Assumption of Risk: Internalizing the Debt

Externalizing risk also externalizes debt.

The Hamiltonian model, for example, is expected to yield the certain value of risk in the form of public debt. The risk to the accumulated value is assumed by the full faith and credit of the government. It is the perfect environment for externalizing risk and an accumulation of debt to manage the externalities.

Both the public debt and the authority to pay it has an absolute value. The risk, and the valuation of the risk, goes gamma, and if it is not purposefully managed into an alpha-risk ontology, the externalized gamma risk accumulates into a crisis ontology (The Iron Law).

British Petroleum, for example, intends to maximize the government's assumption of the risk and limit its liability for the Deep Horizon disaster with the economy-of-scale proportion of its firm.

The U.S. has a big appetitie for the oil BP produces, and an inelastic demand supports dependance on large firms like BP, rendering them too big to fail. Despite the government's resistance to assume the risk, the damage will be rendered an externality that falls in the public domain. Debt externalizes with the risk--a perfect fit to the Hamiltonian model.

Public debt on the externality reduces the risk to BP's margin.

Contrary to its described efficiency, the amount of risk assumed by an economy-of-scale reduces rather than increases. The result is a false coefficiency of private profit to public benefit.

The public both assumes the risk and pays the debt bought by income valued with externalized risk. The market is rigged for accumulation of debt that conserves the value of assumed risk--the higher the income, the less risk assumed.

Debt to be paid by the risk-holders (risk being determined by the regressive value of income, or the economy-of-scale coefficiency), renders the risk-holders with non-elite income devalued with the assumption of risk. Contrary to the legitimate risk/reward hypothesis, the party with the least risk (the economy of scale) gains the most reward, conforming to a model of assumed risk (the value of risk) that is descriptively Hamiltonian.

Income is either elite (internal and private) or non-elite (external and public) to support the value of the risk in zero-sum. The sum is accumulated with the legitimacy of providing the funding (the externalized debt) the non-elite need to survive economic distress (the externality of assumed risk) without sacrificing the capital (the internalized benefit of the externality) needed to relieve the stress.

In order to participate in the economy, there is an assumption of risk, and if risk is being externalized (transferred) and accumulated into an economy-of-scale crisis proportion, resulting in a budget deficit (like we have now), the participant also assumes the debt in proportion to income. The debt externalizes with the risk.

The simple, easily accomplished solution that requires very little government intervention is to internalize the debt, realigning the assumption of risk with firm risk.

Aligning externalities with firm risk will revalue both the debt and the-risk-to-the-debt to reflect both the source of the risk and the reward associated with it. Mortgages, for example, that do not reflect the present value of externalized risk (the ability to pay it) will default in a crisis proportion. The "austerity" required to give value to the debt (the reward) is then retributively valued, presenting a high level of gamma risk with beta-risk volatility. The beta re-presents the retributive value in variuos forms to mask the true source of the value (the externalized assumption of risk).

The same valuation-of-risk dynamic occurs with the sovereign-debt crisis, now fully involved with identifying the debtors (the party that assumes the risk) and the creditors (the party that collects the reward of the risk assumed). Since the risk is externalized, and the reward is detached from the risk taker, the value of the risk/reward is an arbitraged value of uncertainty to avert the value being transformed into the certain value of a redeemable gamma risk (the present value of margin without growth, or the amount of risk externalized into debt).

Internalizing the debt with the assumption of risk, uncertainty will reduce to the value of firm risk and distribute the "austerity" needed to give the debt value a disinflationary presence rather than a destabilizing, deflationary trend.