Rising rates against demand destruction is double the trouble. Rising rates, due to more demand for debt against negative equity, feeds the deflation monster and increases its appetite. Eventually it occupies more space than it can manage to contain (the monster gets too big for its breeches) and thus the need to expand the money supply (monetize the debt) at higher rates.
Higher costs increase the incentive to consolidate industry and markets to survive, being too big to fail. The argument is then made that this is free-market mechanics, but no, it is the result of economic consolidation, which defeats free-market mechanics.
Following the oil embargo of the early 70s, Volcker ruled with rising rates, but that did not discourage borrowing to consolidate. Industry and markets combined to maintain the margin against rising costs (journalistically described as “the urge to merge”) while Reagan encouraged excess capital with highly regressive tax policy. The result of Volcker’s rule raised rents even higher, and combined with Reagan’s consolidation of capital there was exuberant demand destruction, a recessionary trend, and record budget deficits.
If we want to double the detriment, Reaganomics and Volcker’s rule is the perfect example (and keep in mind, as rates rise on “good economic news” we will have Reaganomics and Volcker’s rule staring us in the face, confirming a risk tautology in operation, making it appear that making the same mistake over and over is “normal”). Public debt was added to demand the supply and avoid the risk of a deflationary trend. Without the added fiscal stimulus, capital “ism”–unfettered, existing without government intervention–tends to self-destruct. The risk goes gamma.
The probability of catastrophic risk occurs at a higher rate of return, like we have now with nervousness over the prospect of reducing QE and raising the rate of interest. A rising rate (on command) destroys demand and accommodates a too-big-to-fail organizational type. Ron and Rand Paul say this is free-market economics but, they admit, it is being directed by command authority.
It is important to understand that more government intervention does not reduce the gamma risk. In fact, it can be used to look like it causes more risk when it is actually where the risk goes, when avoided, to be processed on command with the appearance of an on-demand legitimacy of power. (Remember, measuring power is to apply risk without fear of retribution–i.e., without fear of paying the price that rents the reward over time to occupy political and economic space.) Aggregate risk is being shifted to the future where markets speculate on its present value. Its presence is indicated by the rate of interest being manipulated (over time) to resist the higher rate of probable return in the form of retributive value (the rent).
Notice that manipulting rates is a timing function. I=prt (i.e., the interest that values the principal is space over time).
Everybody is concerned with the timing of controlling authorities–the principles, acting at a chosen frequency, over time, with intendency. The “presence” of probable value is speculative, and thus volatile, because both the means and ends is mechanically determined (organized) from the top down to protect the principal (the capital) at the determined rate over time to yield a sum zero against inflation. While it is intended to look like everybody’s boat can rise with the tide, the number of winners and losers is conserved.
The sum of the game is conserved at zero.
As the rents rise and fall, the capacity to pay it is created and destroyed. This process of creative-destruction, existing with an ontological attribution, depends on the capacity to pay the rents. A command structure is “made” to look like a free market operating with a legitimate, on-demand ontology as Ron and Rand Paul describe it, existing to “naturally” control inherent volatility by “objective.”
Objectively, however, the result of risk avoidance is to misprice the risk.
Avoiding risk and consolidating industry and markets to protect ourselves against it creates the volatility being avoided in ever-larger proportions. Being undervalued, aggregated at the margin, risk suddenly appears to conserve the distribution of reward over time, “being” ontologically described as a “natural identity.”
Over time, however, eventually, inevitably, by the law of large numbers, occupying more than a marginal space, the margin gets called. It becomes clear that instead of reacting to risk avoidance we should have been acting to conserve its value, applying it with intendency in small, unconsolidated, non-catastrophic proportions.
Capitalism is too risky, in fact, to claim that it is the best way–the “only way” as Objectivists describe it–to price the risk and secure the probable futures going forward. In fact, the future-forward price is a fraud and, objectively, the risk, without proper attribution, gains retributive value in a too-big-NOT-to-fail proportion.
As Amity Shlaes points out, it was WWII that pulled us out of the Depression, not government-entitlement programs. Yes, and classical economists agreed that capital “ism” (swapping the free-market volatility of “the crowd” for the volatility of excess capital in the futures) was sure to induce warfare.
(Notice that WWI and WWII created massive demand but with massive destruction. Both created innovative techniques for mass production on demand, but being organized into a consolidating, corporate power structure, the organizational technology to mechanically manage the risk has not progressed that much. The technical discrepancy has “big” catastrophic effects that “demands” deconsolidation of power, not more consolidation.)
Capitalism nihilisticly uses warfare as a public utility. It “intends” to rely on a highly divisible attribution, like national identity, to attain the utilitarian aspect of a non-divisible good. Indivisibility (quantum singularity of purpose) satisfies, by attainment, the addjective terms of the social contract we call “national” or “homeland security,” having the emergent value of objective reality, which appears to obtain.
The value of attainment is used to describe what objectively obtains, like Amity Shlaes says she is doing to confirm capitalism as our true, objective identity without failure of attribution.
Warfare reduces accumulating supply and supports prices going forward. It avoids and conserves at present value what classical economics referred to as the inevitable effect of excess capital–“a declining rate of profit” that obtains with an event like The Great Depression.
War, and the threat of war, is sure to mask the “supply-side” fraud. Hobbes’ objective assessment of human nature immediately occupies space with a “sense” of urgency. Instead of being prone to self-destruction, however, we are being priced into it; and if we can be priced in, we can be priced out of it, with intention. No, not like Reagan did, who threatened the Soviets with a first-strike capability, which is a threat of war.
(The record shows that Reagan stupidly provided Soviet military leaders with the incentive to strike immediately to occupy that space. Gorbachev, fortunately, was wise enough to resist Reagan’s tendency to verify Hobbes’ hypothesis and figured the future-forward price was not worth confirming die-hard capitalists, like Reagan, obtain to “the end.”)
Futures prices, and arbitraging the comparable difference over time, depends on speed (the space that obtains over time). Einstein’s theory of relativity postulates that “things” appear distorted at the speed of light, and HFTs, for example, are intended to act at light speed. (Trading at high frequency, remember, was another innovation of the Reagan era. Reforming the tax code to encourage the production of capital, like we have now, encourages doing it at the speed of light, but not without the expected reward of complications, naturally occurring, of course, like Black Friday. Combining electronic-trading platforms with Reaganomics was, and is, a success to excess. Contained within a feudalistic power structure, however, being described as our one and only “objective reality,” we can only expect to look like the distorted image of the person in “The Scream” surprised and overwhelmed by the combined, double detriment of Moore’s law and Murphy’s law, tempered only by the false attributions of an Objectivist identity.) Large batches at light speed are bound to create market distortions that disadvantage everyone else, which raises questions about what “fair value” really is, distorted at high speed.
Measuring the comparable disadvantage does not add risk for the small investor, but it does make it more visible at higher frequency in large batches. The effect is to scare “the crowd” off, not empower them, which serves to validate the Objectivist notion of “identity,” leaving all the important stuff (like whether you are busted or not) to “the best and the brightest” just as the gods must surely intend it.
To keep the marketplace more democratic, NYC’s AG and the Chicago School offer the “frequent-batch proposal.” To make it more democratic the market needs to be less free. HFTs need to be regulated, subjected to a higher public authority, re-presenting the crowd.
Having to represent free-market mechanics only means it was not free to begin with. What, then, exactly, is the thing being represented to occupy the space defined as being the market? It must be excess capital, having been consolidated to obtain the market, objectively occupying more and more space over time at higher and higher speed.
What happens when the “thing” (the singularity of the quantum risk) occupies all the space and we attain Rand’s “objective reality?”
Objectively, space, fully obtained (existing with the “natural identity” of a quantum, singular thing) will be available for immediate occupancy won’t it?