Bankrupting the Nation

A popular revolt has raised the question,
is the government bankrupting the nation?

Today's FOMC meeting will tell us just exactly how "open" the market really is, for example, which should indicate how bankrupt we are and are going to be with the highest degree of technical certainty. (Keep in mind, of course, that an "open" market is a non-exclusive, democratic process, and a "federal committee" implies a governance resolved to ensure it.)

Since bankruptcy renders an incapacity for economic participation, the Federal Reserve is entrusted to keep us solvent, literally keeping capital (useful current value) in reserve to prevent the crisis of insolvency (liquidity crisis), and keep the market open.

There are essentially two options for keeping the market open in a credit economy: extending it, or forgiving it. There is, however, only one option the Fed uses--buying and selling debt. The Fed is not empowered to forgive debt, but is empowered to retire it.

Paradoxically, when the Fed retires debt, it expands the money supply. When it is too "forgiving," let's say, the debt paradoxically becomes overextended. There is more money to spend, but it buys less as prices rise to reduce (consolidate) the supply of money (to reduce the risk of competition through economy-of-scale). Instead of reducing debt, it increases it, and the result, paradoxically, is liquidity crisis. It would seem, then, the antidote is to not be so forgiving, but the difference is whether the extent of the crisis is a recession or a depression. Currently, for example, while the vertical extension of the crisis has been averted, it has been horizontally extended.

If the Fed keeps interest rates low, the market is more open than if rates are higher because the economy has liquidity. As long as the market has liquidity, our nation is not bankrupt--that is, despite liabilities exceeding assets, bankruptcy is never declared. This means that we are always sovereignly solvent, but our currency is devalued. The dollar is worth less. It buys fewer goods and services.

Even with a high amount of liquidity, if the money quickly recycles to the top quintile of incomes (if derivative markets continue to drive commodity prices higher on the news of a technical recovery, for example, and healthcare incomes continue to outpace that and are reinvested in derivatives), the market is not as free and therefore "open" as it could, or should be.

If we are to identify the source of common bankruptcy that plagues our nation, consolidation of the capital is where you will find it; and after the Great Recession, the market is even more consolidated, or closed, with new financial regulation and healthcare legislation that continues to consolidate income and bankrupt the nation.

The FOMC is going to tell us that state-sponsored capitalism has sponsored a technical recovery, but the probability for common bankruptcy has not much abated. If we are going to reduce unemployment, public policy that provides liquidity where it is needed is required. The FOMC must endorse a more progressive tax code that relieves the burden of the middle class, making the wealth more common and bankruptcy less common.

We see the tendency to provide, or deprive, for the common wealth. Provision comes in the form of liquidity. The Fed (a private enterprise that heads our private banking system) is the chief arbiter of supply management by controlling demand (the supply of money).

Despite being awash with liquidity, demand is still too deficient to add employment. As long as demand is low (deprivation), capital is cheap. This simply means that the capital is too consolidated which the FOMC will not admit to being a detriment. (and here is where the technical modeling predictably fails).

Despite ample liquidity, credit scores are too low to increase the demand that reduces supply and increases employment. The result is a debtor-financed recovery with liquidity (capital) being used to resist the declining rate of profit (deflation) without employment (inflation). Margins are maintained with budget deficits that essentially bankrupt our nation.

While the benefit is short, the detriment is long (the double dip).

Hedge funds will likely be short on the current trend. Sell now and stay ahead of the hedgers who set the trend but hide a high order of intent in high-frequency noise (volatility) that otherwise closes the market with limited risk of liability.