Proprietary Position and Political Settlement of the Risk

Capital is being used not to provide income--to trickle it down--but to deprive it and deliver it to the upper class in zero-sum. Inherent to this sum is a risk proportion that is not settled with taking title to the sum, and the proportion of the risk you own is determined by its settlement. The settlement yields the proprietary risk.

Proprietary risk is composed of ethical arguments premised on necessary and proper incentives (endogenous risks) toward beneficial action and verifiable outcomes. If, for example, we tax the upper class to ensure the lower classes do not experience economic distress and desperation (an endogenous political risk that, without a free market, must be exogenously controlled), productive incentive will diminish resulting in hyper-inflation and, eventually, negative economic growth (economic depression). The cost exceeds the benefit and is verified by chronic deficit spending and accumulating public and private debt (a declining rate of profit and a rising rate of default).

Yes, without ensuring a free market in priority, political risk must be exogenously controlled. Without a free market, the moral hazard of perverse incentive reduces to a proprietary risk based on qualities that are quantitatively measured and verified by income class.

Proponents of consolidated capital contend the more income you have the more verifiably capable you are to manage wealth toward the common good, which is typically a function of building economies of scale through consolidation of industry and markets (what a free market is not). What is wrong with this argument is that while consolidation reduces the risk for a power elite of consolidated capitalists, it increases the risk for everybody else (and reversing this risk proportion is what a free market is). The Great Recession, for example, produced huge profits for consolidated capital, huge losses for everybody else, and has resulted in further consolidation of industry and markets.

The result of consolidation is a proprietary risk proportion that must be politically settled with at least the appearance of a popular, pluralistic legitimacy (like a free market) to promote domestic tranquility and achieve civil order (the general welfare). Typically, this pluralistic legitimacy is falsely argued to be the result of a free-market process that provides an alpha-risk determination of the outcome (by the direct, democratic determination of a popular, dollar-denominated vote of consent).

If you are not sharing in the wealth (the income necessary to legitimately determine outcomes in the marketplace), according to the proponents of a consolidated capital it is because you are not capable of managing your debt to provide equity (the capacity to determine), and that puts you in a subordinate position. You need not worry, though, because there is a huge shadow banking system in which to subordinate your risk. Proprietarily lurking in the dark, these are people you can trust with your proprietary risk, as far as the FDIC will insure it anyway, and failing that, don't worry, government will bail us out because "we" are too big to fail.

Look at how our economy was managed into the Great Recession. Either the best-and-the-brightest, Ivy-League managers are really smart (getting exactly what they wanted--converting huge amounts of wealth with virtually no liability) or really stupid (getting exactly the opposite of what was promised--slow growth and massive unemployment, but without admitting being wrong considering the call is for extending the Bush tax cuts and an even more consolidated financial sector to fix the problem).

If insanity is doing the same thing over and over again expecting a different result, the Ivy-Leaguers are certifiably insane. While borrowing our way out of debt is exceedingly counter-intuitive, devolution into a state of economic desperation and civil disorder is not the only other alternative, which would lack both technical intelligence and moral competence.

When provided, debt serves to support the marginal profit (equity) and keeps the economy growing, but according to the Ivy League, only if incomes are low (except for Bank of America and Goldman Sachs employees, of course, with whom we can proprietarily trust our self-interest). The contradiction (the problem to be solved) presents as a paradox of thrift, but it is really a means of systematically creating counter-party subordination of the risk.

Debt is a function of subordination. Debtors are subordinated to creditors. While the social value of extending debt is normatively described as pro-growth expansionary, and liberating, it is in practice a means of accumulating risk-value to be arbitraged into default (consolidated capital pushing up futures prices rather than adding supply, for example). When default occurs (depreciation of income, or purchasing power), the surplused value (the wealth accumulated that is the need for debt, like the large cash reserve big corporates currently have on hand) is there to buy (merge and acquire) the "distressed assets."

The assets in distress include the declining incomes of the workforce (the inability to pay taxes or higher prices). While the decline pushes equity values up, along with commodities and the cost of living, the ability to buy into the equity stake, and budget the cost of living, is diminished in zero-sum. That appreciating value in zero-sum is the value of the debt being increasingly demanded, or needed. That value is also the risk the debt assumes (the accumulating liability--the political risk--to be avoided), which is the risk of default (the declining rate of profit). The cash reserve is neither accumulated or distributed to produce growth, but is technically engineered to produce default (deflation and unemployment).

The reserve is there to consolidate industry and markets into a self-described economy-of-scale "efficiency." In practice, however, the economy of scale serves to subordinate The People. It creates the need for debt and destroys purchasing power needed for the direct means of democratic self-determination that forms the foundation of a limited, republican form of government with a strict constitutional construction as Jefferson described it.

Where we do not organize the economy into the scale of an exogenous, gamma-risk proportion (in which a political settlement--the need for government authority--is required), the alpha-risk proportion otherwise endogenously obtains. The alpha is a risk of loss (an endogenous liability) fully assumed and is directly applied to the economic rent.

For example, when we argue whether the healthcare legislation is constitutional, we must consider what commerce is. Opponents contend not buying care or insurance is not commerce. It most certainly is!

Not buying something is a disconfirmation. Businesses must compete for market share--that is, they must fundamentally compete by reducing price and/or improving quality to get consumers to buy. If we have to buy something--if we can't say no--it is not a free market, and proponents of consolidated capitalism know that very well. They intend to defeat the direct, verifying mechanism of a free market that operationalizes fundamental alpha risk so that they can unaccountably tyrannize the marketplace, forcing the consumer into a false bargain (an economy-of-scale efficiency) described as "our" self-interest (the general welfare).

(I dare say that anything that secures the general welfare without self-determination is fundamentally unconstitutional!)

Consolidated capitalists choose the price and "We the People" choose the quantity, or not; and if We choose "not," then we are not considered to be engaged in commerce and, therefore, "idiotically" (from the Greek, "idios") deprive ourselves of the efficiency (being the idiots we proprietarily are, unable to know what our self-interest is, needing the efficiency of consolidated, elite authority to determine it for us).

Not only is a mandate to buy wrong, but the arguments presented against it are wrong in a typical binomial fashion. It is a false dichotomy in which our attention is redirected to avoid the real issue (the loss of value fully assumed)--the accumulating debt in lieu of the income we need to buy (or not).

Consolidated capitalists want us to be in the marketplace, but only on their terms. That, of course, is not a free marketplace at all.

In a free marketplace "We the People" (all of us) proprietarily participate (or not). If people do not buy healthcare or insurance, more likely than not it is because the price is too high. The signal to lower the price is unintelligible to a consolidated marketplace intended to defeat the power (the purchasing power) to democratically and pluralistically self-determine.

A consolidated marketplace is intended to resist deconsolidation of the risk for application in the alpha proportion. When fully applied, the alpha-risk directly and immediately presents the risk of loss fully assumed (the consumer's choice to buy "or not") rather than being cycled and re-cycled toward a political settlement. It maximizes "discretionary" income to proprietarily avoid and reduce debt in priority rather than reduce income and increase consumer debt with an economy-of-scale efficiency.

(Also be aware that the no-commerce argument is also a semantical, legal trick perpetrated to rationalize deregulation, rather than deconsolidation, of markets. If the healthcare legislation can be struck down because it unconstitutionally mandates consumers to buy, regulation of consolidated industry and markets, including keeping them unconsolidated, is just as arguably unconstitutional.)

Direct, endogenous, alpha application of the risk relieves the burden of debt (the subordinating value of the risk), allowing for expansion where contraction otherwise deliberately occurs and results in default by means of consolidation. Without ensuring an endogenous, alpha application of the risk by default, The People are subordinated to the value of the risk, by default, rather than liberated with the power to purchase in the free marketplace.

Economies of scale are intended to efficiently maximize profit by minimizing employment costs (by maximizing unemployment, like we have now, whether it is in the U.S., Egypt, Libya..., which also maximizes the gamma-risk proportion resulting in force-majeure disruption of production and higher prices). The reduction of income (proprietary purchasing power of the middle and lower classes) reduces the freedom a free market ensures right down to each and every individual to maintain a direct and highly divisible (proprietary) accountability (the endogenous, fully assumed, risk of liability).

Revolutionary sentiment in Libya, for example, is being countered by its power elite with a promise to give the provinces more power to determine their budgets. (In the U.S., we can counter the accumulated risk with budget deficits since our currency is not dependant on any other currency. The political risk can be, subsequently, counter partied--toggled between two parties to conserve the stakes over time in the gamma-risk dimension without too much instability). In other words, Libya's elite authority has realized the risk fully assumed in the accumulated, gamma dimension (and there is no counter party in which to offset the risk--it is a monarchy).

In order to retain power, Libya's elite authority has offered to share power, rendering a more pluralistic distribution of the risk, which here-to-fore had been consolidated into the hands of a monarchy along with the reward. At this point, The People are not buying it, and since the risk is fully gamma, unlike in a pluralistic (alpha-risk) free-market proportion, saying "no" (the empirical, verification of a popular consent) is in a destabilizing crisis proportion that the elite depend on to force a popular consent for elite salvation. The offer has not been accepted and the monarch faces force-majeure deconsolidation of the risk proportion, which increases the gamma risk, and thus beta risk, for everybody else.

Consolidation does not reduce the amount of risk. It is conserved and redirected (what hedge-fund managers call "offsetting risk"). Building economies of scale reduces the responsibility--the liability--that goes with maintaining a genuine free-market legitimacy. Where the means of self-governance has been organizationally reduced, the liability (the endogenous alpha risk) is transformed into the need for protection by means of civil authority.

Economies of scale are built through mergers and acquisitions. M&A is a primary utility of private equity and is a specialty of big banks like Goldman Sachs and Bank of America. These big banks, by the way, after having paid the TARP bailout funds, are now allowed by the Fed to pay dividends. Since we have been in recession, the proceeds are not derived from economic growth. The proceeds being paid out, rather, including the TARP payments, are essentially derived from the "productivity gains" of the Great Recession--unemployment--which has reduced the income and net worth of the employed.

QE (monetary infusion to offset accumulated market value) has also been a source of TARP payments, and now it is a source for dividends at an especially low tax rate (the value of which is supposed to trickle down). The liability (the assumed risk) is offset, keeping industry and markets profitably consolidated, effectively reducing the freedom (the market value) to exact an immediate and divisible, direct accountability that requires less need for government authority and political settlement of the risk proportion.

It is important to understand QE as an "open market" regulatory mechanism. It is being used by the Fed to open a market that has been closed by an overaccumulation of its value into the upper class (which defines the proprietary risk proportion to be managed). The money infused is used by professional investors to arbitrage risk (to speculatively position for the economic contraction that derives from speculative use of the capital) rather than derive value from expanding the "real" economy on Mainstreet (the deprivation--the detriment--being the value derived).

When no more value can be derived from Mainstreet without a full-blown depression, the market is quantitatively opened by the central bank to "accommodate" the accumulation of market value (the free-market value of self-determination) by resisting the declining rate of profit. The liability the accumulation assumes (the detriment that derives the value) is minimized, absorbing it into the regulatory authority by buying assets that have been fully arbitraged and deleveraged.

It is important to understand that the purpose of QE is not to provide the means of self-determination. It is not a means to literally open the market, but to regulate the political risk (the liability, like an increasing marginal tax rate) a closed market fully assumes in priority and therefore organizes to be managed toward a political settlement.

A political settlement naturally involves deregulation. Markets, conservatives argue, naturally open if deregulated, and a more pluralistic marketplace will accommodate a lower marginal tax rate. The lower marginal rate causes robust capital investment, thus producing the employment that pulls us out of recession.

Keep in mind, however, consolidation causes regulation. It substitutes for the free-market value consolidated (the ability to self-determine). Regulation reduces abuses of consolidated power and mitigates the liability so that a firm's cost efficiency (the economy of scale) is the measure of its effective success (its high profitability), producing the capital--the profit margin--that employment depends on.

Deregulation will not render a pluralistic deconsolidation despite the argument being made that it removes barriers to entry, which would provide the market value that allows for direct accountability (the purchasing power full employment provides). The barriers are caused by consolidation, not regulation.

Regulation provides the co-optative value of government to firms so big that market forces are ineffective, and so their legitimacy is questionable. Regulation provides legitimate authority along with cost barriers to entry. It allows for an indirect accountablity (and co-optivity) instead of a free-market legitimacy that would otherwise control (substitute) the proportion of debt (the risk of default) with cost effectiveness and efficiency ontologically determined from the bottom up rather than imposed from the top down. Whether business or government, the organized ontology is the difference between freedom and tyranny (the production of growth and distribution of equity, or the production of risk and the distribution of debt).

The cost of compliance supports barriers, which resists the value of direct accountability and propagates the need for more regulation. The propagation often takes the form of regulatory reform to control its extension without deconsolidating the extended proportion of risk and the value it consumes.

Barriers are an effect of consolidation, which includes the regulatory costs that encourage consolidation. The cumulative cost--the measure of efficiency that creates the effective barrier--positions those outside the barrier with the risk of default, which accumulates political risk offset by regulated accumulation and distribution of debt through monetary and fiscal policy. The cumulative cost ends up on the tax bill where it is ready for a political settlement and must be cut to control government spending, reduce the burden of debt, and position The People to take proprietary ownership of the risk.

Since the cumulative cost reduction of deregulation does not deconsolidate the risk, the risk of default gains support rather than resistance, which needs to be regulated to control the instability of accumulated political risk. To remove barriers and free the market of government tyranny, however, the budget to regulate will be cut, and deregulation achieved, because non-government tyranny is the free-market, American way.

Cutting the cost of regulation also cuts the benefit of political stability, but the counter-political party is positioned to be sure the costs and benefits are politically realigned to protect and conserve the economic value of the risk.

By means of regulatory authority, the proprietary position of The People as counter party to the economic risk, and the legitimacy of its political settlement, is ensured in the gamma proportion.

Monetizing the Political Risk

When small investors moved into treasuries to minimize risk exposure after the Great Recession, bond prices, with the help of the Federal Reserve Open Market Committee, peaked to accommodate the demand for debt. Small investors were effectively positioned to pay the government to hold their savings and watch bond prices fall. They were positioned to, once again, take all the risk while too-big-to-fail financials made off with the reward.

Capitalism builds great things. It reduces chronic shortages, expands the middle class, and builds economies of scale. Allowing industry and markets to consolidate into economies of scale increases income and builds the American dream by expanding the opportunity for an equity stake. Unregulated, too-big-to-fail financials were, for example, supposed to be building equitable opportunity, but what they built was negative equity (to which the 80 percent employed are not immune).

After deregulation, positioning the middle class for negative equity was not enough. Also consider, after the Great Recession, all the big financials were at the table to bid for issuing AIG's new stock--profiting from wrecking the economy and profiting to rebuild it, or recreate the problem, that is (see also Joseph Alois Schumpeter, 1883-1950). Ivy-League MBA's beat anything any union shop ever came up with to achieve job security; and while it was necessary and proper to bail out wealthy banks, we will soon see legislation proposed to discontinue bailing out pension funds to balance the budget.

The middle class is positioned for wholesale reduction (endogenous re-distribution to the upper class) of income and net worth after a fifty-year equity accumulation (the K-Wave accumulation and distribution of the risk proportion).

The result, after a K-Wave correction of risk proportion, is even more political risk added to the current account of apparent (endogenous) economic risk. Apparent distribution of risk (like a rising rate of default) and actual reward (rising bank dividends and bonus compensation, for example) must be managed in a political proportion. As we well know, the current call to account is being popularly applied as debt reduction through tax relief, and the only way to do that, short of a more progressive tax code (regressive tax relief), is to monetize the accumulating political risk.

Cutting spending has less priority because it is both economically and politically risky. Since slack demand is the deflationary problem to be solved, cutting spending does not make a lot of sense, increasing the already overextended political-economic risk. Instead, the political risk will be monetized through the Federal Reserve system to resist falling demand, a declining rate of profit, and avoid, as much as possible, paying the public debt with public debt through the Treasury. Otherwise, bond holders are just sending themselves a check in the mail.

Short of nationalizing industry and markets, government is limited to taxation to pay its debt. Like the top income class, by no coincidence, government increases revenue by raising taxes (prices). Increasing the rents accumulates wealth (surplus value) and tends to trend deflationary. A distribution from the accumulation reverses the deflatonary tendency.

Without the distribution, political risk accumulates. The risk is managed by manipulating the rate of interest (expansion and contraction of the money supply). Monetarism tests the extent of the risk and exogenously increases or decreases the rent to control its extent. The risk is then described as endogenous (systemically inherent) and ontologically legitimate (determined).

When government, like the upper class, gets too rich (when the rent gets too high), the economy slows. At this point, raising taxes to pay the debt churns the debt and accumulates political risk. Without taxing the least able to pay (increasing the risk), which supports a deflationary trend, government, and the upper class, is left being both the debtor and the creditor (sending yourself a check in the mail to pay your debt--the declining rate of profit to be avoided).

Unemployment is not the problem to be solved, the declining rate of profit is.

Capitalism regards employment as a by-product of the profit margin. Unemployment is thus a product of a diminishing profit margin and, according to the minor premise of this syllogism, full employment is therefore dependant on systematically keeping incomes low. The resistance (unemployment) creates the demand for debt (and increases the profit margin). Unemployment (the deflation phase of the business cycle), therefore, is necessary to maximize employment.

In other words, the best way to achieve full employment is through unemployment. Costs are macro-adjusted (deflated) to support the marginal profit (the corporate profit margins currently driving equity values to near-record proportions, for example) thus preventing the declining rate of profit that results in unemployment. The argument, of course, is clearly absurd and is central to economic theories like Reaganomics, which produced record budget deficits surpassed only by Bush-era economics and the Great Recession.

The employment-cost adjustment is a priority. Following the Great Recession, the Democratic majority focused on healthcare, not providing the employment and income necessary to pay for it; and following the realignment, Republicans have been focused on repealing it.

Republicans maintain they are acting to create jobs by repealing the Democrat's "job-destroying" healthcare legislation. The action of both parties, however, supports the "trickle-down" theory of economics in which the employment-cost adjustment must occur to achieve full employment without inflation (i.e., employee income has to be destroyed in order to create capital and jobs).

Notice, however, the capital created is being applied to destroy jobs, not create them. Its application is deliberately designed to support the profit margin by resisting the income needed to pull us out of recession. It is the perfect model of trickle-down economics, being applied by both parties, in which the welfare of the rich is supported to resist the declining rate of profit (the amount to be monetized and paid by the lower classes in the form of public debt to, supposedly, provide for the common wealth).

After all the commissions to study the causes of the Great Recession, after all the inquiry, we not only have the same problem, but it is now even worse. Instead of reducing the gamma-risk proportion, we have increased it (Tunisia and Egypt being the latest evidence of that gaining proportion). The capital accumulated is being applied to drive up prices (and upper-class incomes) while driving middle and lower-class incomes down. Modeled to operate in zero-sum, this is what trickle-down economics is fully intended to do.

The theory of "trickle-down economics" (with the legitimacy of being the best way to achieve the common wealth) continues to be the only alternative to what is called "liberalism," which is always identified by its counter-party as the source--the cause--of deficit spending. The source of deficit spending, however, is really the deliberate creation of counter-party risk. It is a creatively destructive process that transforms the risk into a stable, predictable outcome that conserves its distributive value. Since the value is cyclically rendered and associated with free and fair elections, its conservation has the appearance of a pluralistic legitimacy when it is really the construction of consolidated power.

Binomially organized, the risk is consolidated and politically managed through economic means (the buying and selling of financial assets in the marketplace through the Treasury and the Federal Reserve System), providing the debt needed to resist the declining rate of profit. Thus, employment will not occur without debt, and its burden assigned to the least able to pay to support the rich with the pretense of providing capital for the common good (the commonwealth).

The Fed and Treasury have pumped trillions of dollars into the economy, for example, to resist a debtor-financed recovery. Quantitative and qualitative measures are touted as not being a proportion of the public debt, but it is debt nevertheless. These public, so-called assets are "derived" from future earnings, providing capital without risking the accumulation of capital that has been converted into wealth, protecting it from an increasing political liability (mitigating the loss fully assumed).

Keep in mind, wealth is private property. It is not capital to provide for the common good (the loss of ownership to be mitigated), but proprietary extension of the risk. It empirically confirms class distinction measured by the ability to self-determine, including how much "endogenous" risk everybody else apparently owns.

We now have both the accumulation from the Great Recession and QE funds (the added capital) driving up futures prices and reducing purchasing power (reducing incomes), increasing the demand for debt (the apparent, endogenous, proprietary proportion of risk you inherently own as a result of your class, or position). According to the advocates of consolidated capitalism (the people that condemn criticising welfare for the rich as destabilizing "class-warfare" rhetoric), debt is good because it both provides the capital and the productive incentive for growth. The by-product is full employment (i.e., the income that pays the debt).

The only reason all this monetary accommodation has not resulted in core-inflation risk is because it is being used to resist, not support, the by-product of full employment through headline-inflation risk. Thus, Bernanke continues to forecast unemployment that is too high and inflation (growth) that is too low, but it begs the question. Who, then, is going to pay the debt (the liability--the risk--posed for political settlement)?

The rich and the middle class are fully assembled in Washington to protect their proprietary positions. The time it takes to come to a political settlement without sacrificing the value of the risk (without a socio-political meltdown, or "class warfare") has been bought and paid for by monetizing it (by transferring the risk to the future).