Modeling for Continuous Crisis

According to the chairman of the Federal Reserve, the probability of more quantitative easing is low. At this point, the Fed is looking to control "headline inflation" and "headline risk"."

With cheap money (low interest rates) driving commodity inflation, Bernanke identifies an economy being plagued with a persistent crisis proportion that constantly headlines the risk. Despite the sluggish demand, he sees inflation (a higher cost of doing business) crowding out employment which, in turn, increases the demand for debt, including government debt being politically managed into the threat of default. This kind of persistent, headline risk, Bernanke explained, just increases the budget deficit (increases investment in asset classes that do not produce growth and add supply).

We need to keep in mind here that the threat of sovereign-debt default is not a short-term, debt-ceiling problem turned into a long-term crisis proportion. It is an expression of the gamma-risk proportion--risk that has been unaccounted for (avoided and accumulated) heretofore. Just because it is not a mob of left-wing radicals demanding redemption of the accumulated risk, but right-wing radicals looking to fully consolidate value converted from the lower classes, does not make the debt-ceiling crisis any less gamma.

The debt ceiling is being used to extort full consolidation of converted value having been accumulated into a crisis proportion and accommodated by the administration of the state. Resistance to it being retributed by means of tax authority has been operationalized with the risk of default on an asset class that is otherwise, technically, at zero risk. It is not the debt ceiling being blown out of proportion here, it is the ambivalent philosophy of the risk being accommodatively blown out of proportion.

The new, unexpected, political valuation blows the technical value of the risk by accounting for its retributive value. This otherwise ignored valuation--a risk philosophically not assumed in practical, technical, econometric modeling--has an otherwise immediate, deflationary affect estimated to be at 10% of GDP (headline risk on steroids). This risk has an unexpected, technical value, keep in mind, only if you are not following the risk assessments on this website, for example, because it does not present the "right philosophy" of "bigger is better."

The central bank admits monetary easing has not supported the Fed's philosophy of controlling both inflation and unemployment. Instead, it is "accommodating" a business model that expects a consolidated, risk proportion in a mode of continuous crisis.

Business professionals know very well that the modeling being used is not consistent with the non-zero-sum legitimacy of supply-side philosophy. Keeping this divergence from being corrected (insisting to the point of default that cutting spending and taxes for the rich creates jobs, for example) keeps the risk consolidated in a crisis proportion.

While monetary theory is philosophically pluralistic (employment rises and prices fall as the economy expands, or pluralizes by adding supply), the deliberate, practical effect is being modeled ("utilized" in self-interest) to be deflationary (contractionary with high prices rather than expansionary with low prices). Business professionals describe this marginal utility as risk-on and risk-off investing.

When the risk is being consolidated the risk is on, and when risk has been consolidated the risk is off. In the gamma-risk dimension, however, the risk actually models conversely: on is really off, and off is really on. This conflated, ambivalent convergence and divergence of risk and reward is cause for much uncertainty and causes the need for government (the bureaucratic state) to stabilize the continuous crisis of uncertainty that MBA's are philosophically trained to model without it.

The final effect is for the interest on the debt (the debt itself being the principal that generates the interest) to have precedence over employment to avoid default. Since, however, rising unemployment means there is less income to pay the debt (which means it accumulates with only the interest being paid), the missing value is "accommodated" (accounted for) by being monetized. The missing value (the otherwise unaccounted for risk) accumulates into public debt that, at this point, with Italy being the latest example, is in a continuous state of liquidity crisis (with the risk being perpetually "on" or, that is, fully assumed but without being fully accounted for in the actuarial model of doing business).

Since MBA's learn that business and finance is for making money, not creating jobs, the easy money is leveraged right into easy profits at the expense of jobs (and because we adhere to conservative tax-policy philosophy to create jobs, it is also at the expense of tax revenues, causing record budget deficits, debt, and default both public and private). This philosophy of finance is highly detrimental but, at the same time, highly profitable. It is then the job of the administrative state to reconcile the distribution of the risk with the verifiable reward without making anyone less well off. We see, for example, big banks using QE to buy back their stock, which increases the dividend per share without producing growth; and that means that the measure utilized to solve the problem is actually modeled to perpetuate it. The result, we should not be surprised, is a continuous crisis proportion. It is necessary to act surprised, however, to avoid the liability of deriving benefit from detriment. It is wrong, in zero-sum, to derive a dividend without adding supply.

It is wrong, according to supply-side philosophy, to produce profit by not adding supply but reducing it to cause unemployment and accumulating debt. Adam Smith, for example, said it is fundamentally immoral (illegitimate) to profit by leveraging risk (debt) into a crisis proportion (default). It is immoral to use capital to cause detriment and, thus, the need for government.

Capital, Smith said, is best managed by the most moral among us. Those who seek profit by providing (adding supply) rather than depriving are the naturally selected winners as long as the marketplace is free and unconsolidated (doing business because you want to, not because you have to). Legitimacy is best decided in zero-sum (with the risk of loss fully assumed in self-interest), by popular consent in a completely, empirically determined, free-and-open marketplace, without government picking winners and losers. Hence, the zero-sum incentive (self-interest) produces the non-zero-sum legitimacy (the public good) of added supply.

According to Adam Smith ("the" original "supply-sider"), it is the function of government, first and foremost, to ensure we have a free-and-unconsolidated marketplace, which is just the opposite of what we have and what so-called supply-siders want.

Leveraging risk is what MBA's are trained to do, and apparently to the point of continuous crisis. What motivates a professional class to drive a detriment into a persistent crisis proportion?

Un-Enlightened self-interest motivates us to consolidate and deprive rather than model for deconsolidation and provide. Once the capital is allowed to consolidate, we are slaves to it.

Our financial system is deliberately (politically and economically) modeled for a continuous crisis proportion, turning equity into debt by means of continuous consolidation. It is modeled to be too-big-to-fail and that, according to Adam Smith, is the ultimate ignominy--it is the ultimate moral hazard.

Pluralism provides an empirical moral authority that the bureaucratic model can only approximate without ensuring deconsolidation of the risk proportion in priority.

Modeled triangulation of business, congress, and administrative authority is being utilized to consolidate the risk into what Adam Smith would consider to be a continuous, "risk-on" moral hazard.