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).