Stag(flation) Hunt

The hunt for value is like a stag hunt--the classic, game theory simulation in which, essentially, the players optimally position for the reward by anticipating the position of the other players.

In the stag hunt, the players are acting with intention. Each player is angling to reduce errors to gain the reward. In the stagflation hunt, the players, in the same way, fully intend to minimize the fully assumed risk of loss.

In the stagflation hunt, however, the players deny full culpability. The value derived is determined by market conditions which, subsequently, determines the market position of the players. This is a temporal fallacy. It is a deliberate, post-hoc play (an attribution) that positions other market participants to take the risk in late order (without retribution), and then the risk-value consumed is considered to be legitimately derived from free-market interaction and non-retributive.

If the value derived is retributed (taxed or regulated to transfer the value to parties that did not earn it in the hunt, and thus reduce the value of the detriment), the value is misattributed and causes error. The error affects the fundamentals and the risk assessment. It causes systemic risk (added complexity) that all the players must adjust to. So we run with the herd, or reposition for adversity, to avoid being trampled, and by trying to avoid the risk we are corralled into detriment.

Since the added complexity is incorrectly considered added risk, more error is added by trying to reduce it, and the risk goes gamma. Alpha risk (self-interest that prudently regulates, or retributes value in the marketplace) becomes self-retributive--it becomes detrimental. Calculating the quantum value that is self-interest is now so complex that "the risk" is shifted (it transfers) to elite expertise.

Risk managers take control of our self-interest, efficiently managed through market activity, operating in the dark with the legitimacy of it all being too complex for mass participation. Without direct participation in the alpha dimension, however, free-market legitimacy is abandoned for "market efficiency."

What doesn't transfer with the risk is responsibility. When participants gain more detriment than benefit, it is their own fault, and according to Romney and Ryan, this is the opportunity to participate in the American dream. Default (strength or weakness in the marketplace by natural condition) is the opportunity to benefit from the detriment of others, always on the hunt for new opportunities (poaching in the dark).

Efficient-markets theory is a deliberate process, deriving value from detriment while claiming the outcome is the result of the invisible hand in a free market. If we are trying to assess the risk etiology using the predictable result of the working model, a free market is not the logical conclusion, especially if stagflation is the effective result.

Achieving "the American dream" by saving it from itself, using policies and programs that yield the current economic environment, lacks good intellectual value. We have to consider that the stagflationary environment Romney and Ryan say is crushing the American dream is the same program as the previous administration, using efficient-markets theory.

According to Romney and Ryan, the Obama administration does not believe in free-market economics, which is essentially true if it continues to apply efficient-markets theory. With this theory being the only choice among the alternative brands, voters are binomially positioned for the risk, democratically determined.

(This is called "phantom branding." If you buy a Quicky Burger instead of a Speedy Burger because it made you sick, while it may seem like you are sanctioning Speedy Burgers, you have to consider whether they are made by the same company to avoid the risk. When markets "efficiently" consolidate, consumers have to sue to sanction or go without consumption on demand.)

The vast majority are the stag, and the rest are the hunters, and we all know what happens to the stag...it is consumed by the hunters, and that's the American dream, deliberately pursued by natural right and non-retributive.

Value derived from commodities speculation has had a predictable effect--slow demand at high prices. If you are in the top income class, you're living the American dream--stagflation. Income is high at the lowest possible cost, with plenty of supply to be consumed on demand.

When we see, for example, the CFTC raise the rent on energy speculators after the hunt is over, the value (the stag) has been consumed. The accumulated value will be used to pay the margin requirement and position limits busted with phantom branding (mergers and acquisitions to afford the margin). The hunt will continue with fewer hunters and a larger herd.

So what is your likely position in this game?

In pursuit of the American dream, will you be running with the hunters or the herd?

Despite the Romney-Ryan vision of "the dream," objectively, we are all in the hunt. Description of the "Obama economy" is the dream stagflated, binomially determined, but the risk of loss is fully assumed with value that is accumulatively retributive, if it wasn't, Romney and Ryan wouldn't be so worried about a moral hazard that obtains with present value.

Assuming a Proprietary Position

For small investors looking to not rely on social security for retirement, investing has resulted in reduction of net worth; and at this point, of course, average-income Americans are being told they must work longer and for less money. Let's just say that small investors are expected to assume their natural position, and like it.

According to conventional economic theory, the loss of net worth (and thus the increased need for welfare) is a legitimate function of freely taking a position in the marketplace and taking on the risk "posed" by assuming the position. If we didn't want to take the risk, then we should not have posed in that position.

Even after having been thoroughly violated, the risk seems to be permanently posed in, you know, that position.

Without being too risque, but to offer an apt description, let's just say that average-income Americans have been royally turned. According to conventional wisdom, however, average Americans knowingly and willingly assumed the position.

Of course, the exculpatory assumption of the risk is false. Much of the risk was assumed in the dark. Victims were not fully aware of the extent of the risk until it had been fully assumed, and the public is still not fully aware of the extent. There is much more risk that remains to be assumed (dark marketed). At this point, the public is being politically prepared for the extended application of the risk which is modeled to be fully assumed but not necessarily assigned by visible means of tax and subsidy.

Who will be assigned the fullest extent of the risk is to be decided in the current political process, and it is no coincidence that the process is currently being defined as having a right-wing bias. The compromises that occur will be political mitigation of economic risk (i.e., mitigation of the risk in the gamma proportion).

Elite theory postulates that The People naturally assume the proprietary position they are in. It is foolish to assume the position of risk and expect not to have to take it. Although small investors didn't see what was coming, they should have known that by putting their net worth out there, they were likely to be stuck with the risk (and size, especially when it comes to investing, does matter).

So, with the risk of loss fully assumed, The People are fully expected to assume the proprietary position...but not without all the good taste, civility and propriety of due process, of course.

Novation of the Risk

Back before the Writ of Extent became obsolete, and a republican form of government was creeping to the fore, it provided for a re-assumption of the risk.

While the Writ was chiefly for collecting debts owed directly to the crown, the risk of default--since the risk was consolidated into the extensive means of the crown--extended to the entire kingdom. The practice emerged of retributing the risk of debts not contracted directly with the crown to the crown, but was abandoned due to extensive abuse.

What was then called a Writ of Extent in Aid is now what we call novation.

It was in the crown's best interest to assure that all debts could be paid to avoid a cascade of defaults which, essentially, would negatively affect the crown's credit score--what we today call a sovereign-debt crisis. It is in the sovereigns self-interest to keep everybody solvent--thus, the practice of novation or what we call today, monetizing the debt (borrowing money to pay the debt).

It is probably safe to say that the process of risk novation has become, as in the past, abusive, but it is not likely to be abandoned anytime soon because it extends the risk disproportionate to the reward which, of course, over-extends the risk.

Novation was a prominent feature of the Great Recession. Derivative transactions were novated on a daily basis to avoid being stuck with the risk. An organizational tool called "the tri-party repo mechanism" was used (or more aptly abused) to essentially novate and extend the risk into a crisis proportion.

Ultimately, the risk was re-novated by government authority. It is now being redistributed in the form of public debt--a process that neo-classically consolidates and re-extends the risk with the force and legitimacy of public authority, keeping the reward accumulated in a crisis proportion, over-extending the risk.

In both the archaic and modern form, novation of the risk is intended to prevent killing the host that provides the current value of the risk--the reward (class distinction).

The ruling class is compelled to novate (renew or innovate) the risk, or be stuck with it.

It's time for the ruling class to be stuck with the risk and keep the Sovereign (The People) solvent.

It's time to re-novate the risk and retribute the value accumulated.