrix and Disney’s The Sorcerer’s Apprentice, in which Mickey Mouse plays an impetuous and inexperienced young apprentice to a master sorcerer. The sorcerer tasks Mickey with the chore of filling a large cauldron with water. Mickey—weary of having to fetch water by hand with a bucket—uses his master’s magic book and casts a spell on a nearby broom to automate the task for him.
Initially Mickey is delighted as the broom springs to life and begins fetching the water for him. Unfortunately, the situation soon spirals hopelessly out of control: the broom will not stop filling the cauldron even after it is full. Mickey is no longer able to control the spell; the broom no longer obeys him. In desperation, Mickey chops the broom into small pieces with an axe, but this only compounds the problem as he inadvertently creates a self-replicating army of enchanted brooms.
Before long, the workshop is completely flooded and Mickey has no choice but to call his master for help; the Sorcerer reappears, breaks the spell, and the broom falls lifeless to the floor.
One moral of the Sorcerer’s Apprentice is that automated tools that promise to magically make life easier can instead unleash forces that wreak havoc and become increasingly independent of human intervention. The magical broom was imbued with a singular purpose and not only did it remain focused on this goal—regardless of actions taken by its creator Mickey to try to stop it—it multiplied itself and became even more efficient at achieving its intended purpose.
Just as Mickey's enchanted broom monomaniacally pursues its task heedless of the consequences, so too have the panoply of modern finance “innovations”—from quantitative easing to “black box” algorithmic and High Frequency Trading, to subprime debt securitizations, to the proliferation of ETFs (exchange traded funds), and beyond—taken on a life of their own, pursuing their programmed directives with little regard for the wider consequences.
Today’s central bankers, economists, and investors have—like Mickey— become prisoners of their own enchanted instruments.
Man has, as it were, become a kind of prosthetic God. When he puts on all his auxiliary organs he is truly magnificent; but those organs have not grown on to him and they still give him much trouble at times.
Sigmund Freud, Civilization and Its Discontents (1930)
Up Next: Meme Magic
The story doesn't end with the emergence of the Financial Matrix, however. In the next installment, we'll explore how the very ideas and narratives we create and share have the power to shape our perceptions, beliefs, and ultimately, the very fabric of our economy and society.
We'll explore the world of “meme magic,” where self-replicating ideas compete for dominance in the collective consciousness and the Financial Matrix—blurring the lines between the real and the unreal in society and markets alike. We'll discover how memes are actively conjuring a new hyperreality—one where the power of belief and narrative intertwines with monetary policy and other forces to move markets and shape the course of history.
Join us as we journey into this new realm where the collective imagination becomes a potent force in the economy—and beyond.
#multiflation