Open Communications with the Fed and Fed Chairman Ben Bernanke

Subject: How To Set Interest Rate: Interest Rate Should Be Greater Than Inflation And Less Than Expected Rate Of Return (Rate of Return > Interest Rate > Inflation Rate)

Dear Dr. Bernanke,

A rational society must be led by knowledge. The Fed should be the knowledge leader in finance and is in a position to make a historical breakthrough in the knowledge of how to set the interest rate.

There is ample evidence in the past few decades to verify the significance of the relationship for setting interest rate: Interest Rate Should Be Greater Than Inflation Rate And Less Than Expected Rate Of Return (Rate of Return > Interest Rate > Inflation Rate).

Starting with the double-digit inflation of the late 1970s, the interest rate had to be raised to such a high level to surpass the rate of return, causing the US Savings and Loan Crisis. In the early 2000s, the interest rate had to be lowered to below the inflation rate to stimulate the economy. In the mid 2000s, the interest rate was raised rapidly to a level which lowered the rate of return and, thus, causing the rate of return to fall below the interest rate, resulting in the current subprime woe. In the past several months, the interest rate started to fall and threatened to move below the inflation rate, which, moreover, would be raised by the low interest rate.

The oscillation of the economic instability is growing toward an inevitable total collapse and must be stopped. The key to stop the vicious cycle of economic downturn and the instability of economic oscillation is a method for calculating the expected rate of return or, in formal terminology, the solution of value.

According to the incomplete solution of value by Gerard Debreu and Kenneth Arrow, who have solved the spatial part of the supply and demand model and neglected the temporal part, no one even knows how to determine the price; the rate of return is calculated based on the price.

The solution of value, where value is defined as the sum total of all the benefits and losses from now to the infinite future, is disclosed in the patent “Quantitative Supply And Demand Model Based On Infinite Spreadsheet” (Pat. No. 6,078,901) and commercially available as the Infinite Spreadsheet at:

The Infinite Spreadsheet for price determination involves about 100 finite spreadsheet calculation in a single iterative loop. Only with sufficient experience in the development and market testing of the Infinite Spreadsheet price system, the Infinite Spreadsheet for the rate of return calculation can be developed and involves a double iterative loop.

The solution of value was initially conceive in 1972 and had been market tested and commercially available (e.g. on CompuServe) for over 30 years, since 1975. It has successfully predicted the US S&L Crisis and the current Subprime Woe, as described in the above mentioned patent and the enclosed email to the Fed Chairman in June of 2006.

The Fed should start a process of search for a correct method for the determination of the rate of return. The familiar P/E (Price over Earning) Ratio is the zeroth order solution. The former Fed Chairman Dr. Alan Greenspan uses the first order solution, which takes into consideration the growth rate. None of these solutions can take into consideration the interest rate. The Infinite Spreadsheet is an exact solution of the expected rate of return on investment and, thus, must include the interest rate.

With the commercial availability and disclosure in a patent of the solution of value and the Infinite Spreadsheet from the Post-Science Institute, the search by the Fed for a correct method for the determination of the expected rate of return is guaranteed to be fruitful. The world needs to know how to set the interest rate. By now the choice is clear: Either we will find the correct economic solutions or be continually punished by financial crises.

Enclosed please find the open communications between the Fed and Post-Science Institute. I really appreciate your sincere openness in trying to find answers to our economic problems.


Hugh Ching, Sc. D.
Founder and President, Post-Science Institute

Subject: Response to your email concerning: Board Members
Date: Thu, July 20, 2006 6:50 am

Dear Mr. Ching:

This will acknowledge your most recent letter. While we appreciate your continued willingness to share your views, I regret that we will be unable to continue the dialog.


Public Affairs Office



First Name: Hugh Last Name: Ching Profession: Mathematical Scientist
Organization: Post-Science Institute
StreetAddress1: PO Box 461
City: Berkeley State: CA Country: US Postal Code: 94701

Email Content:

June 2006

Dear Dr. Ben S. Bernanke, Chairman of Federal Reserve Board,

We would like to introduce you to our deterministic valuation system which related the interest, inflation, and return rate in a system where the number of equation equals the number of unknowns (deterministic). The system is known coomercially as the Infinite Spreadsheet and has predicted the US Savings and Loan Crisis by detecting over-valuation of the real estate market in the early 1980s.

The current real estate interest rate, if continue to rise, might put the real estate market out of the logic order of the economic factors. the logic order is that the interest rate should be greater than the inflation rate and the rate of return should be greater than the interest rate. As the interest rate rises, the rate of return calculated by the Infinite Spreadsheet will decrease. Now they are very close already.

The Infinite Spreadsheet is the exact solution to valuation, as the P/E ratio or the capitalization rate is the zeroth order solution. You can use the Infinite Spreadsheet for free. The Infinite Spreadsheet Stock Valuation System is at: which has proven to be as reliable as the Infinite Spreadsheet Real Estate Valuation System: and which allows 100 years time-varying inputs. Thank you for your consideration.

With best regards,

Hugh Ching

[Editor’s Note: Two weeks after the above communication the real estate subprime woe starts. The following communication ensues when Fed Chairman Bernanke declared an open communication policy.]

Subject: Response to your email concerning: Board Members
Date: Fri, February 1, 2008 12:32 pm

Dear Mr. Ching:

Thank you for your most recent correspondence to the Federal Reserve Board and for your suggestions concerning the subprime mortgage issue. We appreciate your taking the time to share your thoughts with us and want to assure you that the concerns you have expressed are not simply ignored.

The Federal Reserve shares your concern and continues to work to find and implement the best and most sustainable solutions to the current challenges with regard to subprime mortgage lending. Along with the other federal banking regulators, the Federal Reserve significantly expanded subprime lending guidance in 2001, issued guidance on non-traditional mortgage products (such as payment-option and interest-only loans) in 2006, and issued guidance on adjustable-rate subprime mortgages last year. Again, thank you for your suggestions.


Board Staff



First Name: Hugh
Last Name: Ching
Profession: Scientist
Organization: Post-Science Institute
StreetAddress1: PO BOX 2336
City: Fremont State: CA Country: US Postal Code: 94536

Email Content:

Subject: The Solution To The Current US Subprime Woe

Greenspan put the brake on the Internet stimulated stock market and economy in 2000 by reducing the money supply. To rescue the Internet caused market and economic crash, he lowered the interest rate to the embarrassingly low level of 1%. The low interest rate stimulated the low- tech sectors of the economy, mainly, housing and auto. The Subprime Woe is caused by the oversupply of housing and the raise of interest rate to 5.25% in two years by Bernanke.

Post-Science Institute sent Bernanke an email in June of 2006 warning him of the effect of the high interest rate and the imbalance of the three economic rates, whose logic order should be: Inflation Rate < Interest Rate < (Expected) Rate of Return As the interest rate rises, the rate of return decreases. The rate of return is an approximate time-invariant quantity; it changes slowly with time because investors' expectations changes slowly. Bernanke, thus, has changed the interest rate both too high and too fast.

The long-term solution for the Subprime Woe is for the Fed to observe the rational order of the three economic rates (Inflation Rate < Interest Rate < (Expected) Rate of Return).

However, the Fed does not know how to determine the expected rate of return. The Infinite Spreadsheet, invented by the Post-Science Institute, can determine the expected rate of return.

The short-term solution for the Subprime Woe is for the bank to lower the mortgage payments of struggling home owners to an affordable level in exchange for a slight increase of the interest rate. The expected rate of return for real estate is around 10%.

Increasing the mortgage interest rate from, say, 6% to 6.25% should not affect the home owner too much financially, but reducing the payment, say, from $2,500.00 to $1,000 could mean whether the homeowner can still live in the house.

The infinite spreadsheet is a non-violable constrain on human behavior; it is a law of nature in social science. For example, the short-term solution for the Subprime Woe is good for a finite time, but not good for an infinite time.

The short-term solution is designed to prevent the economic vicious cycle of Price Reduction to Foreclosure to Bank Auction to further Price Reduction to excessive Foreclosure to massive Auction to extreme Price Reduction, etc., etc. The positive cash flow resulting from lowing the mortgage payment should reduce Foreclosure, which is a key link in the economic vicious cycle.

The US government must act quickly to stop the economic vicious cycle due to the Finite Spreadsheet Instability, which is brought about by the lowing of the rate of return by a decreasing price when viewed from the point of view of a finite, not an infinite, time. The vicious cycle of economic downturns of the Great Depression of 1929 and the recent US Savings and Loan Crisis were both caused by the Finite Spreadsheet Instability. Sincerely, Hugh Ching

Subject: Permanent And Fair Policies Based On Laws Of Nature (Reply to Response to email concerning: Board Member 7/20/2006 and 2/1/2008)

February 5, 2008

Dear Board Staff JPD and Chairman Bernanke,

Thank you for your candid and detailed responses to my suggestions to the Fed in June of 2006 and January of 2008. In addition to my previous practical suggestions, I hope that the Fed will consider the following fundamental differences between post-science and the current scientific social science.

The solution of value, commercially known as the Infinite Spreadsheet (patent 6,078,901), is a non-violable law of nature in social science based purely on mathematical rigor, as gravitation is a non-violable law of nature in physical science based on empirical verification, a standard far less rigorous than the mathematical rigor. The Infinite Spreadsheet states simply that if we take into consideration all the factors affecting the price to infinity in time, the price system, which includes the rate of return, the interest rate, and the inflation rate, is deterministic, in which the number of equations equals the number of unknowns.

In practice, Fed policies should be permanent, fair, and based on laws of nature. For example, my suggestions to Fed have been designed to be applicable to infinity in time, fair to both the home owners and other taxpayers of the society, and based on the Infinite Spreadsheet, a law of nature in social science.

A long-time ago around 1990, I restructured a loan for a large restaurant in Palo Alto, CA using exactly my suggestion to the Fed. The bank involved was

Union Bank of Oakland
1970 Franklin Street
Oakland, CA 94612
ph: 510-891-9505
fx: 510-891-2444

I proposed that the bank reduced the payment from $14,000 per month to $4,000 and increased the interest from 12% to 13%. Because the rate of return for small businesses, which can only be surveyed with the availability of the Infinite Spreadsheet, is around 40%, the 12% to 13% interest change should not affect the business operation, but the reduction of $10,000 cash flow would. The suggestion was approved favorably by the bank regulators, in particular, concerning the reason for the change, and, in appreciation of my suggestion , the whole branch of the bank invited me, the director of the owners of the restaurant, not the owners, to a banquet at the VIP room of the restaurant.

Fed policies which JPD stated in the response to my email are not fair to the rest of the society and are temporarily designed for the current crisis. Most importantly, they are not based on any law of nature.

As the holder of the patent on a solution to value, I am thoroughly familiar with the current state of economics. Not only that no one has a deterministic price system, no one has a usable system. In particular, having to assume a resale price in order to determine a price, such as in Black and Scholes Model (assuming a flat future) and Argus Financial Software (assuming a resale price), defeats the purpose of price determination.

Furthermore, the Infinite Spreadsheet Stock Valuation System calculates the rate of return, since the price in the form of the quote, is given every second. The price is calculated through a single iterative loop involving over 100 finite spreadsheet calculations. The rate of return involves a double iterative loop with over 100 x 100 = 10000 spreadsheet calculations. To see an example of the Infinite Spreadsheet stock rate of return calculation, please visit:

To get a quick view of the system, just click the yellow “Calculate” button. If the screen asks “To terminate the calculation?” Click “No” until the calculation is done in about 10 seconds.

I believe that it will take the society quite a while to catch up with our deterministic rate of return calculation, while the oscillation of the current financial instabilities in the real estate and stock markets is threatening the recurrence of the likes of the Great Depression of 1929. The current subprime woe has some real substance in its making; the overproduction of real estates due to the historically low interest rates might inactivate the contributions from the real estate sector for some times to come. The continued lowering of the interest rate might drop it below the inflation rate to cause excessive inflation.

Generally and fundamentally, I am in direct disagreement with my old friend the late Dr. Milton Friedman. The market is not free. It is regulated by non-violable laws of nature in social science, which are an order of magnitude more complex than science (50 variables, e.g. inputs of the Infinite Spreadsheet vs. 5 variables). As the regulator of the interest rate, the Fed has to be for regulation, but the regulation should be based on laws of nature, not arbitrary temporary man-made laws. In this regard, all the laws of nature in physical science are discovered not man-made.

The recent changing moods of the Fed is undermining the credibility and the authority of the Fed. Regardless how badly things look, the Fed must act in a fair and stable fashion and become the top authority in finance. This authority must come from knowledge.

However, I applaud the recent Fed’s open door and open-minded policy, even though it comes as a result of crisis management. My suggestions or any rational suggestion should not be the result of crisis management, yet I am impressed by Chairman Bernanke’s character as reflected in his recent activities. He still has the hope of becoming one of the greatest financial leaders of our time, if the revolutionary transition from science to post-science is successful through the action of the Fed. I would be glad to contribute my solution of value to Chairman Bernanke for the rationalization of the policies for setting interest rate. Thank you for your very kind consideration.

With best regards,

Hugh Ching

Subject: A Completely Irrational Society: From Irrational Market Participants To Irrational Regulators, Finite Spreadsheet Versus Infinite Spreadsheet

Science dominates today’s culture and deals with phenomena of finite duration. Empirical verification, the standard of rigor of science, is possible when an experiment occurs within a finite time. The most popular spreadsheet is Excel and calculates for a finite time.

Value depends on the benefits and losses to infinity in time. Social science must deal with time extending to infinity. Infinite time cannot be subjected to empirical verification simply because infinity never arrives. Social science involving infinity observes the rigor of mathematics, which is needed to handle infinity.

From Immanuel Kant to David Hilbert to Gerard Debreu and Kenneth Arrow, reality is considered to be infinite in time and in space. Georg Cantor invented set theory to handle infinity, and Debreu and Arrow use set theory to obtain the spatial solution for the economic problem of supply and demand, but they neglect the temporal solution.

Market participants in a culture dominated by science are irrational because they use the finite spreadsheet. Regulators are irrational because they cannot determine the correct price based on which the loan to value ratio should be determined. In particular, the Fed does not know how to regulate the interest rate because it does not know the relationship among the interest rate, the inflation rate, and the rate of return. This relationship is given in the Infinite Spreadsheet, a valuation software developed by Post-Science Institute, which has solved the problems of touch, value, and software.

The expected rate of return of a stock in the Infinite Spreadsheet is calculated as the final remaining unknown in a deterministic market system extending to infinity in time. The deterministic market extends to infinity in time and space, and it contains an equal numbers of equations and unknowns with the inflation rate, the interest rate, and the rate of return as shown in its stock program:
Hugh Ching

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