Nothing From Something

Ex nihilo is a concept fundamental to economic theory and practice. We freely invest capital to produce what consumers want, and the reward is the profit margin. The margin is the measure, the expression, of consent to produce more (something), not less, and the capital is accumulated to do that (more or less) from the margin.

The accumulated capital, however, can be used to reduce the measure of consent by organizing economies-of-scale. Being "too big to fail" simply means being beyond popular consent. The technical measure of consent is corrupted and becomes a function of ideological (political) interpretation. While the margin objectively measures the amount of political risk (the probability the margin can and will be retributed as a measure of direct, democratic, popular consent), "the risk" is now in the gamma dimension with determinants that are not fundamental, but technically derived. Like going short to arbitrage the risk, a panic can and will occur to cover the probability the loss can be greater than zero (nothing from something).

Free-market economic theory postulates an ex nihilo legitimacy. Businesses are created from nothing to satisfy the demand of the marketplace (consumers with adequate income to "direct" the extent of the risk). Expostulated, the Great Recession, for example, provides ample evidence that the legitimacy has been reversed.

There is not enough demand to direct the extent of the risk (to keep it from going gamma). Instead, the risk is assigned by big businesses, determining the extent of probable default (your credit score, whether it is you personally or your business). The risk does not extend to create something, but to reduce (short) something as much as possible to nothing. The result, for example, is an interest rate that is nearly zero and wants to go negative (insufficient demand--your credit score--with an extensive risk of default).

Deflation does not expostulate a free-market economics. Instead, it critically demonstrates a lack of free-market legitimacy and a strong tendency to command economics.

Quantitative easing, for example, delivers long-term bonds to banks as an extension of the Federal Reserve Bank (a central authority that is both public and privately endowed). The bonds credited to banks are sold to the treasury, expanding the money supply in the form of public debt. The return on the investment (the money lent) at low rates is postulated to signal recovery which is achieved when the bonds are called back and resold to the central bank from the treasury.

Quantitative easing is not signaling recovery, but impending crises. It gives the impression of wealth ex nihilo, but it is really masking a process that tends not to "produce" something from nothing, but to "reduce" something to nothing.

QE (risk ex nihilo) needs to come in priority, not ex post facto.

Deconsolidating the risk will provide the quantitative easing necessary for economic health without the inflationary or deflationary side effects.