According to the Federal Reserve's Open Market Committee, the best way to regulate too-big-to-fail is for "too-big" financial firms to be even bigger.
The theory is that the economy-of-scale reduces the risk of lending--it will circulate capital--so that markets will be free and open. By ensuring the low risk (what is too big to fail), the marketplace is fully liquid. However, what happens is that big financial firms use the capital to deflate the economy by causing headline inflation. Instead of ensuring the marketplace is fully liquid, too-big-to-fail firms act to ensure the marketplace is fully liquidated.
The easiest way to make a profit without risk is to NOT invest the capital, like we have now with cash balances on corporate balance sheets at record levels. As long as the capital is not being invested in growth (employment and added supply) in an economy-of-scale proportion, the risk is too high and the reward too low to invest for growth. It is much more profitable to not invest in growth unless, of course, the profit is taxed away--but that is a moral hazard (i.e., it does not fit the Hamiltonian model).
As consumer confidence declines, the higher risk of investing growth accumulates into a crisis proportion. The risk (the crisis) is a self-fulfilled prophecy of an economy-of-scale proportion that liquidates the marketplace. Equity is deliberately (knowing and willingly) turned into debt with the highest degree of efficiency (which entails an inherent liability that manifests as growing budget deficits and the need to tax). Instead of economic growth, what grows is the public debt.
Too-big-to-fail is an empirical failure. Look at the numbers--as the capital has moved into commodities to produce massive, economy-of-scale profits without risk, the public debt has increased to a gamma-risk proportion (with the political threat of sovereign default, which does not, by the way, fit the Hamiltonian model and where the risk fully converges with the reward).
The buck stops here. Instead of circulating, providing liquidity as the Fed postulates, the buck stops producing GDP. Equity becomes negative, efficiently produced in a too-big-to-fail proportion.
According to Dodd-Frank, the buck stops with the Fed. It is the Fed's charge to command and control the too-big-to-fail, economy-of-scale proportion through a committee that ensures open markets (i.e, so that the market system fits the Hamiltonian model of rigging it to ensure the wealth always consolidates into the upper class in a crisis, command-and-control proportion).
Reversing a political-economic model that is 200 hundred years old appears to be dauntingly complex and administratively impossible. All we need to do, however, is to recognize too-big-to-fail being the empirical failure it is, but according to the Fed, our economic woes are not due to the size of firms.
According to the Fed, the persistent risk of SIFI's can be attributed to specific risk-management practices. It is not generally a function of size.
This piece of fundamental attribution error--declared to be "empirical truth" from the highest level of administrative, state authority--means that Systemically Influential Financial Institutions will continue to be systemically influential...and the buck stops there.
Where value consolidates is where the buck stops. It stops circulating (it causes a liquidity crisis). It is where the error of fundamental attribution accumulates into a political, crisis proportion as value accumulates, and churns, at the top. It is the Fed's job to manage the churning, inflated, crisis proportion and conserve the value of the accumulative error, which is why we often hear high-level technocrats remind us that crises will occur no matter what we do, formulating a hypothesis that needs to be empirically tested by deconsolidating the risk proportion.
Gaining empirical value, rather than validation, from the administrative state is entirely possible and, given the high proportion of gamma risk, likely.
The buck stops with the upper class, and risk consolidates into a persistent crisis proportion, until we decide it is better to ensure a more consensual, pluralistic, free-market model.
Until we decide to ensure a working, free-market model from the bottom up, instead of command and control trickled from the top down, value will persistently accumulate into a crisis, too-big-to-fail proportion. Risk, as we have seen again and again, that grows outside of its legitimate proportion to the reward (remember that being "too big" yields high reward at virtually no risk of failure) requires an ever-larger economy of scale to manage it, but with less and less direct accountability. If we want a true, free-market legitimacy, it is then the legitimate charge of the administrative state to ensure a free-and-unconsolidated marketplace, not firms so consolidated they are too big to fail in priority.
Being even more too-big-to-fail is not the cure for being too-big-to-fail.
Firms that are "too big" to fail are, simply, too big! Not admitting it is to knowingly harbor the tyranny we are told we so exceptionally abhor.
Firms allowed to get too big are firms that are not empirically verified by a popular consent of the governed. They become firms you have to do business with, not because you want to. Too-big-to-fail then tyrannically governs the marketplace by virtue (the strength) of size alone; and when rulers are not empirically ruled (verified) by the governed, but validated by default, there is a crisis of legitimacy that the rulers can no longer avoid. The risk reaches its fullest, political proportion and inexorably moves toward a more practical, consensual, pluralistic model, a' priori (with the risk of loss always having been fully assumed, which will inexorably verify).
We are free...free to choose at any time, a' priori, whether we allow the risk to verify, by consensus, or not, catastrophic.
Tuesday, June 28, 2011
Sunday, June 26, 2011
The Gamma-Risk Proportion
The latest example is supply added from the Strategic Petroleum Reserve.
Remember, not too long ago, traders were warned on this web site not to be surprised when a sudden SAR occurs in the energy market. With a cartel fixing the price, extensive horizontal and vertical integration, and copious amounts of speculative demand, the support for prices seems firmly in "control." There is, however, significant political risk that accumulates with the reward (see the article, "When Risk Converges with Reward").
Accepting accumulation of political risk to be a predictive indicator is cognitively dissonant because we are supposed to be working with a free-market model that ontologically processes risk in a legitimate, "uncontrolled," pluralistically consensual proportion. It is critical, however, not to ignore all the risk. Whether balancing the household budget or the national budget, it is critical to model the fullest extent of the risk proportion. Including all the risk factors will accurately model the probable direction of risk, which determines the position of the reward at any particular time.
Nor should traders be dismayed with the sudden reversal. If you were surprised--being long oil, for example, when you should have been short--it is because of faulty, analytical modeling. If you were using a pluralistic model, you failed to see the sudden change because of an ideological, confirmation-bias that falsely assumes we are operating with a free-market legitimacy. We are not!
The predictive model is the bureucratic model. While this model has pluralistic elements, it is largely dependant on executive administration of power. Whether big-business or big-government, risk is deliberately managed to consolidate into a gamma (accumulatively political), administrative proportion. Risk is deliberately organized to be in command and "control" from the top down (i.e., to minimize its otherwise probable, consensual direction).
Identifying the proper predictive model to arbitrage profits from false assumptions largely begs the question, however.
Will ensuring a more pluralistic, consensual, working model stabilize our economy? Are we not more likely to promote growth (cause a distribution from the accumulation) and pay down debt by deconsolidating the risk proportion rather than continue its deliberate, organized consolidation into a too-big-to-fail (gamma-risk) proportion?
Is being even more too-big-to-fail the cure for being too-big-to-fail?
Remember, not too long ago, traders were warned on this web site not to be surprised when a sudden SAR occurs in the energy market. With a cartel fixing the price, extensive horizontal and vertical integration, and copious amounts of speculative demand, the support for prices seems firmly in "control." There is, however, significant political risk that accumulates with the reward (see the article, "When Risk Converges with Reward").
Accepting accumulation of political risk to be a predictive indicator is cognitively dissonant because we are supposed to be working with a free-market model that ontologically processes risk in a legitimate, "uncontrolled," pluralistically consensual proportion. It is critical, however, not to ignore all the risk. Whether balancing the household budget or the national budget, it is critical to model the fullest extent of the risk proportion. Including all the risk factors will accurately model the probable direction of risk, which determines the position of the reward at any particular time.
Nor should traders be dismayed with the sudden reversal. If you were surprised--being long oil, for example, when you should have been short--it is because of faulty, analytical modeling. If you were using a pluralistic model, you failed to see the sudden change because of an ideological, confirmation-bias that falsely assumes we are operating with a free-market legitimacy. We are not!
The predictive model is the bureucratic model. While this model has pluralistic elements, it is largely dependant on executive administration of power. Whether big-business or big-government, risk is deliberately managed to consolidate into a gamma (accumulatively political), administrative proportion. Risk is deliberately organized to be in command and "control" from the top down (i.e., to minimize its otherwise probable, consensual direction).
Identifying the proper predictive model to arbitrage profits from false assumptions largely begs the question, however.
Will ensuring a more pluralistic, consensual, working model stabilize our economy? Are we not more likely to promote growth (cause a distribution from the accumulation) and pay down debt by deconsolidating the risk proportion rather than continue its deliberate, organized consolidation into a too-big-to-fail (gamma-risk) proportion?
Is being even more too-big-to-fail the cure for being too-big-to-fail?
Thursday, June 23, 2011
From Fat to Flat
Following a massive accumulation of value, and an ensuing crisis of legitimacy, like we are experiencing now, the beneficiaries are busy protecting the accumulation from what they call a "confiscatory" political settlement.
The top income class has the legitimate right to keep private property (the accumulation) to the fullest extent and use it any way they see fit because (like Adam Smith said) they earned it--not the government (the king) or anybody else. A lot of time, effort, and technical expertise went into accumulating value, which resulted in the Great Recession.
On the one hand, the value accumulated is deliberately earned, and on the other, the recession is a cyclical, force-majeure ontology. No one can prevent the seasons from changing, and no one can prevent the best and the brightest from cyclically emerging at "the top." Being among the most high is empirically confirmed--measured--by income class, with all the rights and privileges legitimately earned therein by natural ability conferred by the sovereign power (the major force) of God.
Since, however, "We the People" are Constitutionally "The Sovereign" (i.e., the people rule legitimate rulers), the elite cannot claim power for themselves de jure, but de facto. They rule by accomplishment, and denying them what they have legitimately earned is unnatural and, thus, detrimental. So, when Eric Cantor says, "we cannot tax the very people we rely on to create jobs," he is not only saying it is unnatural, but the accumulated capital necessary to create full employment will be detrimentally expropriated by government (not allowing people to do as they see fit with what they earn, or accomplish...like employing people, or not). Thus, the capital will not be optimally available for job creation even though the reason it will be "confiscated" is because its accumulation is not being legitimately used to create jobs.
Discrepancy between the legitimate accumulation of capital and its use is the crisis we now face (it is the fully assumed risk of loss the power elite must avoid if it is to be the ruling "class"). If the capital is not being used to create jobs, but instead is being used to confirm income class by converting equity into debt (which results in the sovereign debt crisis we now face worldwide, for example), there is a benefit being derived by causing detriment.
(We have to keep in mind that the ruling class has an international dimension. Greek citizens, for example, are not stupid. They are politically astute and highly sophisticated. They know that the austerity plan is more the result of an international liquidity crisis than their so-called profligate lifestyle. Much of the debt was falsely valued, which derived a largely untaxed, internationally processed benefit from a detriment now being excised in the form of "needed" national austerity. Of course, Greeks question the legitimate distribution of the risk, with the reward supra-nationally derived from detriment devolved into sovereign debt.
Consumers, worldwide, also understand that "accommodative" monetary policy is driving up debt. On the one hand, rates are low and the dollar is weak because demand is slow, on the other, prices are high because demand is too high. The contradiction technically indicates manipulation supported by a bogus, exculpatory narrative. Consumers are paying a high price for food and fuel not because it is in short supply, but because it is being priced at the margin in unregulated, international, speculative markets. There is ample supply always available at a high, marginal price, and that margin turns equity into debt--it produces untaxed profits by causing a detriment--that consumers cannot pay without it being excised with the force and legitimacy of public authority.
Supposedly, according to the normative narrative, the weak dollar causes high oil prices, for example, but the dollar is weak because there is slow demand; and, keep in mind, we are not allowed to conclude that high oil prices cause a weak dollar because that, of course, would be illogical since a stronger dollar has the effect of lower prices. Notice, for example, that the IEA's decision to increase the supply of oil caused the dollar to strengthen, not the reverse. This contradiction--and the supporting hysteron proteron argumentation--results in a crisis of legitimacy, and the legitimacy of the austerity being excised--like cutting benefits for the infirm and the unemployed to pay the debt--is being questioned worldwide.
We are not in debt because grandma needs to buy food and medication, but because profligate profiteers--the people that benefit by causing detriment--are too greedy to pay it. The reason too-fat-to-fail interests should not sacrifice, but grandma should, is not, they say, because they are too greedy and selfish, but because it is a moral hazard. Greed is good because it keeps ample supply available by depriving us of what we need?
Arguing it is a moral hazard to take care of grandma is a thoroughly despiseable sentiment. It is retributively valued to the fullest point of probable risk redemption.
For politicians like Eric Cantor, the pressure is on to prevent redemption of the fully assumed risk ontology without sacrificing its detrimental proportion. A flat-tax is the probable political settlement to offset the accumulated gamma risk.
The probability of retributive-risk redemption is contained in analytical descriptions like, "high oil prices are like a tax." Yet, it is necessary, at the same time, to maintain the argument that high prices produce income that has been earned and not confiscated.
That high prices earn income, and taxes confiscate it, is a bogus argument if your income is being reduced by both, producing a largely untaxed, accumulated benefit at "the top" by causing detriment at the bottom. Ambivalent use of the values indicates a highly retributive valuation of the risk proportion.)
Causing detriment is not considered to be a noble, middle-class quality. Especially after the American Revolution, it is a quality considered characteristic of kings and an irrational--illegitimate--accumulation of power. For the post-Revolutionary elite, it is a measurable test of power, nevertheless. It is legitimate by the fact accomplished and cyclically verified in the normal course of "doing business" which, legitimately, is to expand the pie for everyone, not just your slice of it.
Doing business just to expand your slice of the pie is impolitic--it is what kings irrationally do, stealing from the hands that feed them, forcing the economy into subsistence and surplusing value only by expropriation and deprivation. The best way to increase your slice of the pie is to expand it for everyone, not confiscate it. It not only makes you unpopular, but it reduces the incentive to produce the pie--it's bad for business.
Government (the power to illegitimately confiscate value) is, according to conservatives, the problem and not the solution. Government (not the undistributed accumulation) has caused the sovereign debt crisis (the need to tax), and the crisis will only get worse until we accept what is natural by right--the rich get rich and the poor, naturally, get poorer, as God intended it. Our existence is determined by natural rights that are legitimately conferred by God, distributing wealth and power to those that have legitimately earned it; and taking that away is illegitimate--it is a crime against nature that results in a dead-weight loss (i.e., everybody loses).
In order to avoid the fully assumed loss, conservatives are now angling to reduce the inherent tax liability of an undistributed accumulation. Without sacrificing the natural, moral, economic imperative of being sure the most able to pay actually pay the least, a political compromise is sure to gain strength that appears legitimately equitable by increasing the tax burden of the elite while reducing the tax burden of the non-elite. To avoid the fully assumed risk without abandoning the Hamiltonian model, it is necessary to shape a policy that fits the model without appearing inequitable.
While being too fat is likely to result in a massive, coronary crisis, avoiding the crisis has to come from somewhere. Austerity is required. It is necessary to deprive yourself of what makes you fat--but in order to proverbially "have your cake and eat it too," it is necessary to get flat to stay fat.
With Republican policy we can go from fat to flat in no time! All we have to do is go on a strict diet that, combined with proper excising at a flat rate, will have our economy up and running with vim and vigor.
If achieving equity by means of assuring inequity does not seem exactly legitimate, the flat-tax fits the Hamiltonian model. It is a product of the anchoring effect. It is a psychological trick--the tax code is so inequitable that even a different form of the problem looks like a solution. The budget is so starved of needed revenue that anything, even an equally regressive tax burden, looks good. While the results will be the same, it at least appears we are losing the fat by going flat.
While it looks like we are all paying the same rate--paying the freight with each his own weight--the fat proportion of risk does not reduce, but maintains. Equity still turns into debt and though you may pay less tax on your reduced assets and income, the need increases, nevertheless, against the new, overall-lower, flat rate. The debate then again reduces to arguments of political philosophy (ideology) in which taxing the job creators is considered to be immoral (theft of property), which entails retributive value (sub-optimal capital investment and unemployment, like we have now).
Liberal ideology then becomes the practical alternative to a progressively reduced government influence against a progressively increasing need. Taxes then progressively rise with your income, and since taxing the job creators is counter-productive if not immoral, the debt rises due to insufficient income (like we have now).
The technical, non-partisan solution is to lower the tax rate on average incomes and progressively increase the rate on incomes above average. Revenues rise while the need for government spending, and debt, declines. Incomes rise from the bottom up rather than the top down, causing a distribution from the accumulation instead of more debt, and the risk of default, by borrowing from it.
From Fat to Flat--
It's no win
To lose the fat
By acting thin
The top income class has the legitimate right to keep private property (the accumulation) to the fullest extent and use it any way they see fit because (like Adam Smith said) they earned it--not the government (the king) or anybody else. A lot of time, effort, and technical expertise went into accumulating value, which resulted in the Great Recession.
On the one hand, the value accumulated is deliberately earned, and on the other, the recession is a cyclical, force-majeure ontology. No one can prevent the seasons from changing, and no one can prevent the best and the brightest from cyclically emerging at "the top." Being among the most high is empirically confirmed--measured--by income class, with all the rights and privileges legitimately earned therein by natural ability conferred by the sovereign power (the major force) of God.
Since, however, "We the People" are Constitutionally "The Sovereign" (i.e., the people rule legitimate rulers), the elite cannot claim power for themselves de jure, but de facto. They rule by accomplishment, and denying them what they have legitimately earned is unnatural and, thus, detrimental. So, when Eric Cantor says, "we cannot tax the very people we rely on to create jobs," he is not only saying it is unnatural, but the accumulated capital necessary to create full employment will be detrimentally expropriated by government (not allowing people to do as they see fit with what they earn, or accomplish...like employing people, or not). Thus, the capital will not be optimally available for job creation even though the reason it will be "confiscated" is because its accumulation is not being legitimately used to create jobs.
Discrepancy between the legitimate accumulation of capital and its use is the crisis we now face (it is the fully assumed risk of loss the power elite must avoid if it is to be the ruling "class"). If the capital is not being used to create jobs, but instead is being used to confirm income class by converting equity into debt (which results in the sovereign debt crisis we now face worldwide, for example), there is a benefit being derived by causing detriment.
(We have to keep in mind that the ruling class has an international dimension. Greek citizens, for example, are not stupid. They are politically astute and highly sophisticated. They know that the austerity plan is more the result of an international liquidity crisis than their so-called profligate lifestyle. Much of the debt was falsely valued, which derived a largely untaxed, internationally processed benefit from a detriment now being excised in the form of "needed" national austerity. Of course, Greeks question the legitimate distribution of the risk, with the reward supra-nationally derived from detriment devolved into sovereign debt.
Consumers, worldwide, also understand that "accommodative" monetary policy is driving up debt. On the one hand, rates are low and the dollar is weak because demand is slow, on the other, prices are high because demand is too high. The contradiction technically indicates manipulation supported by a bogus, exculpatory narrative. Consumers are paying a high price for food and fuel not because it is in short supply, but because it is being priced at the margin in unregulated, international, speculative markets. There is ample supply always available at a high, marginal price, and that margin turns equity into debt--it produces untaxed profits by causing a detriment--that consumers cannot pay without it being excised with the force and legitimacy of public authority.
Supposedly, according to the normative narrative, the weak dollar causes high oil prices, for example, but the dollar is weak because there is slow demand; and, keep in mind, we are not allowed to conclude that high oil prices cause a weak dollar because that, of course, would be illogical since a stronger dollar has the effect of lower prices. Notice, for example, that the IEA's decision to increase the supply of oil caused the dollar to strengthen, not the reverse. This contradiction--and the supporting hysteron proteron argumentation--results in a crisis of legitimacy, and the legitimacy of the austerity being excised--like cutting benefits for the infirm and the unemployed to pay the debt--is being questioned worldwide.
We are not in debt because grandma needs to buy food and medication, but because profligate profiteers--the people that benefit by causing detriment--are too greedy to pay it. The reason too-fat-to-fail interests should not sacrifice, but grandma should, is not, they say, because they are too greedy and selfish, but because it is a moral hazard. Greed is good because it keeps ample supply available by depriving us of what we need?
Arguing it is a moral hazard to take care of grandma is a thoroughly despiseable sentiment. It is retributively valued to the fullest point of probable risk redemption.
For politicians like Eric Cantor, the pressure is on to prevent redemption of the fully assumed risk ontology without sacrificing its detrimental proportion. A flat-tax is the probable political settlement to offset the accumulated gamma risk.
The probability of retributive-risk redemption is contained in analytical descriptions like, "high oil prices are like a tax." Yet, it is necessary, at the same time, to maintain the argument that high prices produce income that has been earned and not confiscated.
That high prices earn income, and taxes confiscate it, is a bogus argument if your income is being reduced by both, producing a largely untaxed, accumulated benefit at "the top" by causing detriment at the bottom. Ambivalent use of the values indicates a highly retributive valuation of the risk proportion.)
Causing detriment is not considered to be a noble, middle-class quality. Especially after the American Revolution, it is a quality considered characteristic of kings and an irrational--illegitimate--accumulation of power. For the post-Revolutionary elite, it is a measurable test of power, nevertheless. It is legitimate by the fact accomplished and cyclically verified in the normal course of "doing business" which, legitimately, is to expand the pie for everyone, not just your slice of it.
Doing business just to expand your slice of the pie is impolitic--it is what kings irrationally do, stealing from the hands that feed them, forcing the economy into subsistence and surplusing value only by expropriation and deprivation. The best way to increase your slice of the pie is to expand it for everyone, not confiscate it. It not only makes you unpopular, but it reduces the incentive to produce the pie--it's bad for business.
Government (the power to illegitimately confiscate value) is, according to conservatives, the problem and not the solution. Government (not the undistributed accumulation) has caused the sovereign debt crisis (the need to tax), and the crisis will only get worse until we accept what is natural by right--the rich get rich and the poor, naturally, get poorer, as God intended it. Our existence is determined by natural rights that are legitimately conferred by God, distributing wealth and power to those that have legitimately earned it; and taking that away is illegitimate--it is a crime against nature that results in a dead-weight loss (i.e., everybody loses).
In order to avoid the fully assumed loss, conservatives are now angling to reduce the inherent tax liability of an undistributed accumulation. Without sacrificing the natural, moral, economic imperative of being sure the most able to pay actually pay the least, a political compromise is sure to gain strength that appears legitimately equitable by increasing the tax burden of the elite while reducing the tax burden of the non-elite. To avoid the fully assumed risk without abandoning the Hamiltonian model, it is necessary to shape a policy that fits the model without appearing inequitable.
While being too fat is likely to result in a massive, coronary crisis, avoiding the crisis has to come from somewhere. Austerity is required. It is necessary to deprive yourself of what makes you fat--but in order to proverbially "have your cake and eat it too," it is necessary to get flat to stay fat.
With Republican policy we can go from fat to flat in no time! All we have to do is go on a strict diet that, combined with proper excising at a flat rate, will have our economy up and running with vim and vigor.
If achieving equity by means of assuring inequity does not seem exactly legitimate, the flat-tax fits the Hamiltonian model. It is a product of the anchoring effect. It is a psychological trick--the tax code is so inequitable that even a different form of the problem looks like a solution. The budget is so starved of needed revenue that anything, even an equally regressive tax burden, looks good. While the results will be the same, it at least appears we are losing the fat by going flat.
While it looks like we are all paying the same rate--paying the freight with each his own weight--the fat proportion of risk does not reduce, but maintains. Equity still turns into debt and though you may pay less tax on your reduced assets and income, the need increases, nevertheless, against the new, overall-lower, flat rate. The debate then again reduces to arguments of political philosophy (ideology) in which taxing the job creators is considered to be immoral (theft of property), which entails retributive value (sub-optimal capital investment and unemployment, like we have now).
Liberal ideology then becomes the practical alternative to a progressively reduced government influence against a progressively increasing need. Taxes then progressively rise with your income, and since taxing the job creators is counter-productive if not immoral, the debt rises due to insufficient income (like we have now).
The technical, non-partisan solution is to lower the tax rate on average incomes and progressively increase the rate on incomes above average. Revenues rise while the need for government spending, and debt, declines. Incomes rise from the bottom up rather than the top down, causing a distribution from the accumulation instead of more debt, and the risk of default, by borrowing from it.
From Fat to Flat--
It's no win
To lose the fat
By acting thin
Sunday, June 19, 2011
Legitimacy of the Risk
No pain, no gain. If you endure the pain, you deserve the gain. The legitimate distribution of the risk proportion is simple, clear, and logically positive despite the negative value of having to endure pain; and in modern, civil society, much of the pain is in the form of anxiety.
If, for example, investors buy long and sell short, like many hedge funds do, the risk (the anxiety) is supposedly low because the investment tool (the long-short fund) controls the distribution of the risk. The pain is shifted (offset) to anyone positioned to "take" the risk (anyone not positioned long and short). The anxiety (the value derived from the offset) is shifted to the future.
So, when big banks put their money into commodity futures rather than lending to expand the economy, the fix is in for short selling the net worth (the assets) of the middle and lower classes, subsequently acquired (covered) by the wealthy to be resold long. The short position then gains value long as it is being covered (i.e., the recovery), converging the long risk with the reward which is reflected in strong "earnings" and high equity values. Strong earnings and equity values make it appear that the economy is healthy when it is really in pain--no pain, no gain.
The long position is falsely valued and will manifest in a crisis proportion of accumulated risk value in which the pain demands legitimate distribution of the gain. At this point, the crisis is one of legitimacy represented as the empirical value (debt-to-equity) that has been politically assigned. Despite political settlement, the ontological value of the risk will persist--demanding legitimately proper assignment, shifting the anxiety back to its source (i.e., the value has become fully retributive because the risk of loss cannot be avoided, it is fully assumed in priority). Retribution (re-attribution of the value) is not to be avoided because it is categorically imperative (it is ontologically determined, and resisting the ontology is cause for high anxiety).
Big, consolidated, financial interests are in a state of high anxiety. For Wall Street, re-attribution is a disconfirmation of status and power. It represents a loss to Main Street that, according to the power elite, results in chaos--civil unrest, like we see in Greece, for example.
To resist what the power elite considers to be incivility, it is necessary to consolidate power even more to exact the austerity (the pain) we need to avert the impending crisis (i.e., by properly assigning the risk--the anxiety--to the non-elite by organized means). Consolidation, therefore, despite it being the cause of the problem, is categorically imperative, both liberals and conservatives contend, for maintaining civil society. So, in the U.S., for example, we see the political will for deregulation rather than deconsolidation, and what regulation there is should be only to advance consolidation and control uncivil, retributive behavior. (Keep in mind that regulated consolidation occurs by political settlement. That is, consolidation is politically organized with reliable, economic effects, making it appear that consolidation is an economic ontology when it is really a political de-ontology that assigns the risk to the non-elite through what appears to be pluralistic processes. So, analyses that use a pluralistic model will fail--crises will not be averted, but encouraged. All the risk will not be accounted for, but its attribution will be ontologically demanded.)
Demanding re-attribution of the risk value is a manifestation of high anxiety: Wall Street sees overwhelming demand (need) for higher, marginal tax rates; Main Street a demonstration of raw power (beyond what is considered good or evil) that literally means extreme economic distress.
Budget cutbacks on the heels of the Great Recession will cause a depressionary trend...the Greeks know it...we all know it! Doing the wrong thing is not categorically imperative, it's just stupid!
If, for example, investors buy long and sell short, like many hedge funds do, the risk (the anxiety) is supposedly low because the investment tool (the long-short fund) controls the distribution of the risk. The pain is shifted (offset) to anyone positioned to "take" the risk (anyone not positioned long and short). The anxiety (the value derived from the offset) is shifted to the future.
So, when big banks put their money into commodity futures rather than lending to expand the economy, the fix is in for short selling the net worth (the assets) of the middle and lower classes, subsequently acquired (covered) by the wealthy to be resold long. The short position then gains value long as it is being covered (i.e., the recovery), converging the long risk with the reward which is reflected in strong "earnings" and high equity values. Strong earnings and equity values make it appear that the economy is healthy when it is really in pain--no pain, no gain.
The long position is falsely valued and will manifest in a crisis proportion of accumulated risk value in which the pain demands legitimate distribution of the gain. At this point, the crisis is one of legitimacy represented as the empirical value (debt-to-equity) that has been politically assigned. Despite political settlement, the ontological value of the risk will persist--demanding legitimately proper assignment, shifting the anxiety back to its source (i.e., the value has become fully retributive because the risk of loss cannot be avoided, it is fully assumed in priority). Retribution (re-attribution of the value) is not to be avoided because it is categorically imperative (it is ontologically determined, and resisting the ontology is cause for high anxiety).
Big, consolidated, financial interests are in a state of high anxiety. For Wall Street, re-attribution is a disconfirmation of status and power. It represents a loss to Main Street that, according to the power elite, results in chaos--civil unrest, like we see in Greece, for example.
To resist what the power elite considers to be incivility, it is necessary to consolidate power even more to exact the austerity (the pain) we need to avert the impending crisis (i.e., by properly assigning the risk--the anxiety--to the non-elite by organized means). Consolidation, therefore, despite it being the cause of the problem, is categorically imperative, both liberals and conservatives contend, for maintaining civil society. So, in the U.S., for example, we see the political will for deregulation rather than deconsolidation, and what regulation there is should be only to advance consolidation and control uncivil, retributive behavior. (Keep in mind that regulated consolidation occurs by political settlement. That is, consolidation is politically organized with reliable, economic effects, making it appear that consolidation is an economic ontology when it is really a political de-ontology that assigns the risk to the non-elite through what appears to be pluralistic processes. So, analyses that use a pluralistic model will fail--crises will not be averted, but encouraged. All the risk will not be accounted for, but its attribution will be ontologically demanded.)
Demanding re-attribution of the risk value is a manifestation of high anxiety: Wall Street sees overwhelming demand (need) for higher, marginal tax rates; Main Street a demonstration of raw power (beyond what is considered good or evil) that literally means extreme economic distress.
Budget cutbacks on the heels of the Great Recession will cause a depressionary trend...the Greeks know it...we all know it! Doing the wrong thing is not categorically imperative, it's just stupid!
Sunday, June 12, 2011
Near-Zero Interest
Interest in economic expansion is so low, interest rates are nearly zero. Rates have been low for a long time and Bernanke says the Fed will continue its "accommodative" monetary policy.
An accommodative policy is absolutely essential for averting a depressionary trend. It is a risk-averse assessment that, as previously discussed, is not necessarily pro-growth. That is, technically, the risk of massive economic failure is so high (so near a fully gamma proportion) that the interest rate is likely to remain accommodatively low to increase the rate of interest in growth rather than bidding up dwindling supplies (i.e., to control headline inflation).
Low interest rates, however, are being used to drive up headline inflation, which has a deflationary effect that in turn provides the incentive to keep rates low. The total effect tends to be a deflationary trend; and since the effect is high unemployment, which also supports the incentive to keep rates low and maintain a weak dollar, there is an ambivalent conflation of practical alternatives that only serves to make the problem worse (and seemingly unpredictable, which gives the outcome the exculpatory appearance of a legitimate force majeure). This anchors-in the need for austerity, which will support the deflationary trend by force of the inherent incentive (the entrepreneurial, "animal" spirit) to avoid the risk and maximize the return.
With unemployment high and incomes below the upper class being deflated (priced in the marketplace and accumulated into the upper class in zero-sum), non-headline inflaton is technically considered to be low. However, headline inflation is raging as the accumulation of money continues to drive up commodities as a class of financial assets rather than production factors, limiting growth and employment to near-zero interest.
Since inflation and unemployment is highly profitable, it only gets worse until it reaches the limit--and we have reached that limit. The wealth has become so consolidated (currently at pre-Depression levels) that the middle and lower classes have insufficient funds to pay the debt; and as we discussed in previous articles, insufficient funds results in default (a general economic crisis of liquidity, like the Great Depression). It is not that we don't have the money. There is plenty of money not being used to pay the debt. It will be deliberately withheld until it is assured little or no tax liability (by force majeure, of course, these deliberate actors contend, as market participants naturally limit risk to maximize reward, which accumulates the risk by offsetting it into an extensive, macro--arguably force-majeure--crisis proportion).
Factors that support the probability of an extensive crisis proportion also support equity valuations. Keep in mind that despite the current correction, low interest rates will support ("accommodate") equities along with low inflation (a high rate of sustained, structural unemployment and deflation of middle and lower class incomes--the "austerity" exacted to support equity valuations). Keep in mind, as well, the detriment exacted to support equity values yields negative, retributive value.
Since the means of pricing risk does not recognize the accumulation of retributive value, equity is falsely valued. The price does not fully reflect the value of the risk because it recognizes a liability attached to the economic reward derived from it, which is considered a political, rather than an economic, risk factor. This missing value will, nevertheless, be ontologically accounted for, force majeure, in an accumulative, crisis proportion. Despite the unavoidable ontology (remember that the risk of loss is fully assumed in priority), we must also keep in mind we are not necessarily determined to achieve complete, catastrophic failure in order to find success (having the freedom of self-determination in priority).
More interest in growth will reduce headline inflation and reverse the deflationary trend because there will be less money sitting on the bid in the commodities sector at a near-zero rate of interest. All that money we don't have being Dodd-Franked into increased reserves to protect us from catastrophic speculative demand instead of cultivating economic growth could be paying down the debt, and principle on lost equity, to prevent the impending crisis that Senator Dodd said, "will most assuredly occur." If all this "money we don't have" is reducing debt, it is not pushing commodity prices higher and deflating our economy. The probability for economic growth increases exponentially and reduces the false-positive valuation (the built-in anxiety) of equity shares.
With capital, however, anxious about weak demand because consumers are anxious about losing their jobs, the probability of an economic recovery from the private sector is nearly zero. (This is the "angst principle" I was telling you about in previous articles associated with accumulation of the risk proportion.) At the same time, keep in mind, discussion about why the level of anxiety is so high is also near zero.
Everything is nearly zero except, of course, the capital being gained from it. There is tremendous value being derived from the high anxiety, and since that high anxiety represents a high level of risk, the profit being gained is proportional to the present value of the risk. Technically, in fact, the high reward pefectly correlates inversely with the very low rate of interest, indicating a causal relationship that models as "making a profit by causing detriment" rather than economic growth. This is not "force majeure." It is a deliberate act of causing harm to make a profit and the result is debt, both public and private.
If, subsequently, we cut spending even further to pay down the debt, the result will be a depressionary trend--what the Fed is mandated to avoid at all cost because it is detrimental to elite and non-elite alike. Fed "accommodation" is literally to promote the general welfare and secure domestic tranquility. This is why the Fed is prescriptively an "independent" executive power, bureaucratically shaped to fit the working, elitist model and its set of false assumptions to the legitimacy of the general welfare.
Without being "free" to act independently through its "Open Market" Committee, the Fed would be less likely to conserve the risk and protect us from it at the same time. It would be less able to both conserve the value of the risk proportion (the profit being derived) and, at the same time, protect We The People from the general detriment that derives from the accumulation of the profit being derived. We see then, as discussed in the previous article, we are structured to be risk prone in the name of being risk averse which, frankly, is absolutely insane! It is a structural formula for high anxiety.
Remember that the Hamiltonian model is the working model. This model structurally assumes the benefit of public debt. It also assumes that people with wealth should not pay it. A progressive tax burden is a moral hazard because it "taxes the job creators." Taxing the rich inhibits the production of wealth that pays the wages and salaries needed to pay the debt. Thus, a progressive tax burden accumulates debt into a crisis proportion, but it will never result in default because the debt is secured by "the full faith and credit" of the Federal Government. Default is a moral hazard that is explicitly to be avoided by Constitutional authority.
While the Constitution provides for maintaining a public debt we all own, Hamiltonians maintain that rich people should not have to pay it. The more nearly zero the tax burden is for the rich, the better off everyone is because money (the capital) is then always free to produce the wealth of the nation. Just as important, according to Hamiltonians, a near-zero tax burden for the rich keeps money consolidated in the hands of those most capable to manage it in the public interest--a power elite.
From the beginning, Jeffersonians have strongly opposed the Hamiltonian hypothesis that keeping wealth consolidated in the hands of elite authority (like the king and his loyal, administrative aristocracy) secures the general welfare and ensures the domestic tranquility; and to this day, both parties claim to be more Jeffersonian (revolutionary) than the other by advocating and opposing the useful value of government. Although we cyclically disconfirm the Hamiltonian hypothesis, the assumptions of the model continue to be politically valid and in practical operation, accumulating fiscal and monetary errors that predictably present in a crisis proportion.
Currently, the crisis proportion is a near-zero rate of interest in economic expansion. It is more profitable to horde the capital and gross even more by borrowing at near-zero rates to bid up increasingly scarce supplies. Instead of accouchering economic expansion, the monetarist solution to liquidity crises (sufficient funding to pay the debt) is being used to rob us of the income we need to pay our debt (with one party claiming it is the problem and the other claiming it is the solution).
The crisis we face at this point is a crisis of legitimacy. Talking about that, however, is cause for some high anxiety. It is dangerously radical because it provides the political motive to change things by verifying, rather than validating, the legitimacy of power, like our founders did.
An accommodative policy is absolutely essential for averting a depressionary trend. It is a risk-averse assessment that, as previously discussed, is not necessarily pro-growth. That is, technically, the risk of massive economic failure is so high (so near a fully gamma proportion) that the interest rate is likely to remain accommodatively low to increase the rate of interest in growth rather than bidding up dwindling supplies (i.e., to control headline inflation).
Low interest rates, however, are being used to drive up headline inflation, which has a deflationary effect that in turn provides the incentive to keep rates low. The total effect tends to be a deflationary trend; and since the effect is high unemployment, which also supports the incentive to keep rates low and maintain a weak dollar, there is an ambivalent conflation of practical alternatives that only serves to make the problem worse (and seemingly unpredictable, which gives the outcome the exculpatory appearance of a legitimate force majeure). This anchors-in the need for austerity, which will support the deflationary trend by force of the inherent incentive (the entrepreneurial, "animal" spirit) to avoid the risk and maximize the return.
With unemployment high and incomes below the upper class being deflated (priced in the marketplace and accumulated into the upper class in zero-sum), non-headline inflaton is technically considered to be low. However, headline inflation is raging as the accumulation of money continues to drive up commodities as a class of financial assets rather than production factors, limiting growth and employment to near-zero interest.
Since inflation and unemployment is highly profitable, it only gets worse until it reaches the limit--and we have reached that limit. The wealth has become so consolidated (currently at pre-Depression levels) that the middle and lower classes have insufficient funds to pay the debt; and as we discussed in previous articles, insufficient funds results in default (a general economic crisis of liquidity, like the Great Depression). It is not that we don't have the money. There is plenty of money not being used to pay the debt. It will be deliberately withheld until it is assured little or no tax liability (by force majeure, of course, these deliberate actors contend, as market participants naturally limit risk to maximize reward, which accumulates the risk by offsetting it into an extensive, macro--arguably force-majeure--crisis proportion).
Factors that support the probability of an extensive crisis proportion also support equity valuations. Keep in mind that despite the current correction, low interest rates will support ("accommodate") equities along with low inflation (a high rate of sustained, structural unemployment and deflation of middle and lower class incomes--the "austerity" exacted to support equity valuations). Keep in mind, as well, the detriment exacted to support equity values yields negative, retributive value.
Since the means of pricing risk does not recognize the accumulation of retributive value, equity is falsely valued. The price does not fully reflect the value of the risk because it recognizes a liability attached to the economic reward derived from it, which is considered a political, rather than an economic, risk factor. This missing value will, nevertheless, be ontologically accounted for, force majeure, in an accumulative, crisis proportion. Despite the unavoidable ontology (remember that the risk of loss is fully assumed in priority), we must also keep in mind we are not necessarily determined to achieve complete, catastrophic failure in order to find success (having the freedom of self-determination in priority).
More interest in growth will reduce headline inflation and reverse the deflationary trend because there will be less money sitting on the bid in the commodities sector at a near-zero rate of interest. All that money we don't have being Dodd-Franked into increased reserves to protect us from catastrophic speculative demand instead of cultivating economic growth could be paying down the debt, and principle on lost equity, to prevent the impending crisis that Senator Dodd said, "will most assuredly occur." If all this "money we don't have" is reducing debt, it is not pushing commodity prices higher and deflating our economy. The probability for economic growth increases exponentially and reduces the false-positive valuation (the built-in anxiety) of equity shares.
With capital, however, anxious about weak demand because consumers are anxious about losing their jobs, the probability of an economic recovery from the private sector is nearly zero. (This is the "angst principle" I was telling you about in previous articles associated with accumulation of the risk proportion.) At the same time, keep in mind, discussion about why the level of anxiety is so high is also near zero.
Everything is nearly zero except, of course, the capital being gained from it. There is tremendous value being derived from the high anxiety, and since that high anxiety represents a high level of risk, the profit being gained is proportional to the present value of the risk. Technically, in fact, the high reward pefectly correlates inversely with the very low rate of interest, indicating a causal relationship that models as "making a profit by causing detriment" rather than economic growth. This is not "force majeure." It is a deliberate act of causing harm to make a profit and the result is debt, both public and private.
If, subsequently, we cut spending even further to pay down the debt, the result will be a depressionary trend--what the Fed is mandated to avoid at all cost because it is detrimental to elite and non-elite alike. Fed "accommodation" is literally to promote the general welfare and secure domestic tranquility. This is why the Fed is prescriptively an "independent" executive power, bureaucratically shaped to fit the working, elitist model and its set of false assumptions to the legitimacy of the general welfare.
Without being "free" to act independently through its "Open Market" Committee, the Fed would be less likely to conserve the risk and protect us from it at the same time. It would be less able to both conserve the value of the risk proportion (the profit being derived) and, at the same time, protect We The People from the general detriment that derives from the accumulation of the profit being derived. We see then, as discussed in the previous article, we are structured to be risk prone in the name of being risk averse which, frankly, is absolutely insane! It is a structural formula for high anxiety.
Remember that the Hamiltonian model is the working model. This model structurally assumes the benefit of public debt. It also assumes that people with wealth should not pay it. A progressive tax burden is a moral hazard because it "taxes the job creators." Taxing the rich inhibits the production of wealth that pays the wages and salaries needed to pay the debt. Thus, a progressive tax burden accumulates debt into a crisis proportion, but it will never result in default because the debt is secured by "the full faith and credit" of the Federal Government. Default is a moral hazard that is explicitly to be avoided by Constitutional authority.
While the Constitution provides for maintaining a public debt we all own, Hamiltonians maintain that rich people should not have to pay it. The more nearly zero the tax burden is for the rich, the better off everyone is because money (the capital) is then always free to produce the wealth of the nation. Just as important, according to Hamiltonians, a near-zero tax burden for the rich keeps money consolidated in the hands of those most capable to manage it in the public interest--a power elite.
From the beginning, Jeffersonians have strongly opposed the Hamiltonian hypothesis that keeping wealth consolidated in the hands of elite authority (like the king and his loyal, administrative aristocracy) secures the general welfare and ensures the domestic tranquility; and to this day, both parties claim to be more Jeffersonian (revolutionary) than the other by advocating and opposing the useful value of government. Although we cyclically disconfirm the Hamiltonian hypothesis, the assumptions of the model continue to be politically valid and in practical operation, accumulating fiscal and monetary errors that predictably present in a crisis proportion.
Currently, the crisis proportion is a near-zero rate of interest in economic expansion. It is more profitable to horde the capital and gross even more by borrowing at near-zero rates to bid up increasingly scarce supplies. Instead of accouchering economic expansion, the monetarist solution to liquidity crises (sufficient funding to pay the debt) is being used to rob us of the income we need to pay our debt (with one party claiming it is the problem and the other claiming it is the solution).
The crisis we face at this point is a crisis of legitimacy. Talking about that, however, is cause for some high anxiety. It is dangerously radical because it provides the political motive to change things by verifying, rather than validating, the legitimacy of power, like our founders did.
Wednesday, June 8, 2011
What's the Difference?
For the investment analyst, assessing the probable direction of the risk going forward will determine a winning position.
If you have been following the risk assessments on this web site, you were not surprised with the prospect of a depressionary trend. A depression is not impossible, it is just not very probable. Being favorably positioned is, then, as we explored in the previous article, a function of identifying the limit.
Not being stuck with all the risk--constantly being offset, or suddenly shifted, to unwitting, counter-party, market participants--is job one. The risk of loss is 100% (it is fully assumed). Remember that the benefit is modeled to derive from a detriment.
That financials ontologically operate through efficient markets to provide a non-zero-sum benefit is a false assumption of the working model. No, instead, we are looking at cutting entitlements, for example, which is a significant difference in the macro-risk assessment since the Great Depression.
Cutting entitlements is pro-deflationary, not pro-growth. Added to the current stagflationary trend, the probability of a depressionary trend increases dramatically--a probability that has been both fiscally and monetarily minimized since the Great Depression.
While financial assets will not sit for long in near-zero interest rate environments to avoid the probable risk, these assets will not be invested pro-growth either.
The difference is abandonment of the more "liberal" model for economic growth--like entitlements--that provides the demand necessary to resist a depressionary trend (and remember that a depressionary trend is detrimental to both the elite and non-elite alike).
Supporting a depressionary trend does not fit the benefit-derived-from-detriment (the zero-sum) model. We have thus reached the limit. Beyond this limit is where the benefit begins to accrue to the non-elite at the expense of the elite in a macro (Non-Pareto-Optimal) proportion. It is what led to the institution of entitlement programs that conservatives erroneously argue is causing the current, deflationary trend.
To prevent blinding greed and unenlightened self-interest from unwittingly positioning itself to take the offset-and-accumulated risk all at once in a crisis proportion, liberals have been there to save the capital from collapsing under the weight of its continuous consolidation. If a political realignment does not occur, a Non-Pareto-Optimal distribution will naturally occur from the accumulation. Thus, a political realignment will occur and a depression will be averted (consolidating order from the naturally occurring chaos that, according to liberals and conservatives alike, tends to deconsolidate the risk proportion into inefficient markets).
Liberalism, however, is a symptomatic treatment. Since it borrows the funds from the accumulation, errors continue to accumulate, supporting the problem to be solved with budget deficits, an increasing tax burden, and declining income. Just because the probability of a depression is next to none does not mean we will not get close, bouncing along the bottom with a persistent deflationary trend supported by political (ideological) compromise. The "effective" sum of the errors is conserved to fit (validate) the expected value (the fully assumed risk) of the working model.
It is a significant error to cut entitlements without reducing the need--that's why they are called entitlements, because they provide for public needs. Entitlements are the difference between a recession and a depression (the difference between assuming the macro-risk proportion and consuming it), and that's why the difference is highly improbable (politically unpopular among the elite and non-elite alike).
It is a significant error to think cutting entitlements will reverse the recessionary trend and put us on the path to prosperity. No! It will cause a depression.
Avoiding a depression has an anchoring effect. It allows the false assumptions of the model to ideologically operate despite empirical disconfirmation. Assuming the non-zero-sum ontology of efficient-market theory, for example, forces the losing, counter party to sue for relief by proving the intent to cause detriment. The derived benefit is affirmatively defended by arguing that complainants are out-competed into a legitimate loss, thus providing a non-zero-sum benefit in which markets ontologically maximize efficiency by putting the inefficient out of business (by causing detriment, but the loss, it is argued, is more than offset with the benefit of a more efficient market). So, for example, firms that fail (and the unemployment that results) due to the practices of too-big-to-fail financial firms and the Great Recession is really a corrective phase that strengthens our economy by virtue of efficient markets that ontologically exact detriment. Losers are the culpable party. They lose because they deserve it and society benefits from the loss in non-zero-sum.
Assuming financials operate in non-zero-sum by bankrupting us into market efficiency is a false ontology. It is a false assumption of the working model resulting in a Pareto Optimal, political settlement that deontologically conserves the consolidated value of the risk proportion. It anchors us to both the validation of disconfirmed, ideological hypotheses and to the risk-averse realpolitique of always preventing the worst possible scenario rather than pursuing the best.
It's easy to argue we are being risk-prone if we are not always averting a probable crisis. Bailing out too-big-to-fail firms is, for example, to avert a crisis of overwhelming proportion, which implies (validates) their consolidation is the best it can possibly be in priority. Thus, bailing out risk-prone firms in priority (with the risk of loss fully assumed) is being risk-averse by default. It then appears there is not much difference between being risk-averse and risk-prone, which is politically safe (Pareto Optimal).
It's just as easy to argue we are being risk-averse if we are always pursuing probable success rather than achieving the prospect of abject failure in a too-big-to-fail proportion.
By default, pursuing the best possible scenario in priority always confirms (rather than validates) the worst by its prevention, which makes all the difference.
Rather than continuously confirming the angst (the worst) of our economic existence with recessionary trends (like the Democratic-Republican "regime of re-action" is binomially apt to do), "We the People" demand leadership that makes all the difference.
The American Revolution took the risk of challenging the virtue of consolidated power, and "We" are still politically prone to confirm the virtue of its deconsolidation to provide for The Commonwealth.
If you have been following the risk assessments on this web site, you were not surprised with the prospect of a depressionary trend. A depression is not impossible, it is just not very probable. Being favorably positioned is, then, as we explored in the previous article, a function of identifying the limit.
Not being stuck with all the risk--constantly being offset, or suddenly shifted, to unwitting, counter-party, market participants--is job one. The risk of loss is 100% (it is fully assumed). Remember that the benefit is modeled to derive from a detriment.
That financials ontologically operate through efficient markets to provide a non-zero-sum benefit is a false assumption of the working model. No, instead, we are looking at cutting entitlements, for example, which is a significant difference in the macro-risk assessment since the Great Depression.
Cutting entitlements is pro-deflationary, not pro-growth. Added to the current stagflationary trend, the probability of a depressionary trend increases dramatically--a probability that has been both fiscally and monetarily minimized since the Great Depression.
While financial assets will not sit for long in near-zero interest rate environments to avoid the probable risk, these assets will not be invested pro-growth either.
The difference is abandonment of the more "liberal" model for economic growth--like entitlements--that provides the demand necessary to resist a depressionary trend (and remember that a depressionary trend is detrimental to both the elite and non-elite alike).
Supporting a depressionary trend does not fit the benefit-derived-from-detriment (the zero-sum) model. We have thus reached the limit. Beyond this limit is where the benefit begins to accrue to the non-elite at the expense of the elite in a macro (Non-Pareto-Optimal) proportion. It is what led to the institution of entitlement programs that conservatives erroneously argue is causing the current, deflationary trend.
To prevent blinding greed and unenlightened self-interest from unwittingly positioning itself to take the offset-and-accumulated risk all at once in a crisis proportion, liberals have been there to save the capital from collapsing under the weight of its continuous consolidation. If a political realignment does not occur, a Non-Pareto-Optimal distribution will naturally occur from the accumulation. Thus, a political realignment will occur and a depression will be averted (consolidating order from the naturally occurring chaos that, according to liberals and conservatives alike, tends to deconsolidate the risk proportion into inefficient markets).
Liberalism, however, is a symptomatic treatment. Since it borrows the funds from the accumulation, errors continue to accumulate, supporting the problem to be solved with budget deficits, an increasing tax burden, and declining income. Just because the probability of a depression is next to none does not mean we will not get close, bouncing along the bottom with a persistent deflationary trend supported by political (ideological) compromise. The "effective" sum of the errors is conserved to fit (validate) the expected value (the fully assumed risk) of the working model.
It is a significant error to cut entitlements without reducing the need--that's why they are called entitlements, because they provide for public needs. Entitlements are the difference between a recession and a depression (the difference between assuming the macro-risk proportion and consuming it), and that's why the difference is highly improbable (politically unpopular among the elite and non-elite alike).
It is a significant error to think cutting entitlements will reverse the recessionary trend and put us on the path to prosperity. No! It will cause a depression.
Avoiding a depression has an anchoring effect. It allows the false assumptions of the model to ideologically operate despite empirical disconfirmation. Assuming the non-zero-sum ontology of efficient-market theory, for example, forces the losing, counter party to sue for relief by proving the intent to cause detriment. The derived benefit is affirmatively defended by arguing that complainants are out-competed into a legitimate loss, thus providing a non-zero-sum benefit in which markets ontologically maximize efficiency by putting the inefficient out of business (by causing detriment, but the loss, it is argued, is more than offset with the benefit of a more efficient market). So, for example, firms that fail (and the unemployment that results) due to the practices of too-big-to-fail financial firms and the Great Recession is really a corrective phase that strengthens our economy by virtue of efficient markets that ontologically exact detriment. Losers are the culpable party. They lose because they deserve it and society benefits from the loss in non-zero-sum.
Assuming financials operate in non-zero-sum by bankrupting us into market efficiency is a false ontology. It is a false assumption of the working model resulting in a Pareto Optimal, political settlement that deontologically conserves the consolidated value of the risk proportion. It anchors us to both the validation of disconfirmed, ideological hypotheses and to the risk-averse realpolitique of always preventing the worst possible scenario rather than pursuing the best.
It's easy to argue we are being risk-prone if we are not always averting a probable crisis. Bailing out too-big-to-fail firms is, for example, to avert a crisis of overwhelming proportion, which implies (validates) their consolidation is the best it can possibly be in priority. Thus, bailing out risk-prone firms in priority (with the risk of loss fully assumed) is being risk-averse by default. It then appears there is not much difference between being risk-averse and risk-prone, which is politically safe (Pareto Optimal).
It's just as easy to argue we are being risk-averse if we are always pursuing probable success rather than achieving the prospect of abject failure in a too-big-to-fail proportion.
By default, pursuing the best possible scenario in priority always confirms (rather than validates) the worst by its prevention, which makes all the difference.
Rather than continuously confirming the angst (the worst) of our economic existence with recessionary trends (like the Democratic-Republican "regime of re-action" is binomially apt to do), "We the People" demand leadership that makes all the difference.
The American Revolution took the risk of challenging the virtue of consolidated power, and "We" are still politically prone to confirm the virtue of its deconsolidation to provide for The Commonwealth.
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