The Price Signal

The Fed says it is now reviewing its inflation forecast. Being data driven, and thus reacting to whatever the open market serves up, the Fed’s statement of probability has a causal identity, nevertheless.

Price signaling is supposed to be illegal because it defeats free-and-open market economics. It is collusion to fix prices and defeat demand attributes.

Defeating demand attributes is bad because it renders an ambiguous interpretation of the outcome’s legitimacy. Rather than being measurably economic it is immeasurably political. It is then much more difficult to verify causal identities, and it is much more likely for the risk, associated with what actually triggers its expression, to be mispriced.

The financial crash of 08-09 was a function of mispricing the risk. Suddenly it became real, actualized on demand, reflected in actuarial markets (in which the obligation to pay is insured, or hedged, in the form of “swaps”). Demand for liquidation far exceeded the supply to actually pay the debt, obligated at the real price.

Collateralized Debt Obligations (CDOs) were mispriced. The debt was extended (leveraged, sometimes 100-1) far in excess of the ability to actually pay it.

CDSs and CDOs are derivative financial products that are supposed to make financial markets more efficient (according to the Ivy-League, anyway, knowing very well that capitalism overleverages the risk-value into a crisis dimension). These hedge devices were supposed to accurately signal the real price of the risk… but they didn’t… and we are still supposed to believe it is the best and the brightest way to signal the probable risk!

Making the same mistake over and over again is pathological unless, of course, it is not really a mistake.


About griffithlighton

musician-composer, artist, writer, philosopher and political economist (M.A.)
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