Averting Disinflationary Risk: Avoiding the Value of Assumed Risk

The previous discussion describes and explains how value is determined by the assumption of risk.

The entity that assumes the least risk gains the most value through an economy-of-scale coefficiency that externalizes risk.

Since the legitimacy of value gained is supposedly dependant on the amount of risk taken, gaining value by externalizing risk harbors a civil if not a criminal-like liability. The value gained then presents a risk of liability (a retributive value).

Since the retributive value cannot be reduced without being redeemed, only averted, the value gained is always uncertain and presents as beta-risk volatility. Government is then employed to stabilize the value of the risk.

Transforming beta risk into certain value involves the force and legitimacy of government authority (the gamma-risk transformation).

Once the gamma-risk transformation occurs, risk is externalized and assumes the form of public finance. Various sub-forms emerge that process the externality into a public good. For example, the funding made available to bail out the financial system is a public good applied for the purpose of averting a deflationary trend. Stimulus funding was then provided as a public good to re-inflate the economy (the financial bubble, or the over-leveraging of externalized risk) that caused the deflationary trend, not to dis-inflate the economy with economic growth.

(Funding provided in the form of public goods is not considered "capital" because it is public finance. The private sector is where the risk is assumed for the reward of capital finance.)

Where government acts to avert deflation the private sector acts to avert disinflation. The difference is the value of assumed risk.

For example, big financials used the bailout funding to buy treasuries. The probability of risk (economic growth) is zero. The risk is still assumed in the public sector, externalized into the certain, empirical value of the public debt. The elite largely buy the debt, and the non-elite largely pay it.

It is a re-emergent form of feudalism in which little value is created, only to be plundered.

Rather than averting scarcity, capitalism has been organized into an economy-of-scale efficiency that increases margin without growth. Wealth accumulates with the least amount of risk to the capital invested.

Scarcity, rather than resisted, becomes the objective because it supports prices and the margin. Wealth is then plundered in the form of default and foreclosure and resold at a profit as economic growth.

Scarcity, rather than being averted, is churned, recycled, into the hands of feudal lords competing to plunder with evermore political-economic elegance that masks a zero-sum accumulation of wealth without a legitimate assumption of the risk. The risk is to be assumed by all the other under-classes (the non-elite) in service to the ruling class.

The ruling class (the Iron-Law overlords) is determined by the economic advantage of controlling the rate and distribution of economic growth through an economy-of-scale coefficiency and public goods provided to support the re-cyclical trending in the guise of re-distribution. The macro trend forms an historical ontology that is presumed unavoidable. The presumption itself, however, renders it unavoidable and persists in the form of an assumed risk (the vestigial risk of the non-elite conserved in the Iron Law) inherent to the formation of the capital.

Accumulation of the profit with minimal alpha risk and maximum beta and gamma risk results in a strong deflationary trend. Counter-cyclical Keynesian measures vector the trend (the risk) into a stagflated trend in which the value of the risk is uncertain. Today the risk may be weighted deflationary, tomorrow inflationary, but rarely, if ever, disinflationary.

Avoiding disinflationary risk is accomplished by insuring the value of the risk derived from its accumulation. Capital (the assumed risk) is not invested in growth, which increases alpha risk, but in externalizing the risk into counterparties where it is finally internalized by the public debt in the form of a gamma-risk ontology. Thus, we have a sovereign debt crisis with an increased risk of deflation, which provides the "big" benefit to economies of scale who are organized too big to fail.

(Consider, then, who is "sovereign?" If by natural, constitutional right "The People" are sovereign, they are the debtors. The creditors are then catgorically supra-sovereign. The accumulation of wealth then becomes a struggle for power--sovereign versus supra-sovereign. It is wealth versus the accumulation of the risk transformed into public finance; and since public finance is not considered capital, but public goods, vulgar and inefficient by nature, ensuring the preferred share of the elite is categorically imperative by nature. British Petroleum, for example, will use its economy of scale not to assume all the risk of Deep Horizon, which is the "big risk" the scale supposedly provides, but to accumulate the risk, and limit the liability, in the form of a public debt.)

The volatility that occurs is over the retributive value of the externalized risk. Whether the risk is at a premium or a discount determines which side of the market to be on (discovering the value your risk).

Inflationary policy puts the risk at a premium. Deflationary policy puts the risk at a discount.

There is a risk ontology associated with deflation that threatens the legitimacy of the profit margin (of externalizing the risk, like a bailout). The risk to the legitimate management of risk into an externality (the systemic risk), is to be averted. Keynesian policy presents as this aversion, providing enough demand liquidity to prevent depression, but not enough to finance disinflation.

The money supply is manipulated to maximize the economy-of-scale benefit of deflation (being too big to fail) without internalizing the associated risk ontology (transforming gamma-risk management into alpha-risk management).

(If the accumulation of risk is not transformed into an alpha ontology, it will be managed as a public good in the form of gamma risk. The risk will not be disaggregated and will not be internalized. Instead, it will be massively oppressive to provide the security of public goods, picking winners and losers in zero-sum not unlike what we have now, but could be worse, if we want to assume the risk.)

With a deflationary trend, like we have now, having been well indicated by the level of gamma risk, demand is reduced, and the risk averted, for a disinflationary investment of the capital (economic growth) which would increase the inherent level of internalized risk that comes with a free-market, alpha-risk ontology. It is a Keynesian management of the money supply, relieving the pressure of externalized risk, disaggregating the risk enough to support a pro-cyclical trend that consolidates the growth that occurs.

We see then, for example, Europe being strongly averse to deflation with a strong inflationary tendency. If deflation is not reversed, the trend presents a risk of growing gamma proportion. The value of the risk (the margin) may be discovered and recognized to be illegitimately externalized, which runs the risk of discovering the value of alpha risk over an economy-of-scale efficiency.

Alpha risk is presently valued in the form of externalized gamma risk. The threat of an alpha distribution of the risk results in a high beta presentation of its present value. The result is a highly volatile valuation of the risk that is an accurate measure of a free-market that has been consolidated to externalize the risk.

Deconsolidation will internalize the risk and stabilize markets with an empirically verifiable ontology, the transparency, needed for an economy that allows for a person to get rich, but without the risk of insecurity that always leads to tyranny.

Getting rich does not have to be at the expense of security. The Iron Law is a false ontology confirmed with the continuous test of an alpha-risk hypothesis, resulting in continuous improvement and a stable presence of the risk fairly valued and legitimately derived for a peaceful and prosperous future.