Understanding Liquidity Crisis and the Measures to Correct for It

February 21, 2009

The current state of our economy is liquidity crisis. The capital has been allowed to become so accumulated, consolidated, that the economy can neither be sustained or expanded. The result is negative growth, massive unemployment and the declining rate of profit (falling prices following the stagflationary phase of the post-monetarist, Keynesian business cycle).

The profit (the pricing) that creates capital can no longer be sustained (the deflationary phase of the cycle) because that value has been accumulated and not pluralistically, systematically, redistributed by economic means of a free and unconsolidated marketplace. In order to return to profitability (for your 401k to gain rather than lose value to the accumulation of capital into the private property, the ownership, of a few plutocrats) the capital must be redistributed--recycled.

The lack of pluralism, the lack of a free-market economics, is the systemic economic risk, or instability, we are experiencing that comes with the accumulation of wealth and, therefore, power.

In order for the economy to move out of liquidity crisis (the deflationary phase of the business cycle), redistribution of the capital (the distribution phase of the business cycle) MUST occur. It is a necessary condition. Nothing else will suffice.

This description has been the "economics" of our current crisis.

The "political" description of the crisis is entirely a function of who owns, and therefore controls, the capital and the ability, the means and measures, to correct for liquidity crisis. For the plutocrats, this is a function of how much the non-elite are willing to suffer, or sacrifice, for the accumulation of the capital into the ownership, the controlling hands, the command, of the elite. The more the elite can make the non-elite suffer without retribution (loss of the value accumulated) measures the amount of political power and the amount of value that must be retributed in order to minimize the systemic risk-to-value obtained, or the retributive value.

The trick, the political process, is to go through the distribution phase of the business cycle without giving up ownership of the capital to the non-elite, or minimizing the retributive value. This is accomplished mainly by arguing that government--the means of retributing ownership of the capital--is the problem and not the solution so that the distribution phase of the cycle does not become an event of economic re-distribution that eliminates the reoccurrence of liquidity crisis.

Retributing the value at the distribution phase very simply minimizes the probability (the risk) of the massive liquidity crisis, the systemic risk, we are now experiencing. It forms the basis for pluralizing the economy so that it is not dependant on any one economic entity that holds us ransome to gargantuant bailout values (the amount of value to be retributed) like we have now.

Fully retributing the value obviates all the other complex political means and measures we are now engaging to preserve the current system, the ratio, of risk-to-reward.

Keynesian measures preserve the current risk/reward ratio. It is a political measure, not an economic one. That's why there is a general sense of dissatisfaction with the current mode of stimulus measures: it serves to redistribute value politically rather than retribute it economically for a fair-and-equitable exchange of value that makes for economic stability or low-to-no systemic risk.