Demand and Disinflation

Using the stock market as a measure of relative common wealth, retail investors fear being in the market. It's too noisy for an unhedged risk tolerance.

By focusing on the fear factor, professionals (the hedgers) want to minimize the loss of wealth being the primary reason retail investors are not "in." It is the hedged risk that retail investors really fear, however, which has and will reduce their net worth if put at risk.

Small, retail investors are not "big" enough to survive the business cycle (the current deflationary trend). They cannot be "in big" like the hedgers with wealth accumulated by deflationary trending which in the current case began back with the Bush tax cuts.

Combined with the Bush-era tax cuts for the rich (fitting the Hamiltonian model), consolidation of the financial sector along with lax regulatory oversight and market accountability predictably caused a great recession. Small investors (small businesses generally) have experienced consolidation of their net worth (exactly what the Hamiltonian model is supposed to do). The result is wealth being much less common and is the deflationary trend being experienced (the demand reduced), verified with a low consumer sentiment.

More than the fear of risk, the retail investor does not have the money to be invested, and what they do have they cannot, or will not, risk. Flash trading, for example, manipulates prices and technical trends (stops and limits) with high frequency and massive volume that defines (technically delimits) what it means to "be-in big." The large size and momentum causes the deflationary risk that accumulates the wealth and consolidates the risk for government management (and thus the uncertainty that supposedly keeps capital from pro-growth investment to make the wealth more common and reduce the deflationary risk). For the retail investor...the risk is "off" (which means the gamma risk is "on") for a very long time.

Low volume in the equity markets simply indicates a massive consolidation of the wealth. The wealth is much less common, and that reduction is empirically verified by the the low volume combined with the length and depth of the recessionary trend. It is less a function of fearing the risk than not having the funds to risk because all the risk has been consolidated and is being presented in the form of massive public debt. (Keep in mind that if the Bush tax cuts are extended the risk is assigned to the least able to take it--the least able to pay, or the highest credit risk that cannot get a loan to supply the demand--which will extend the recessionary trend and the budget deficits needed to provide the missing demand.)

Wall Street analysts are reluctant to describe and explain Main Street's lack of participation as lost net worth because it suggests an accounting of where it went (and the need for a massive public debt). Of course, mainstream economists maintain it does not exist in zero-sum but just vanishes into thin air. However, that would not explain the support equity prices are getting at low volume.

To avoid accounting for where the lost value went, support for equity values tends to be described as a function of QE--cheap money leveraged into investment instruments--inflating and deflating asset classes at high frequency, which keeps what retail money is left away. Retail investors, however, cannot afford the risk because their net worth is being used against them.

The level of risk present to the retail investor is a warning sign--the market is too consolidated. Until the deflationary risk is transformed into a more disinflationary risk (more alpha and less beta and gamma risk), professional investors are head-to-head in a zero-sum game.

QE, instead of expanding supply and adding alpha risk, is being used to accommodate its consolidation. Money keeps being added to be quickly consolidated by professional investors who are not waiting for it to trickle down to the retail investor, but taking a capital gain right out the discount window and onto the trading floor.

Instead of big, institutional investors being reduced to a competitive, alpha-risk dimension that relies on economic growth to produce a capital gain (having arbitraged and "derived" their own fate into competition over the spoils--i.e., the declining rate of profit), the risk is reduced to a gamma-risk dimension dependant on public finance.

Public finance of the risk proportion inflates the money supply. Gold, for example, being priced into an asset class (a store of current value) means investment is not being made to add supply (economic growth). Disinflation is being resisted, adding deflationary (gamma) risk and the need for more public finance, instead. The result is a debtor-financed recovery, building a huge bubble (a crisis proportion) just waiting to burst and send us into a hair-raising double dive.

Inflation of the money supply is not being used to a disinflationary extent. It is being used to support a deflationary extension of the risk. The result is continued demand reduction--the double-dip proportion that is the subject of so much speculation and largely dependant on the extent of political risk (the gamma risk proportion).

A high gamma-risk proportion bodes bad for Main Street because it measures the current value of deflationary risk (demand reduction). As long as the gamma is kept in high proportion, the disinflationary risk is proportionately reduced. Deflation will be extended until the economic environment is so hostile to small business survival the tax incentives made available for economic growth will be consolidated, which supports the problem.

The risk is rendered entirely political for both Wall Street and Main Street. We are head-to-head; and considering income determines the level of self-determination, the probable value of the risk is well consolidated.

After the value of the risk (capital) has been consolidated to the fullest extent, it is then converted into wealth (private property). The stored value (wealth) is retailed (converted) to investors in the form of working capital (a common good), but not without a big short on the long bond, ensuring the disinflationary risk (the probable commonwealth-valuation of the gamma risk--the demand needed to reverse deflationary trending) in the smallest of proportions.

Healthcare: Disinflation or Deflation?

First of all, on the political side, Democrats argue that people don't know what is in the healthcare bill, and when they find out, it will have their consent (an apt description of tyranny in the republican form of governance).

On the economic side, the beauty of the healthcare bill assumes people will forget what is wrong with buying insurance in the free marketplace. Maybe we will forget buying requires adequate income, and if costs are going up (inflation) and your income is going down (deflation), your income, by definition, is verifiably inadequate. The problem, then, rather than not having adequate income, is not having insurance, and the solution is to provide it without adequate income (without self-determination).

There are nothing but speculative promises from Democrats and Republicans (the party) to increase income and reduces costs. The Bush tax cuts, for example, will not be voted until after the mid-terms, which will significantly determine the income side and the ability to pay for healthcare costs, for example.

Like Warren Buffet was recently quoted as saying, "if you need to pay for something, you have to go where the money is." So Republicans "pledge" to extend all the tax cuts of the Bush era (of the Great Recession) to provide the income (the demand) the economy has been deprived.

The vast majority of Americans have to wonder how the more-immediate conservative element of "the party" can successfully sell an obviously failed economic policy. The detriment is so extensive, and still growing, Republicans cannot reasonably expect the "Pledge" to be a credible expression of a populist political program. There must be some other expected benefit, or there is really nothing to lose by clinging to a failed policy platform if the popular vote is fully expected to cycle back to it, and choose the detriment.

It is absurd, of course, but voters are binomially determined to the detriment. All voters immediately have is a negative vote that applies a false consent to a risk (the Great Recession) that is all-too-well known. Just being aware of the probable detriment does not infer consent if the means are fixed to prevent it. Detecting the detriments of tyranny does not make it any less tyrannical.

To reduce the political dissonance (the extreme absurdity), Republicans will use the new healthcare legislation as a distraction. A controversial healthcare reform bill made to be so large and complicated that it will require a master's degree to administer makes more sense in a binomial, electoral context.

The impending fight over healthcare reform will be the distraction needed to continue applying the deflationary risk, which supports the double-dip hypothesis.

Healthcare reform itself provides plenty of deflationary support despite its being touted as a disinflationary, price-reduction program. (Remember that disinflation is price reduction that increases income and demand, while deflation reduces income and demand.) Combined with the binomial tendency to support the macro-deflationary risk, demand will be too reduced to support the equity valuations now being anticipated to rally with or without QE-2.

While support will be provided for healthcare-sector incomes to supply the demand, without reducing the barriers to entry, the supply will not be added. The disinflationary effect is dependant on the ability to enter the marketplace, but according to popular wisdom there is more efficiency in consolidation, which will reduce the price.

Since barriers to entry and rising prices are attributes of consolidation (along with unemployment and demand reduction), the detriment, instead of being reduced, is reorganized and re-extended. Deconsolidation is required to produce a disinflationary effect, reducing prices without reducing demand. The price support, then, provided healthcare-sector incomes to add supply will, instead, have a deflationary effect, reducing discretionary income, supporting the recessionary trend.

There is not much disinflationary benefit to passing tax incentives for creating small businesses, for example, that will be crushed under the weight of consolidated entities.

Without a highly deliberate deconsolidation of the healthcare market, the distribution is decidedly trickle down. It is a verifiable means of supporting the general detriment of inflation-deflation risk modeling that has most recently resulted in the Great Recession.

Since repealing the healthcare bill will be a generally disruptive action, it will be important not to throw out the good with the bad. Key to a commonwealth representation, however, are measures added to deconsolidate the marketplace, yielding a reform that provides a disinflationary benefit by denying a deflationary accumulation of income that will not add supply.

When demand exceeds supply--inflation; when the inflated income is accumulated and not reinvested in adding supply--deflation; but when supply is added with a distribution from the accumulation rather than borrowed in a crisis-recovery mode--disinflation occurs. Supply is added from the accumulated capital in a sustainable, non-crisis proportion; not by reducing demand, like we are doing now, in a deflationary, crisis-of-overproduction (gamma risk) proportion, condemning the commonwealth to an unnecessary and foolish process of deliberate deprivation.

Taking the "Pledge"

To take the Republican's "Pledge" is to take the risk. It is an attempt at risk novation with an inferred consent of the governed.

It is a spurious political measure that yields an inflationary-deflationary economic detriment with a populist tone.

It is a reapplication of social contract theory like "The Contract With America."

The People need to make it perfectly clear: The Constitution of the United States is "The Contract." Its terms do not need to be renovated or renegotiated. The proposition, however, does indicate a critical deficiency--a dissonance between the ideal and the expectation of its attainment; and the expectation, We the People do declare, is not negotiable.

It is critical to understand that our Constitution categorically, with the strictest clarity, condemns and renders illegal a social contract that subjects The People to tyrannical forces. Extra-legal contractual arrangements are not only prohibited, their proposal indicates a clear intent to corrupt our God-given rights with the uncivil aspirations of tyrants.

"A Pledge to America" may seem to be just another political platform providing the base for the latest round of faux competition, but it also attempts to reshape the revanchist sentiment into a faux consent for a status quo ante that goes back to the reign of constitutional monarchs.

Constitutional plutocracy is not the ideal form we should pledge the empirical proof of a popular vote, binomially derived or otherwise, tricked and trapped into the detriments of an uncivil authority.

Reclaiming the foundation of our heritage is to reclaim The Revolution, rejecting pledges of loyalty that our Constitution strictly forbids in defense of the Rights of Man.

While few legislators may be analytically aware of an historical dialectic, policymakers do act to prevent a synthesis, keeping a negative progression back to the future. Even with over 200 years of resistance, however, the tendency to a commonwealth persists and continues to gain the support of a popular consent.

The Bourgeois Revolution

There is a spectre haunting America--the promise of free-market economics.

All the bourgeois values handed down from the days of mercantilism--hard work, industry, commerce, honesty, strength of character, sacrifice, self-determination--now haunts the distributive value of capitalism.

A revanchism now populates the empirical sentiments of a popular consent. The middle class, not to be robbed of their hard work and fortitude, are beginning to demand an accounting of categorical imperatives that categorize the value they produce as value to be deprived (to form the capital) in their self-interest.

Now, as it was with the emergence of a bourgeois class in opposition to the crown, passing the wealth through a power elite for redistribution in the form of debt is not exactly the ideal arrangement. Now, as it was then, pledges will be made to render a more ideal proportion, but The People, at this point, are not likely to buy it.

The revolution is not quite as dramatic as haunting specters or as logically linear as historical dialectics, but there is a significant revolutionary spirit that retraces the historical memory of what it means to be a constitutional republic that protects and defends the inalienable rights of man.

As I pointed out in previous articles, when the risk attains a critical proportion (the gamma proportion that cannot be avoided), a logical critique occurs that assesses the current valuation of "the risk."

Following what is being called "The Great Recession," there is a growing popular perception that the business cycle is not as much an ontological risk as it is a deliberate confiscation of property by an elite of power (much as Jefferson described in his critique of the Hamiltonian model).

Where once the crown and its subjects exchanged pledges of risk and reward, the business cycle derives value and accumulates wealth and power by more highly technical means that literally double hedges the risk to its subjects without consent.

Being "subjected" to risk, rather than consenting to it, is not only an arrogant offense of dignity in priority, but subjecting The People like the crown is strictly forbidden by the Constitution. Subjection is not a legal form of governance.

Prosecuting the free-market system is becoming more than a function of identifying ponzi schemes and busting trusts with a criminal intent. It is taking on a revolutionary aspect. We are now more prone to identify sources of systemic risk and prosecute that risk with empirical value (who wins and loses in dollar amounts). The risk ontology is being taken off its abstract head and put on its empirically verifiable, materialistic feet.

It is in no way a fiction or a passing fancy. This is the real thing. Its time has come, which means its resistance just strengthens its cause.

The assumption of risk will not be re-chartered with ponderous political promises and the puerile pledges of pampered potentates. The People are too sophisticated for that. They are ready to re-assume the risk in an entirely new form of self-determinism that empirically verifies the consent of the governed.

The People are ready to realize "the capital" (the value of accumulation) as a means of liberation rather than the value of exploitation.

Democracy and Disinflation

Political-economy analytically models the interaction of politics and economics. What seems random, spurious, and confounding in one dimension can be explained by its interaction with the other.

An analytical trick is to treat the two dimensions independently to deduce the evidence for supporting particular hypotheses (what logicians call, a Procrustean bed). Wholistic analyses avoids the analytical tricks inherent to political and economic arguments, policies, and evaluative measures.

If self-determination is a primary political objective, for example, what does an inflationary or deflationary economic environment indicate? What then, both politically and economically, is the measure of success?

Disinflation, for example, is an economic risk to be avoided but politically indicates a high degree of self-determination. Both producers and consumers self-determine their fate, obviating authoritative, political management of risk, indicated by a disinflationary economic environment.

We often hear disinflation spuriously equated with deflationary risk, confounding it as a political measure of success. When producers consolidate to gain more self-determination than consumers (or labor), the risk of disinflation is reduced and measured by the rate of inflation. As the value (the risk) accumulates to the producers, the deflationary risk (the declining rate of profit) increases and presents as purely political, gamma risk. Evaluative measures are now the object of ideological debate, spurious and confounding.

The more disinflationary risk is minimized, the more political risk accumulates. It is then necessary to consolidate the accumulated risk to manage it. The Fed, for example, manages aggregated risk to a distributive effect that is measured as either inflationary or deflationary. While it considers these measures to be purely economic, they are together, nevertheless, the measure of political success.

So, for example, multi-million dollar businesses file S-corporation tax returns that "pass through" income to a "small" number of owners. Nominally increasing the number of small businesses empirically verifies that increasing the number of small businesses (deconsolidation) does not have a disinflationary effect since we are currently fighting deflation (consolidation). Spuriously inferred is the conclusion that disinflation is a deflationary risk to be avoided. The political measure of the economic risk is effectively confounded.

A more fundamental example is tax-policy risk which fundamentally combines the political and economic dimensions.

Since tax policy entails a classification of risk, the measure of success is equally classified. Higher incomes, hypothetically, require favorable tax policy which reduces the risk for lower classes. This is the Hamiltonian hypothesis and its measure is political stability that comes from economic prosperity (higher incomes which allow for more self-determination--i.e., discretionary spending).

After more than 200 years, the Hamiltonian hypothesis has serious confirmation problems. The risk the Hamiltonian model supposedly reduces has become so overaccumulated and consolidated it can no longer be avoided. It has become fully gamma.

That we have a republican form of government is confirmed with every election cycle. That we have a free and open, democratic form of economics (a free-market system) is disconfirmed by the very classification of risk that determines tax policy.

At this point in our political-economic history, the argument that lower incomes subsidizing upper incomes benefits the lower classes has reached the fullest extent of disconfirmation. The political risk (the gamma) is, at this point, unavoidable.

How can the political risk be avoided at this point?

Look no further than the fundamental, economic measure for democracy and self-determination--disinflation.

Disinflation will continue to be ignored...avoided by every possible means. We will never hear either Democrats or Republicans, the Fed or the Treasury, the President's economic advisory or any other mainstream policy advocacy public or private talk about the value of disinflation.

The debate will focus on something like "The Pledge to America." The debate, both public and private, will be largely political to avoid economic measures that indicate the level of risk to Main Street. The risk, then, will be applied (or, more accurately, economically derived) by the fact of its accomplishment and bureaucratically managed to mitigate the liability without the consent of the governed.

Political artifices like the Pledge to America engages the party system in a re-novation of risk assignment. The novation occurs in a legally representative form, sanctioned by a political process that only remotely figures a disinflationary economic measure.

Since small businesses have been significantly reduced in number due to the deflationary trend, for example, what is left (pass-through businesses with assets that are anything but small) not only get bigger by cyclical default but also get a tax subsidy that would otherwise cause a disinflationary measure. The tax subsidy, ex-post-facto, renews the inflationary and deflationary valuation of the risk. While this process is characteristically capitalistic, without a significant disinflationary effect, a free-market mechanism is not confirmed.

Without ensuring a free-market mechanism in priority, public policy resists the democratic compliment to our republican form of government. Contrary to Rand Paul's argument, for example, that our form of government measures up to be too democratic, the effect of burgeoning budget deficits (inflation), public debt, and economic contraction (deflation) indicates the missing means of the market mechanism to render a more pure, democratic form of governance.

Rand Paul's theory of the constitutional republic yields the inflation-deflation indicators that effectively crowd out disinflation as the measure of political-economic success.

Disinflation and Deflation

The Fed, after its FOMC meeting, said it will discourage inflationary pressure in line with its mandate.

While deflation is the larger threat, the committee recognizes the potential for inflation. In a Keynesian environment, this kind of potential volatility indicates the capital, despite being copiously added to "accommodate" growth, is too consolidated.

If disinflation, rather than deflation, was the current trend, the Fed's FOMC meetings would not be so noteworthy and the meetings themselves more about how the wife and kids are doing, and maybe what you had for breakfast. Instead, we hang on every word to detect the probable tension and volatility between inflationary and deflationary trends. Unfortunately the fate of millions of Americans hangs in the balance--hardly the pluralistic model of self-determination.

The more probability of disinflation, the less probability of deflation. Why is it then the Fed is always preoccupied with the probability of inflation or deflation, but not disinflation?

Disinflation is the result of ensuring a free and unconsolidated marketplace. The less consolidated it is, the more open it is.

Since disinflation is the result of an open market, it seems like the Federal Open Market Committee would be more preoccupied with producing a disinflationary effect. The Federal Reserve, however, is more interested in controlling the instability than effecting stability.

The instability is conserved to the practical effect of, ironically, closing the market enough to minimize the probability (the general benefit) of disinflation.

Disinflation has a commonwealth benefit. Since providing for the commonwealth is at the expense of consolidation and the benefit it provides (recessionary consolidation of the wealth like we are experiencing now), the Fed tends to resist disinflation and support inflationary tendencies (to the extent of its mandate) that are the result of consolidation. The way it is now, for example, the deflationary threat is so pernicious that inflation is an acceptable alternative, but only if disinflation is not a probability.

The best way to avoid deflation and inflation is to try and prevent it. Instead, the Fed, and the regulatory authority generally, "accommodates" the instability because it arbitrages (arbitrates) value in zero-sum to create capital gains by hedging the risk the instability represents.

For example, if ETF's collapse under the weight of its double-hedge creation vehicles, it will be the Fed (the taxpayer) to bail it out. Since the profits generated up to the point of collapse are not at risk of being retributed to a resolution, more money is added to the supply (accommodative Keynesianism). The risk of deflation is traded for inflation to yield a stagflationary effect.

The market is being rigged (hedge funded) so the unhedged risk (main street) is left holding the bag (the detriment in a zero-sum proportion). Since this occurs with the highest order of intent (the consequences are not ontologically unintended or unforeseen), the reward is retributively valued and liable for the risk assigned to the risk-bearer without consent in zero-sum.

Assigning, or transferring, risk to unconsenting parties is not a sophisticated business strategy, it is an ignoble, cowardly criminal act every bit worthy of prosecution to conserve the openness, the credibility, the virtue, of a free market. The credibility of a free-market legitimacy must be prosecuted to the fullest extent or it will perish leaving nothing but the tyranny it would otherwise prevent if allowed to obtain with a disinflationary effect.

Transferring risk is a legitimate business practice for controlling costs, not for merely gaining capital derived in the dark behind closed doors to manage the risk into a deflationary or stagflationary effect.

The Fed, for example, is keeping the market open for practices that close it. Main Street should consider that completely unacceptable, and there is a growing popular movement to open the market in a meaningfully visible (accountable) and unobstructed (unconsolidated) way.

A free and unconsolidated marketplace is openly accountable with few if any barriers to entry--it is disinflationary.

It's time for controlling inflation by the most direct means possible and prevent the production of profits without the prior consent of our full, free-and-open participation as mandated by The Constitution of the United States!

Shorting the Long Bond

The probability the price of the long bond would be lower at this point of the cycle has been nearly zero. Discounting the risk, the rate is at a new low, and if you had been following the risk-modeling presented on this site, the discount has indicated being long on the bond.

Throughout the articles I have presented on risk analyses and assessments, I have identified an unwillingness to accept models among the mainstream that present non-pluralistic assumptions. This is largely because it presents a dissonance. The political rhetoric analysts use to justify policies and practices have clearly diverged from the touted benefit. Not only does this present a significant lack of analytical credibility, but an increased risk of liability for the mainstream's clientele.

As I pointed out in the previous article, for example, continued QE is not an inflationary risk. The deflationary trend is so strong (the gamma risk is so high), the probability of inflationary risk is nearly zero.

Paradoxically, the only reason inflationary risk is not fully discounted to zero is because of the high risk for commodity price inflation. The high gamma risk is driving this trend, but remember it is the nature of the gamma dimension to stop and reverse this trend by political fiat.

In an over-accumulated condition, commodities are overbought, and the effect is deflationary. The inflation accumulates counter-cyclical, stimulus measures, leaving consumers with less discretionary income like tax increases on the middle class.

Since commodity inflation occurs by the pressure of an over-accumulated and organizationally consolidated capital that reduces consumer demand and the risk of disinflation at the same time, the result is cheap money and the high long-bond price (which is a non-pluralistic economic modeling). Money is cheap to buy commodities and make a profit, but money will not be cheap if there is a demand distribution and higher employment. The value yielded is non-distributional, presenting a persistent deflationary (high gamma) risk.

Eventually the non-distributional bubble will burst with the gamma risk becoming so overweight--the burden of debt so overwhelming--that a distribution must occur to reduce the level of dissonance. That is when you short the long bond, indicated by non-pluralistic modeling which also serves to indicate what ails us.

The Keynesian alternative allows the risk a seemingly infinite extension, but we are beginning to measure its practical limits in the form of an accumulated and organizationally consolidated gamma-risk proportion.

Investors should keep in mind that although the high probability of middle-class tax cuts will reduce the gamma risk and support equities, QE will then lose support. However, as the distribution is quickly accumulated and consolidated (absorbing the counter-cyclical benefit), QE could regain support in "short order."