Fed chief, Janet Yellen told the Senate Banking Committee today that the central bank will continue to “mitigate the risk.” The primary tool for mitigation, she said, will continue to be the Federal Funds Rate, which in financial circles is the risk-free rate.
To maintain alignment with the notion of being risk free, the Fed says its funds rate (a primary causal identity) will be in line with the risk. The rate will be adjusted to effectively mitigate the emergence of risk that keeps the fundamental object of finance (what it costs to borrow money) risk free.
Yellen also said capital reserve requirements should not be reduced; but she also said the Volcker rule is too burdensome. It is exactly what big-banking interests want to hear, signaling that the effective-causal means of consolidating the wealth of the nation will not be mitigated by active mitigation of the risk at the primary level, resulting in a risk-free rate of return.
The method yield is fully aligned with maintaining a long deflationary trend, which then supports equity prices at a low risk-free rate, falsely described as improving fundamentals.
The result is a false positive, which effectively limits the liability associated with the game of “doing the bad to do the good.”
A false positive operates with an effective-causal attribution (described by Objectivists as a “natural identity”) that is fully open to political interpretation, fully limited to a civil liability, and in alignment with the “Holder rule.”
(US attorney general, Eric Holder, remember, said that prosecuting TBTF banking practices just makes a bad thing worse. Capital markets are too complex and fragile — too big — to safely and soundly adjudge what the liability actually is in the futures now. President Obama apparently agreed with his Ivy-League colleague that it can make things worse — it is not worth the risk, which is the “natural identity” conservatives are always talking about.)
Operating with the “Holder rule,” what is the incentive? What is the real probability of the risk to be actualized by means of financially mitigating it, on command, from the top down?