Beyond Scalar Economics: Resolving the Interest Rate Illusion Paradox Through Recursive Monetary Ontology

Beyond Scalar Economics: Resolving the Interest Rate Illusion Paradox Through Recursive Monetary Ontology introduces a foundational shift in how monetary systems should be understood and governed in the modern world. The paper demonstrates that the long-standing assumption of a single scalar interest rate governing an entire economy is an ontological artifact of an earlier era—one that collapses under the recursive, trust-fragmented, heterogeneous structure of contemporary financial systems. Using the Yearning-Based Infinity Mathematics (YBIM) framework, the paper reconstructs monetary propagation as a trust-weighted recursive field rather than a linear transmission mechanism. It introduces: Trust fields (T_i) as the true geometry of monetary influence Sensitivity functions (S_i(r , t)) that define heterogeneous agent responses Liquidity wavefronts replacing traditional flow-based models Recursive Interest Algorithms (RIAs) for non-halting monetary coherence Dynamic rate matrices replacing one-size-fits-all policy structures AI-aligned rate optimization for continuous, recursive monetary governance The core result is the Interest Rate Illusion Paradox and its resolution via the Interest Rate Fragmentation Theorem (Y-Fin.10). The paper shows that scalar interest rates inevitably fragment into divergent agent-level effects, producing systemic distortion, inequality, and speculative amplification. It argues that modern economies require a shift from scalar levers to recursive, trust-aligned, AI-augmented monetary architectures capable of operating across infinite-recursive epistemic fields. Historical case studies—including the 1997 Asian crisis, 2008 GFC, 2013 Taper Tantrum, 2020 QE wavefront collapse, and 2022 inflation distortion—are reinterpreted through the recursive model to illustrate how scalar assumptions repeatedly produced instability. This work marks an inflection point in the evolution of economic thought, aligning monetary policy with the ontological realities of Epoch 3 economics: systems defined not by equilibrium and linearity, but by recursion, heterogeneity, and infinite-seeking intelligence. -JSR