Deconsolidation of the Risk

The risk is not circulating. It is consolidated. As long as it remains consolidated with the accumulation of value it represents, the recessionary trend will have a strong deflationary tendency.

Counter-cyclical measures that resist deflation are not enough to resist recession, but support it, recycling the risk into consolidation and, thus, the expectation that the recession will persist.

The over-accumulation of value presents the risk of a more progressive tax code. That risk is not the result of a partisan ideology. It naturally occurs with an accumulation of value that partisan politics recursively manages into a predictable, stable, value of consolidation that can be recycled in the form of "systemic risk" (the gamma risk--the risk that cannot be avoided, so it is recycled in lieu of the needed circulation of the risk).

Market analysts are apt to say that risk tends to be overpriced. It not only states a risk-prone disposition, and so we tend to overvalue the probability of risk, but recognizes the probable effects of over-accumulated value and consolidation of risk for public consumption. Identifying the effects as the problem is intended to conserve it.

The sudden stock market crash on May 6, 2010 that wiped $30 billion of market capital in a matter of seconds is a clear indication of a capital market that is risk-prone. How does the market price that risk?

The market does not price consolidated risk, the managers of the risk do. It is less a pluralistic market mechanism than determination by fiat. The effect is short-term volatility that deliberately scores the long-term value of the risk, modeled with a certainty that supports the future value of the public debt. While the debt may grow, there is no risk the federal government will default as long as the value that supports it is consolidated. The accumulated value (and the consolidation of the risk) generally prices the value of the debt as "low risk" despite the volatility of its current valuation.

The value of the risk (the probability of default) is operationalized with a high order of cognitive intent that syllogistically correlates low risk with the consolidation of the value. The theory it presents operates with the premise that leaving risk to a free-market process increases uncertainty and volatility while the hypothesis it poses is always disconfirmed (the coefficient is zero)--an economy-of-scale consolidation of risk always increases volatility with uncertainty over what the economic incentives will be by fiat (by government decree), like we have now.

Interest rates are currently next to zero, indicating low risk, pricing-in the probability of low inflation. The risk, rather than being mispriced, is fully valued with the probability of default on the public debt being next to zero.

What is not priced-in is the retributive value. It is recognized to be the level of political uncertainty that is preventing the investment necessary to pull the economy out of recession. This is the risk that analysts refer to as being overpriced although that price does accurately reflect the liability of the risk...without admitting to it, of course.

As the Fed now begins buying Treasury debt (consolidating the risk, or uncertainty, to be recycled into investment, coaxing accumulated capital to buy treasury bills to cover the debt at higher rates rather than borrowing at the discount window for next to nothing), circulation of the money supply needed to resist deflation will be accomplished and the risk of default is virtually none even without a more progressive tax code. Either way, the risk is all but uncertain. There is no risk to the consolidation of the capital. That risk will be individually (divisibly, not collectively) consumed by The People recognized to be the most at risk of default--and so they will, soliciting (demanding) the consolidated management of the risk, conserved and redistributed (recycled rather than circulated) in a gamma proportion. (The demand for gamma risk is the demand missing--the circulation--that a free market otherwise provides and "the risk" otherwise avoided--the uncertainty of government intervention and a current, volatile valuation of the risk by fiat, or the accumulation of value beyond a free-market proportion.)

It is important to understand that this process defines who the legal sovereign is. While "We The People" are collectively sovereign, the debt (the risk) is redistributed to individuals in the form of income (when Goldman Sachs and Bank of America win, We lose our assets to the so-called "free market"). Again, consolidation of the risk gains the distributional characteristics of a public good with an indivisible detriment that is means-tested to be divisibly consumed. The benefit side accrues to the accumulation of value that is privately owned, but with the risk consolidated and controlled by the state (the legal sovereign--The People), implying the direct consent of the governed commonly defined as uncertain risk. That risk, however, is actually the certain retributive value of accumulated wealth and power.

There is a simple, verifiable hypothesis at work here: the more accumulation of value, the more acute the crisis and the tendency to consolidate the risk to manage it.

In every case in our economic history, when income accumulates at the top, there is a crisis with a deflationary tendency that poses a risk to the accumulation--deconsolidation. It is time We take that risk!

The argument against deconsolidation is that it does not produce as much value. The argument tries to equate consolidation of value with accumulation of value, implying that consolidation is pro-growth, which it verifiably is not.

A growing economy adds value, and wealth accumulates. Consolidation of that wealth, however, accumulates risk that, when consolidated, is redistributed (recycled) instead of the wealth, creating a demand for government consolidation (big government that wants to rule every aspect of your life, diminishing freedom that is socially expressed in the form of a free-and-unconsolidated marketplace).

Quite the contrary to both liberal and conservative sentiment offered to promote growth and control risk, deconsolidation adds value by controlling risk (not allowing it to accumulate). The effect, unlike the allowable alternatives offered-up as popular sentiment, is less need for government.

Deconsolidation will effect less need for government. Less government will not effect less need.