Signs of Recovery

Small investors need to keep in mind that capital is over-accumulated. Everything is over-priced and signals are easily manipulated into what appear to be irrational, unpredictable, technical parameters. Keep in mind that "irrational" indicators are really false valuations--it is not a pluralistic model, but an elitist model that predicts the direction of the risk.

It is important, however, to not use a pluralistic, free-market model only to account for the missing value of risk. The missing value not only predicts a crisis, but serves to indicate corrective (political) action in the dimension of unavoidable, gamma risk (where the value accumulates into a crisis proportion).

When a crisis occurs, the missing value represents the need to prevent it, not just predict it.

We can very simply prevent crises in the first order by ensuring practical operation of a free-market model in priority. It is much more risk averse to cure the problem than rely on complex treatment of late-order effects.

Focusing on complicated, symptomatic treatments only serves to support predictable recurrence of the risk to be avoided (like trying to increase GDP by reducing debt in the gamma-risk dimension). Alternatively, crises are easily resisted with a genuine free-market legitimacy (an easily recognizable, legal and proper consent of the governed--self-governance confirmed in the first order, alpha-risk dimension).

The Fed admonished policymakers at Jackson Hole saying it is unwise to cut spending if we want economic recovery. While low interest rates accommodate spending needed to fuel recovery, headline inflation is countering the effect.

Low interest rates should be a sign of recovery. Instead it is a sign of what caused the Great Recession to begin with--excessive speculative demand that is the direct result of overaccumulated wealth. Income needed to pay mortgages, buy goods and services, and keep people employed has been consolidated by bidding up food and fuel prices, and because so-called "headline" inflation is falsely attributed to increased, global demand, fundamental measures needed to control it are ignored, resulting in missing value that accumulates error--crises--that cannot be avoided.

If we do manage to ignore a crisis, by accommodating it, for example, like we are now, the bliss will inevitably turn into blame. The blameworthy, however, will not be accused of uncivil behavior, it will be the complainants. The effect--rising crime and civil unrest--will be indicted as the problem, which serves to perpetuate the cause (the incivility to be prevented). Whether we have a double dip or not, the current deflationary trend (falling income that without QE results in a declining rate of profit) is bad enough.

Deflation is bad for both labor and capital. Everybody's income is reduced, and in the case of capital, redistribution of the risk is more probable. As conservatives are apt to say, redistribution has to come from somewhere, and since the lower classes will have next to nothing, the probability it will come from the upper class becomes parabolic. It becomes impossible to make a profit when the income to support it has been completely consolidated--deflated. Thus, the declining rate of profit, which is a definitive sign of an impending deconsolidation of the risk proportion--not just a distribution from the accumulation, but a normative redistribution.

The income currently being consolidated is being used to deflate incomes even more, which is the deflationary spiral the Fed has prevented up to now. Unfortunately, as Bernanke points out, accommodation has done very little to indicate recovery, and at this point only serves to indicate an accumulative, deflationary risk (the problem to be avoided but, unfortunately, not eliminated).

Good public policy makes for sound investing. Adhering to disconfirmed hypotheses to satisfy your principles is, however, a very bad sign. While having predictable consequences, it is inherently unsound.