Consolidation of Risk

With risk comes reward...or failure. The hypothesis is tested by assuming the risk, and the marketplace arbitrates the empirical value (your income). So, in order to control the risk, it is necessary to control the marketplace.

You can take control of the market by providing the best quality at the lowest price, or you can consolidate it to provide the best return on investment with the lowest possible risk, accumulating wealth (and power).

Accumulation of wealth, and power, typically suffers the delusion of eliminating risk, but the accumulation of wealth also accumulates risk--political risk, which is a dimension of power. The question then is, how will this risk be assumed?

Consolidation of risk in a post-industrial society is assumed as a public good, and goods are something to be consumed. The higher the income, the less consumption of risk in the form of a public good.

Executive compensation for big bankers that engineered the Great Recession (the source of their compensation) is not at risk, but the average income is. The reason average incomes bear the risk is because they have less control over the risk. In order to have more control, the risk must be deconsolidated.

The way it is now, the people who have the least risk-tolerance bear the risk, and since they cannot get credit without borrowing at high rates because they are too risky, the demand to reverse the recessionary trend continues to fall. The probability of a deflationary trend is getting little resistance which, of course, tends to consolidate the risk.

Analysts are now focused on the Fed--the emblem of centralized control--for the "fix" that controls the VIX.

If accumulation causes the lack of demand that supports a deflationary trend, then a distribution from that accumulation must occur. Avoiding that risk accumulates into crises, and the anticipation of counter-cyclical measures that do not distribute from the accumulation, but borrows from it, creates the volatility that gives current value to the risk arbitraged (converted) into consolidated value.

The Federal Reserve, a public/private institution empowered to dispense the public good in a representative capacity, has enabled the borrowing from the accumulation, monetizing the debt. Its chairman, however, has now indicated the possibility of reversing "quantitative easing" which suggests an unwillingness to support a debtor-financed recovery that accumulates the risk of a deflationary crisis.

Preventing a depression is his charge, and with plenty of empirical evidence to support the hypothesis, he knows that continued accumulation and consolidation of the risk into the empirical value of the public debt supports the probability of a deflationary crisis.

The chairman of the board knows that the recovery must be financed from the accumulation, avoiding further consolidation (leveraging) of the risk through the Federal Reserve.