Inflation
Tolerances, Expectations and Socio-Political Strategies
Ganga
Prasad Rao
Energy, Environmental and Mineral Economist
gangaprasad.rao@gmail.com
gprasadrao@hotmail.com
Disclaimer:
The Author makes no claims to the factuality of the content, or the
outcomes indicated in the designs proposed hereinunder.
In
the long run, inflation is my Dad,.......... even Mom!
Introduction
Inflation
is in the news.... yet again! This time, it is the right-leaning
BJP-led government making a compact with the RBI to manage inflation
within a broad-band. Sounds quite fair and uncomplicated. After all,
it is the Government's business to make decisions that concern the
fisc, and the Central bank's mandate to manage monetary policy,
including inflation, in a manner consistent with the Government's
short- and intermediate-term macroeconomic plans. But look
deeper......and ask what if the RBI does not get it right?
It
is universally known among Monetary economists that inflation, as a
macro-phenomenon, bears an intimate relation to many fiscal and
monetary variables, particularly the growth rate of the economy, M2
infusions, FX, Government spending, aggregate (product) inventories,
budget- and trade-deficits, gold prices, as well as inflows and
outflows of domestic and foreign capital – long and short-term. At
a micro-level, inflation is determined by domestic- and foreign
competition, raw-material prices and inventories, labor wages,
capital rents, and technology in the various sectors of the economy,
and by household-spending, -savings and investment decisions. Does
the RBI, by its acquiescence to the inflation compact with an
avowedly right-leaning political party, claim to be aware, monitoring
and manage all these diverse endogenous and exogenous, micro- and
macro-, domestic and global variables? Or, does it to adjust its M2
infusions and repo rates in balance against an aggregated
'rest-of-the-inflation-world' variable to ensure short-term price
stability? Can we afford a subsidy-laden economy with run-away
inflation, or just as ominously, an economy comprised of a large
blue-collar segment that slips in to recession? One that falls out of
step with the global monetary system due a politically-motivated and
artificially strong or weak currency? Or, one that permits mismatches
in wages and DA/COLA adjustments and risk popular protests? Even
ill-deserved returns in Gold and IIBs to the ill-deserving, but
foresighted and strategic (global) investor?
Given
expectations in political circles and among capitalists is, de-facto,
the target inflation rate, one asks the further question, to what
extent are these targets, presumed predicated on M2 supply, cognizant
and accommodative of product-quality related-, and
competition-attenuated/-engendered inflation? Is it (short-run)
inflation targeting exploiting FX reserves, and tight-rope repo rate
balancing?, (intermediate-run) inflation management with M2
infusions?, or (long-run) inflation-assurances built around IPNs
issued abroad? Besides, given politicians and capitalists conspire
even as opposites, the effectiveness of inflation-hedging mechanisms,
such as the IIBs, in curtailing inflation is called into question.
These hedging instruments, rather than serve as an inflation-abating
mechanism, instead facilitate the 'heads-I-win, tails-you-win'
volatility designs of those conspirators whose inflation expectations
are de-facto, endogenous inflation targets. Does the short-run
political management of inflation by the RBI anticipate the overt and
covert conflicts of interests that are endemic to the Bond market,
the IIBs and the FX market? Is NGDP targeting by a Government
following a Populist-PV-Nominal paradigm even consistent with the
RBI's short-term inflation targeting? How might we model such
dual-targeting in the economy? These are weighty issues on their own,
but the focus, here, is not as much on challenging the existing
inflation policy, as it is on exploring an alternative
socio-political paradigm to manage inflation tolerances and
expectations in the short-, intermediate- and long-run.
Inflation
Expectations........But what about Tolerances?
Inflation
plays a central role in any modern economy built around Capitalist
PV-economics that follows a 'Nominal-PV-Populist' growth-oriented
paradigm, and which enlarges by adopting new, productivity-enhancing
technologies. Symptomatic of capacity-constraints, production- (and
environmental) inefficiency on the supply-side and/or an
unsustainable pace of lifestyle expansion on the demand-, inflation
is also a monetary phenomenon resulting from the sub-optimal,
short-term monetary and fiscal policies that accompany a
'growth-oriented' Populist-Nominal paradigm within a
technology-constrained, 'open-cycle' economy. (A Closed-cycle economy
would sustain an economic boom longer without inflation than would an
open-cycle economy).
Post-Keynesian
neoclassical economics has stressed the importance of uncertainty and
expectations to model inflation. Expectations generally involve a
look-ahead period consistent with the term of various short- and
intermediate- financial and monetary instruments. Pertaining to a
group, they are revised continually- those revisions could be
rational, adaptive, historically-projected, or, stationary.
Tolerances, in the context of monetary and financial variables,
represent a personal or entity-specific concept distinct from
expectations relevant to the group. They represent the compromise
accepted by the particular entity, group or class given FV-, PV- and
BV/EV-trade-offs. One could define tolerances with respect to
different variables for different entities and groups – consistent
with their ideological- or functional role, monetary stakes, and/or
financial investments. Thus, one may examine tolerances for inflation
in the context of the variation of Gold prices, prices of goods and
services, FX, interest rates, prices-, yields- and returns to various
assets and monetary instruments, with inflation, for different
classes of stakeholders (as beneficiaries or impacted).
Individuals,
groups and political/financial/corporate entities have expectations
and tolerances. One could define inflation expectations to be either
exogenous or endogenous - the former implying lack of control over
its formation (analogous to price-taking behavior), and the latter,
self-determined expectations or implied control upon it (implying
either a conflict of interest, or, the power to influence it due size
or authority). In fact, endogenous inflation expectations are
tantamount either to the political or monetary significance of the
expectations-forming entity. Inflation Tolerances, are, by
definition, always endogenous since they are 'self-centered', and
hence represent constrained optimization post evaluation of
trade-offs for that particular entity or social class.
Tolerances
generally pertain to the current period (though future tolerances too
may be elicited) and are contingent upon entity-specific trade-offs,
ie, upon the set of prices, returns and incomes of the period and
other exogenous factors that impinge upon the rising-, and the
falling-arm of the inflation trade-off. An important question
involves how inflation tolerances of the present modify into
expectations for the future. Given PV tolerances are obtained as the
intersection of PV streams, one could posit the existence of
FV-Tolerance and FV-Expectations distinct from PV-Expectations. A
high PV-tolerance generally implies acceptance of high PV-inflation
and FV-expectations of more of the same. A low PV-tolerance for
inflation need not correlate either with FV-tolerance, or with FV
inflation expectations. It is also germane to indicate that entities
for whom inflation is a primary and critical concern – whether for
political, monetary, fiscal, or social reasons – anticipate it in
FV streams (such as Futures, Forwards and Perpendicular instruments).
Inflation is a PV-concern for those whose utility or bottom-line is
impacted negatively in the present. Elsewhere, inflation is secondary
to various priorities; such entities only monitor inflation in
BV-streams.
The
nature of averting and mitigating behavior to inflation is revealing
and relevant to the elicitation of tolerances. When the Rich have a
Tolerance-Expectation difference, they pre-empt and avert that
difference with hedges in financial markets by way of IIBs, equities,
investment re-allocations, and FX-moves. Their lifestyle is largely
unaffected. The rest, may be classified into those with savings and
livelihood (the Middle-class), and those without (The Poor). The
former, given their investments in Gold, seek the permanent income
lifestyle, and save less in inflationary times. Thus, they display
minimal aversion and do not actively mitigate inflationary impacts.
The Poor represent the most affected group. The subsidized among them
would be expected to display less elasticity to inflation than those
un-subsidized. The latter are most sensitive to inflation in
Essentials, and the group that displays the most significant
political reaction. If
inflation tolerances are determined by trade-offs relevant to the
various inflation stakeholders/social classes/economic entities, the
same are influenced by hedging mechanisms such as the IIBs. Access to
IIBs, at virtually zero-transaction cost, implies easy and universal
hedging of inflation expectations in the society. While the specifics
might vary, the general expectation is that a zero-cost hedging
mechanism permits various entities to accept inflation and hold
higher inflation tolerances.
Inflation
tolerances may be characterized contextually as financially-,
monetarily-, socially (cross-sectionally/inter-generationally)-,
politically-, and family-tolerated inflation. The underlying basis
for these expectations and tolerances vary across inflation-classes.
Whereas the financially-empowered capitalists are rationally-informed
of inflation for reasons their wealth at stake, their up-to-date
knowledge and tracking of macro variables, and because their views
carry weight with policy makers, members of the unsubsidized
middle-class base their expectations on retail prices and
hard-to-change political and social/street views. Thus, while
tolerances closely track expectations for the Rich, and imply a
narrow differential, that differential is larger for the middle- and
subsidized-classes and converges conditionally upon an improvement in
their financial security over time.
The
differential between group expectation and entity-specific tolerances
may further be explained by socio-economic, financial and monetary
variables. Now,
the Ruling party, as the ultimate public authority, has both, a
tolerance and an endogenous expectation. That tolerance is the
equilibrium between a
(political)
cost of inflation curve and benefits of inflating curve. While the
costs are evident in public disaffection and FX losses, the benefits
are largely shared alpha rents from the PV capital market and gains
in term negotiated, SWF-issued, FV-instruments. Similarly, the
financial markets, bankers and capitalists, with substantial ability
to anticipate and hedge against inflation, do not mind high
inflation; ie, their tolerance is high because they share in the
alpha rents of inflationary policies, but pay in a diffused manner in
bond returns. Their expectations, too, are highly correlated with
monetary and political authorities. In a sense, this class is never
surprised. Insurance Houses and Infrastructure firms represent an
exception, an outlier in inflation expectations. Their interests are
best served in a low-inflation LQ-economy. The middle class, with no
control on inflation, has both an expectation and a tolerance; they
hedge for inflation in Gold and pay for it in their savings. The
Subsidized Employed, strange bedfellows with Employer-Capitalists as
concerns inflation, have a tolerance influenced by family welfare and
expectations tied to the fate of the economy. Self-employed Farmers
resemble domestic firms that seek a divergent inflationary regime
characterized by externality-suppressed, low input inflation, but
(lack of) competition-abetted, high product inflation. Their
tolerances are evident in their farming choices. Finally, the
subsidized, poor class (whose votes are contingent upon survival,
short of exploitation) has neither a stake in forming expectations
nor tolerances, but have the numbers to force political parties to
take cognizance should they feel the pinch in unsubsidized essentials
and switch their faith mid-term.
Whereas
intra-group/tier divergence of expectations from tolerances imply a
sectoral/functional concern, the expansion (or shrinking) of that
divergence across inflation classes and tiers could be symptomatic of
structural inefficiencies in the economy that might express
themselves in, lower, unbalanced growth, accompanied with political-
and social-instability and financial volatility.
Implications
There
are potentially profound and multifarious implications of the
distinction between inflation-tolerances and -expectations. Setting
monetary policy around endogenous expectations of the wealthier and
politically-empowered sections of the society, that are very
different from constraint-optimized endogenous tolerances of the rest
of society, is ethically-, morally- and theoretically-flawed. The
existence of endogenous expectations immediately raises questions of
propriety and conflict of interest in the Bond market and in markets
that trade inflation-hedging instruments, such as the IIBs and FX,
and in matters involving various monetary and financial policy
parameters and variables, as for example, M2 infusions, repo rate,
bond issuance, budget deficits, FX-intervention, or the Subsidy
budget. Elsewhere, the distinction is crucial to union wage
negotiations, price-determination for utility services, and COLA/DA
and the indexation of loans, whether to business or consumer. Given
inflation figures in the determination of real rates and discount
rates, an improper PV measure of inflation implies biased, if not
invalid measures of real discount rates as well.
Inflation
Tiers
and the Socio-Polito-Economic Context
Now
consider a hierarchical dis-aggregation of inflation to accommodate
the realities of socio-economic stratification in a
Populist-PV-Economy. Toward this design, consider
the 'LokPal-SWF-Lokpal Opposite' Inflation-Trio monitoring and
participating in the oversight and management of five hierarchical
inflation aggregates:
-
the
'Ivory
Tower'
comprises of the Ruling party, the SWF, and the Opposition, whose
goal is Private FV Wealth creation. The SWF, as the protector and
guarantor of national wealth, holds a significant capital market
portfolio, issues infrastructure bonds, and transmits a
'Perpendicular-100% FV' abroad toward the issue of Land-Realty
FV-based promissories. Political parties, beyond maximizing their
vote share (the Ruling party) and overall voter participation in
elections (the Opposition), are known to hold their reserves in $/R
(and -GETFs), and move them between the two for investing in capital
markets, as part of their 'patriotic and strategic term negotiations'
with the nation's SWF. These parties seek an inflation rate
consistent with their electoral objectives, their SWF-term-negotiated
and hedged monetary-stake, and an FX that obtains them the largest
gain given their respective stakes within an inflationary Populist,
PV-hastening, nominal regime. This tier, due its legislative power,
and SWF-pre-negotiated term hedges and/or financial clout, is notable
for its endogenous inflation expectations that are anticipated in to
their PV-inflation tolerances.
-
the
'Economy
Circle'
comprised of Insurance Houses-Infrastructure Firms-Product
Quality-Lifestyle Quality, PQLQ Bankers. This tier seeks PV-FV
Sustainable Growth. In this tier, Insurance Houses set their FV-PV-BV
inflation tolerances in future-FV returns from Domestic Bonds,
current and competitive returns from R-IPNs, and trailing returns in
domestic equity-BV contexts. Insurance Houses, unlike
Green-EO-Subsidy Financier, GEOSF Bankers, seek to maximize the
return
from their SWF-issued R-Bond portfolio (as
obtains when the Bond spread is minimized) and simultaneously, secure
their $-IPN Perpetuity abroad by shrinking R-$ FX volatility.
These moves are conducive with a sustainable, low-inflation economy.
They also participate in the SWF-operated Infrastructure Bond market
against GEOSF and Product Quality-Lifestyle Quality, PQLQ Banks.
Public Infrastructure Firms operate between FV-Asset creation and
PV-Asset utilization. Infra-firms, known to leverage political
connections, seek to modify inflation politically in both FV- and PV
contexts. Infrastructure firms must necessarily match Gold in both
PV- and FV contexts. Hence, they seek an inter-temporal inflation
profile conducive to their outlook. Capitalist-PQLQ Bankers play a
PV-Bet against the threshold of short-run Gold-ETF returns, but seek
to equal it in the Long. PQLQ Bankers are FV-PV Bankers seeking to
aggrandize from a FV Product-Quality, PV-LQ -oriented
economy/society. They exploit PV-Inflation in their current business
and anticipate FV-Inflation into their hedging and investing
strategies.
-
the
'Public-Capital
market tier'
comprising of Quality-Conscious
Cost-Competitive, QCCE Firms partnering Long Institutional Investor,
LII, in
the opposite of Non-QCCE
Firms partnering short-sighted
Retail Investors. This aggregate seeks, both, PQLQ- &
Subsidy-maximizing
FV-PV Public Wealth creation. Whereas the LII and QCCE firms are
FV-focused and protect themselves from Non-QCCE firms with an
aural-(Bond) benchmark, Retail Investors/Non-QCCE firms rely squarely
on PV streams originating in PQ-infra- and Subsidy-economy to
determine their inflation
tolerances.
-
the
'Subsidy
tier',
represented by SU – SEF:GEOSF Bank – SE, where SU represents the
Subsidized-Unemployed, SEF the Self-employed Farmers, GEOSF the
Green-EO-Subsidy Financiers, GEOSF Bank and SE, the
Subsidized-Employed. The
Subsidized Employed, whose wages are tied to working hours, and who
park their savings in FDs of various terms, seek an inflation rate
that balances incremental workplace risks from extended work hours
against increasing demands on their leisure time. The Subsidized
Unemployed must contend with the pressures of inflation to the extent
they consume non-subsidized essentials, goods and services that are
demanded by the middle classes as well. The Subsidized Unemployed set
their tolerances entirely with BV lines and flows. Between the two
live Self-employed Farmers who sell their produce (essential
perishables) through the Subsidized Unemployed, and either
substitute, or work for the Subsidized Employed. The
GEOSF Bankers, overseen by the Lokpal, employ a 'Bakey Resource
Monetize' strategy to pursue a 'PV-BV-EV' Social-Security and
Subsidy-intensive, per-capita, nominal economy. GEOSF
Bankers, whose business it is to secure profits from sustainably
financing EO-subsidies, position themselves between the two
subsidized sub-groups, and trade across IIBs, (infra) Bonds and FX,
to support EO-subsidies with funds obtained from attenuating
inflation in the IIB market, sub-aural appreciation from the (infra-)
Bond market, and irrational FX-volatility. They are hedged
cross-sectionally in PV between IIBs and the FX market, but across
the BV-PV-FV divide temporally in (infra) Bonds of various tenures.
-
the 'Private
tier'
represented by the 'Consumerists - Lokpal Opposite – Middle Class
Households', seek a stable society comprised of upwardly-mobile
FV-sustainable families. While Households seek an inflation rate that
balances long, FV gain in Realty against short-term, PV gains in
their gold savings, Consumerists seek a high lifestyle supported by
Dividend-income, low-prices and access to easy credit. The Lokpal
Opposite, nominally the Rich Representative, ensures against the
undue pampering of middle-class families by politicians following
Nominal-PV-Populist policies.
With
the above inflation tiers in place, it is opportune to consider,
beyond the SWF, two public entities: the Lokpal and the
Lokpal-Opposite in a transparent public design that serves as
parallel fences on the economy to exclude, both, boom-time
inflationary excesses and recessionary anxieties. The Lokpal, who
serves as the 'Public Opposite' of elected representatives, is a
public authority who stands for the social, political and economic
rights of the masses, particularly the disenfranchised. As part of
his jurisdiction, the Lokpal enforces his will upon the economy to
avoid irreversible-hurt to members of his constituency. The
Lokpal-Opposite, a representative of the Rich, protects his
constituency from the left-leaning populist-pressures in a nominal
economy. In the context of the socio-political entities that exist
within a Nominal-PV-Populist economy, the SWF, which seeks to insure
a sustainable future for the entire nation, strategically partners
the Lokpal (and his Opposite), Insurance Houses and Infrastructure
firms, to institute a market-based mechanism to monitor, manage, and
if necessary, interrupt the inflation-exacerbating economic boom, and
force an inflation compromise that obtains an inter-temporally just
solution for the lower and middle-classes, and a peaceful,
law-abiding society for the Rich. Toward this design, let's first
examine the behavior of the various stakeholders in some detail.
The
following examines tier-specific incentives and the logic underlying
their decisions in greater detail:
For
reasons of power, authority and conflicts of interest that pervade
parliamentary governance, it is prudent to distance the Ruling Party
from the Opposition by wedging-in the SWF. The SWF, as the nation's
economic institution with an eye on the long future of the economy,
seeks not a monetary profit, but the long-run economic development of
the nation secured by balanced, PQ- and LQ-enhancing growth (that is
perpetuated intergenerationally in to another macro-prudential cycle
by EO-subsidies). Post democratic elections, the SWF enters in to
term-negotiations with the Ruling Party and the Opposition as
concerns long-run PGDP and FX, and enters in to a 'compact' with
them. At the start of a new term, the SWF assigns its equity- and
bond portfolios to the newly-elected House, and recovers them post
settlement as per the Compact at the end of the regime Since
its patriotic interventions in the economy and the capital markets
aggrandizes the Rich over the Poor, the SWF measures the success of
its objectives not in $-GETFs or, IMF-sponsored $-ILPs, but in the
strength of the Rupee-FV and R-IPN PV. It issues
tranches of Real-FV Infrastructure Bonds of various tenures at home
(to PQLQ- & GEOSF Banks and Insurance), R-IPNs abroad (to
Insurance), and holds futures/hedged positions in Rupee,
Land-Perpetuity/Realty-ETFs and, R-GETFs. Since the strength of the
Rupee is determined by many influences, in particular, the strength
of the economy, monetary infusions and FX – all of which influence
inflation, the SWF joins, on hand with the Ruling Party, the Lokpal,
his Opposite, the Opposition, and on the other, with Insurance Houses
and Infrastructure firms, to seek a sustainability-ensuring,
growth-assuring, politically-astute and PV-enriching, FV-prudent
inflation rate. The Lokpal, himself a Subsidy Financier in GEOSF,
distances the SWF, beset with political conflicts of interest, from
the 'too-big-to-fail' Insurance Houses, and holds opposing positions
to the latter's inflation-attenuating investments. Thus positioned,
the Lokpal could, if he cared, partner his Opposite and ride the
macro- inflation-interest rate cycles to his advantage. The
'Lokpal-Opposite – Private Nominee– Rich Representative',
positions himself to exploit, both, the gold- and realty
appreciation-seeking middle-class households, and the
inflation-inimical Consumerists. He
is long on (infra) Bonds (in the opposite of GEOSF Bankers), short on
Gold, and takes an inflation-friendly, long stake in IIBs.
Politicians
have different incentives depending on which side of the bench they
are on despite the fact both share, if asymmetrically, in the
gains/losses in the SWF Equity & Bond portfolio. In determining
its inflation tolerances and expectations, the Ruling Party seeks to
maximize its term-end $ FV balances as determined by its economic
stakes and monetary hedges in the SWF term-negotiations and the
post-term FX at which it moves its gains abroad. It accepts a 'Gold
Boo Oo FV' benchmark to claim the right to apportion a 'Bankers ZS 2
PV Volatility' line (a line offered by Bankers to recognize the
business created by politicians leveraging their legislative
prerogatives) in the Capital markets, and trades-off a rising
with-inflation 'Private Gain 2 PV – Public Capital Appreciation
(B)Oo Mirror FV'
in the SWF-Equity portfolio against a rising, 'Private FV Loss'
(SWF's Real FV Infra-Bonds) to set its inflation tolerance at their
intersection. (The nominal Capital Appreciation, CA, obtained on
SWF's Equity portfolio serves as the cross-sectional PV-Hedge against
losses in Real infra bonds). On the other side of the Bench,
'patriotic' Opposition parties employ a similar strategy to obtain
their inflation tolerances. They equate at the margin a falling
('Public (L)Ookey FV - SWF CA Ookey BV - Private Boo P/Gain PV')
against a rising
'Private Ookey FV Losses - SWF Lesson FV - Public Foo BV'
expressed in (depreciating) R-Forwards. (Notably, whereas the Ruling
Party limits its capital appreciation gains to Gold-justified
inflation ('CA Oo 2'), the Opposition, impenured post
its election
losses, seeks gold-unjustified, unsustainable inflation ('CA Ookey')
for its BV-gains, albeit risking public backlash at the next
elections).
Members
of the Parliament trade-off their prospective constituency
vote-shares (that fall with inflation) against their FV-slice in the
'Lokpal Public Land Appreciation Perpendicular-SWF Perpendicular
Public Political Endowment, PPPE $ 2', that rises with inflation (and
which feeds the 'SWF Private ZS Public FV Line'), thus determining an
optimum, if
MP/Constituency-specific inflation tolerance. The Ruling party and
the Opposition MPs therefore prefer different inflation rates
consistent with the share of public- and private land in their
constituency, constituency-specific voter socio-economic
characteristics, their issue-salience, and the magnitude of their
FV-slice. Their differences drive the intra- and inter-party policy
debate in the Parliament as concerns inflation within the context of
it's influence on broader fiscal and monetary policies.
The
Patriot Circle comprises of Insurance Houses, Infrastructure Firms
and PQLQ Banks. Insurance Houses are overt advocates and enforcers
of sustainable, low-inflation policies. In
the financial markets, they
seek shrinking spreads, low bond yields, and high returns. Due their
portfolio weight
in the capital market,
their private tolerances, de-facto, carry into their market/public
expectations as well. Known to induce conflicts of interests in the
Bond market, Insurance Houses are invested in bonds
of various tenures including SWF-issued real-infra bond tranches,
domestic equities,
and in SWF-issued Public R-IPNs
and in IMF-sponsored Private $-ILPs ('IMF Land Perpetuity') abroad.
The latter two
are
SWF-sponsored, Land-Realty 'Mirror-Perpendicular-100%FV' lines issued
by the nation abroad; they are
quality-differentiated
land/realty-backed,
rolling promissories that enable owners to seek funds to which they
might apply the 100% FV to, (albeit, over variable periods of time).
As
shown in the schematic,
the issue of WB-sponsored R-IPNS and IMF-sponsored $-ILPs, upon
quality-differentiated 'SWF-Mirror-Perpendicular Land/Realty-100%FV'
Promissories', to domestic Insurance Houses abroad, permits the
further issue, on one hand, of domestic, IMF-sponsored Bear-Bull
SGDP-Hedge Bonds and a 'WB MPs Constituency ZS Fund', and on the
other, WB-sponsored 'Public Perpendicular Political Endowment, PPPE 2
$', and 'WB Private Land Appreciation Perpendicular FV key', plus an
'WB SGDP Perpetuity 2 – IMF Insurance Mirror E'.
The R-IPNs and $-ILPs – papers that leverage the SWF-100%FV to
promise a 100% appreciation on fresh investment - when purchased by
domestic
Insurance Houses
abroad, serve
as a securitizing counterweight to their
domestic portfolio of (Macro-cycle) 'Lokpal-Callable
Bear-EO R-Bonds', and 'LokPal Opposite-Putable Long EO-Bull R-Bonds'.
The issue of these SGDP-hedging, Bear-Bull bonds obtain the SWF, the
'ILP $ FV - Macro(cycle) 2 key' line - a line stripped by the SWF off
Insurance Houses that are the recipients of the 'WB SGDP Perpetuity 2
key-IMF Lokpal PPPE Mirror-LO Macro-cycle E' line (thus and in
effect, stripping Insurance Houses of the 2').
The
'ILP $ FV- Macro 2 key' is IMF's favor granted in return for the
'Land-Realty Mirror Perpendicular 100%FV' vested with it, which it
leverages to secure its not insubstantial Gold (and Gold-monetized
Gold-ETF holdings.)
An
increase in inflation, that causes equities (and long bonds) to
plateau if not fall, (short) Bonds to rise, rupee to fall, but
R-denominated Realty to rise, reflects in a higher $-ILP (and net
R-IPN) portfolio worth.
Insurance Houses,
that exit equities and move from long bonds into shorter Bond tenures
domestically,
anticipate the fall in Rupee to upscale
their R-IPN Bond counterweight into $-ILPs abroad, and overcome
the negative macro-cycle impacts of a Populist-PV-Nominal economy.
Thus hedged inter-temporally
and cross-sectionally,
Insurance Houses pay to overcome their conflicts of interest in the
Bond market, exclude Bonds from the determination of their inflation
tolerance, and instead equilibrate at the margin the 'Equity
(Futures) Appreciation FV 2'
(a line that falls with inflation, and which they may or may not
partake of) against an 'IMF
Lokpal PPPE Mirror-WB SGDP Perpetuity 2 key-LO Macro-cycle E' that
rises with (PQLQ) inflation, to set their inflation tolerance in the
short-run.
With
their political influence and social clout, the Nation's Rich
Capitalists,
who own
PQLQ Banks,
are paired in the opposite of the Nation's
Infrastructure firms tied to the long-term development of the nation,
for which reason and against whom they are hedged
in complements.
PQLQ Bankers participate in the SWF-operated Infrastructure Bond
market to lay claim to, and exploit the positive FV-externalities
associated with infra projects for which the Bonds raise resources.
PQLQ Bankers, who operate under an 'Exceed-PV: Meet-FV'
Aural-benchmark, anticipatorily invest in sectors indicated to
benefit from positive externalities engendered by Infrastructural
investment ahead of the market. They are also known-supporters of an
inflationary, transaction-maximizing nominal regime. While they
benefit from a 'Transaction PV 2- M2 2 FV' in such regimes, PQLQ
Bankers must also bear an 'IIP Boo FV - Gold-ETF Inflation Hedge 2 PV
Pay' for overt and active participation in the inflationary, nominal
economy. Their
inflation-tolerance is the intersection of the two rising FV-PV
curves in the Returns-Inflation space. It may well be termed the
'nominal equilibrium rate of inflation', an upper bound to inflation
expectations in the economy.
Infrastructure
firms have
an
interest in the construction and
operation of public
infrastructural
assets
and facilities;
ie, they operate in both PV- and FV-contexts. Due their
nation-building and public-FV nature, the SWF steps in to underwrite
resources for the construction of these assets and facilities with,
both, short-run, PV-Nominal Working capital funds, and Long-run,
Real-FV Infrastructure Bonds – the former sourced in the volatility
in the latter, and the volatility itself sourced in perceptions and
expectations held by Infra-Bond market participants - PQLQ Bankers
and Insurance Houses, around positive- and negative externalities -
the volatility gains to the former justified as the monetization of
the conflict of interest the latter cause in the Bond market.
Infrastructure firms bid for SWF-sanctioned infra projects with the
auctioned proceeds from the placement of SWF-issued,
inflation-hedged, Real-FV Infrastructure bonds in PQLQ-, and GEOSF
Banks and Insurance Houses. The (pre-tax) cost of capital of Infra
bond proceeds is the bond yield discounted by time-varying volatility
gains/losses (that could be generated/motivated as squared deviations
around expected positive and negative externalities that accompany
prospective infrastructure development). While the SWF has a time-
and volatility-dependant upward-sloping supply curve for
infra-bond-sourced, public infrastructure resources, infra firms have
different demand curves for those funds as determined by the projects
on hand, or those bid for, their capital-intensiveness, and
inflation-sensitivity over time (a function of how
raw-material-intensive, wage-intensive, and time-consuming the
projects are).
Thus, the SWF disburses infra-bond-sourced resources to bidding
infrastructure firms for public infrastructure projects by issuing
them with incrementally-higher cost funds by descending magnitude of
'net externality benefits' (ie, positive externalities net of the
negative) unmindful of project size. The supply of working capital
for infrastructure projects, generated by net/combined
externality-linked volatility in infra bonds, may be disbursed by
favoring infra projects by descending project size subject to passing
a net positive externalities threshold. (In
turn, the larger public infra projects await, even seek, induce and
permit, a period of bond-volatility in order to access
volatility-discounted, lower cost of capital, government resources,
and further maximize positive spillovers, while pre-emptively
anticipating and minimizing negative externalities).
The
PV-focus of public infra firms originates in the fact wages (and raw
materials) constitute a significant share of short-run PV-costs and
-inflation. Further, in the short-run,
inflation determines,
both,
their
nominal
cost
of PV-working capital funds, and the Marginal Return on ('owned')
Assets, MROA. Whereas the (nominal, PV-) cost of working capital
increases with inflation, the MROA declines when inflation reduces
the intensity of use of existing infrastructural assets constructed
and operated by them - thus, and post normalizing them to a common
denominator, permitting the elicitation of PV-inflation tolerance as
the intersection of the rising marginal rate of working capital funds
and the falling MROA. In the long-run,
Infra firms that operate with SWF-issued inflation-protected,
Infrastructure Real-FV bond funds, nonetheless vary their level of
activity to equalize cross-period (nominal) marginal costs (wages and
non-material costs not borne by the Government), and prefer an
inflation rate consistent with that strategy (This follows from the
inflation-related conflict of interest of their benefactor, the SWF –
it both authorizes inflation-engendering infrastructural projects,
and issues inflation-hedged Real-FV Infrastructure bonds to avoid
them – that is passed on to them). By reallocating activity across
periods, Infra firms succeed in holding down wage and raw-material
inflation; this strategy permits them to bid aggressively in the
allocation of working capital funds, and maximize their
inter-temporal business growth and profits. In the long-run,
Infra
firms may be conceived of,
given their freedom to vary activity rates across periods, as
seeking
a temporal inflation rate profile that equates their expected (real)
marginal costs toward their SWF-underwritten material and equipment
costs.
Thus, infra firms seek one PV, and two FV inflation trade-offs: they
seek an infrastructure-user (PV-Consumerist)
inflation tolerance that maximizes the current period intensity of
use of existing infrastructure assets, and simultaneously, minimizes
their costs of
PV Working-capital funds;
they also set their expectations of future
(FV)
inflation two ways – they seek a levelized nominal marginal cost
across periods for SWF-unsupported wage and other non-material
expenditures, while also equalizing real, inter-temporal marginal
costs
(toward material and equipment expenditures) by redistributing
activity level across periods. Thus, infra firms display, beyond a
tolerance for PV-inflation a lower bound FV inflation-tolerance for
SWF-unsupported expenditures, and an upper-bound FV
inflation-tolerance as concerns SWF-underwritten material and
equipment expenditures. These FV-PV
equilibrations and derived tolerances obtain a firm-specific and
implicit real discount/interest rate that they leverage to benchmark
various potential investments
(and, price tolls).
While the former amounts to preferring a PV-Consumer inflation that
maximizes current period revenue function, the FV tolerances generate
inter-temporally optimal cost-minimizing producer inflation
expectations that are thence transmitted to the political powers
ruling the nation for appropriate cognizance.
Given infrastructural activity is capital-, raw-material- and
labor-intensive, and has a substantial gestation period, the business
interests of infra firms are best served with minimal-PV, and
minimal-FV inflation. This two FV-rates may well be termed the 'Real,
bounded, equilibrium rate of Inflation'.
Moving
on to the Public tier, while QCCE firms, partner offshore, long
institutional investors, LIIs, aligned with international business
and industrial standards, to promote a PQ-LQ economy, Non-QCCE firms,
pressured by retail investors, RI, seek short-term profit
maximization. (This 'LII-RI' face-off in the equity market as
concerns sustainable-capital appreciation to ensure
valuation-sustainability, or in its opposite, rapid-capital
appreciation to assuage EO-constituencies, in the general case of
RI-impatience and short-sightedness, causes an 'Axe-End-Volatility
key' to trigger with a market crash. In such instances, the LII takes
the Axe, the GEOSF Bankers the End, while the Infrastructure Bond
market participants, favored with the Volatility key, exploit the
same, judge the face-off, and transmit their observations in to
political circles.) The LII
and QCCE Firms (the latter, likely, also Exporters), whose
revenues (and
equity returns) correlate with inflation, share in the Equity market
'Capital Appreciation, CA 2 FV', park their gains in $-GETFs, offer
an 'LQ Oo FV' to the Ruling party, an 'LQ Bakey BV' to the RI, a 'PQ
2 FV' to PQLQ Bankers, who strip the 2 and pass the FV key to the
Ruling party, a 'PQ
FV Oo(key)
Bakey' to the Opposition parties as appropriate to its strength and
leanings, and
a 'PQ BV' to Non-QCCE firms whose top line is hurt due falling sales
in inflationary periods. They must also issue a 'PQ Inflation Hedge
2' line to monetary authorities
(the
Bakey of which channels to Commodity markets and Commerce?),
who hedge PQ-linked inflation
in IIBs. Together, and at a macro-scale, the LIIs
and QCCE firms prefer an inflation
rate
that equates, at the margin, returns from a rising 'LQ CA 2 FV'
as expressed in 'Realty ETF PV',
(Realty being the repository of FV-sustainable gains), and a rising
$GETF PV, the global store of high-quality
capital,
thus and in effect, trading-off and transferring domestic FV
potential against, and in to the global ocean of fungible capital,
$-GETFs. As concerns Retail Investors and (domestic) Non-QCCE firms,
they set their
macro/aggregate inflation
tolerances by equating at the margin, a rising 'R-GETF PV', against a
falling 'Equity 2 PV'.
(On
a micro scale, both QCCE firms and Non-QCCE firms are permitted a
modicum of pollution in
the boom phase of
a nominal economy due production inefficiency justified by social
equity pressures. While the former trade-off a rising 'IIB Oo FV-PQ
Efficiency 2 FV' against a falling 'PQ EO Pollution Oo-(Env)
Sustainability Bond A – LQ Social Sustainability Bond B FV', the
latter choose to operate at an inflation as obtains from the
intersection of the rising
'EO
Pollution Ookey-PQ
Ookey-SSB Ookey' and a rising ''IIB Boo-PQ Efficiency Boo-EnvSB Boo
Bakey PV'.
In bust
however, QCCE firms receive an 'IIB Sustainability Ookey-PQ
Efficiency Boo FV-
LQ Env SB B'
line that shrinks(?) with inflation in the opposite of a)
a 'Bakey BV' portion from PQLQ ESH-line that rises with inflation
for the ESH- unsustainability it covers,
b) a 'Bakey
(Raw Material)
Inventory Monetize' line - an
unused Inventory working capital line
that also
rises
with inflation, and which PQLQ Bankers
transfer
to other sectors of the economy,
and
c)
a 'Bakey
Profit-Bond Return SV Match' line to Bond-hedged Capitalists to
dissuade them from exiting equities. In Bust times, PQ-deficient
firms
are sufficed with a
shrinking
portion from 'PQ Bakey
BV, whereas
less cost-competitive firms are squeezed with a
rising
'CC Merge Boo
- LQ EV'.
The
equilibrium between the two lines obtains the inflation tolerance for
the aggregate of Non-QCCE firms, and conceivably, signals firms at
risk of closure as well.)
Green-EO-Subsidy
Financiers, GEOSF Bankers, favored with EO lines from virtually every
quarter, whether SWF, Lokpal, Insurance, Infrastructure, even LII and
political parties, are positioned opposite Self-employed Farmers and
between the Subsidized Employed, SE, and the Subsidized Unemployed,
SU. They participate in financial markets, albeit with non-monetary
objectives. Employing an R-GETF medium-cum-benchmark, they
arbitrage IIBs against Infra bonds, trade (Infra) bonds of various
tenures across the Yield-curve, and pit Infra bonds against Rupee-PV
in the FX market, to determine their inflation tolerances. In times
of inflation, unlike PQLQ Bankers who move in to short Bonds, GEOSF
Bankers
exit short Bonds two ways: to both extend and gain from the
appreciation in IIBs, and to harvest gains from volatility induced in
Long Infra Bonds upon exit by Insurance. They also exit the FX market
with R-PV Gains and enter the Long Infra-Bond market to exploit the
same in volatility. In non-inflationary times, GEOSF Bankers exit
IIBs (and Long Infra Bonds in favor of Insurance) to enter short
Bonds and shore up the Rupee-PV. (One could propose that
Infrastructure Bond returns correlate with the perceived nature and
magnitude of externality associated with infra-projects; infra-bonds
with net positive externalities would trade at a premium, and those
with net negative externalities at a discount. GEOSF Bankers would
exploit volatility generated between the PQLQ Bankers' search for
infra bonds associated with positive externalities, and in their
opposite, Insurance Houses seeking to jettison infra bonds associated
with negative externalities). By
converting the arbitrage between inflation-gauging IIBs and
competitiveness-gauging FX in to gold/externality-benchmarked trades
across infra bonds of different tenures, GEOSF Bankers ensure current
EO-subsidies exploit short- and long-run sustainability excesses and
deficiencies in other sectors of the economy, simultaneously turn the
subsidy-regime sustainable and perpetual, and further ensure that the
society pays a 'subsidy-tax' that is in fact their profit for
financing and, de-facto, administering the system. GEOSF Bankers
could set their inflation tolerances in multiple ways: for instance,
they might choose to operate at the intersection of the rising 'IIB
Subsidy Inflation 2 BV' and a falling 'Rupee FX PV' in inflationary
periods, or, a rising Long
Infra-Bond Return FV' in dis-inflationary times.
Turning
to the Private tier, and as indicated earlier, Middle-class
households, HH,
trade-off inflation-stoked FV gains in Realty that compete against
Gold PV gains. Realty appreciates in sustainable booms as
consolidation of equity gains, while Gold, representing
asset-insurance against risks to sustainability, gains in
unsustainable inflationary periods and in recessions. Thus, in
sustainable boom times characterized by low inflation, Households
equate, at the margin, a rising 'Realty Appreciation FV 2 – SWF
Infra BV - Banker PV 2' against a rising PQ-LQ
FV-PV Hedge-line, 'Consumerist
PQ Oo Pay FV - HH Group Aural IIB FV-ZS-PV Hedge - Banker LQ Ookey
PV' to obtain their equilibrium inflation tolerance. In
unsustainable, inflationary booms, Households trade-off their 'Gold
Boo 2 Gain PV' against a rising 'IIB Oo - PQ Return – LQ U' that
they must offer to the inflation-hedged/disadvantaged to set their
tolerances. In recessionary, or non-inflationary times, Households,
who
invest regularly in Gold, and save residually post living expenses,
harvest a 'Household Group Gold 2 Gain FV' with inflation, albeit
post offering an LQ-Aural-PQ line, 'Banker LQ Public Boo BV-Household
Aural Oo PV-Consumerist PQ Private Oo FV' to the Equity market, where
it transforms, post an
Aural-Moulin Long Investor
Criterion-Benchmark, in to a 'PQ Oo'
line that upgrades select product quality-progressive (QCCE)
equities, a 'PQ
Ookey-Short/Rich Investor ZS-LQ
Boo' to PQ-laggards,
and an 'LQ Aural Oo FV Return' to long-term equity investors.
A supplementary 'Group
PQ Oo Bakey-LQ
Silver'
Line
to the Ruling party nudges them to follow nominal policies that raise
the return on Gold,
albeit for a further price of volunteering
a 'PQ Bakey Gold return' volatility-line to the Bond market
that, so to say, reveals and signals thru volatility, the
inefficiencies resulting from investors choosing
to put their EO-FV earnings away in Gold rather than
in
productive,
supra-gold social and economic opportunities. The
inflation rate
households
tolerate
in such periods
is but the intersection of the rising 'Gold 2
Gain FV'
line with the aggregate of the LQ-Aural-PQ line, 'Group
PQ Oo Bakey-LQ Silver'
('Group Private Silver') and the 'Group
PQ Bakey
Gold Return' (equal, or de facto, 'Cause
Bond OB Lesser 2-Group
Public 2 – Cause Volatility 2')
lines
– all three PQ lines representing a distributed-, and hence a
negligible cost, that nonetheless
rise
with inflation.
Thus defined, Households seek an inflation bounded by the boom-time,
unsustainable upper-bound for inflation tolerance, a corresponding
lower-bound tolerance in recessions, and a sustainable inflation rate
in betwixt that accompanies prudent SGDP growth.
Consumerists,
in the opposite of Households,
issue an inflation-enlarging 'PQ
E - ESH
Ookey E – LQ Oo Bakey' to the Subsidized-employed class in
inflationary times that suffers PQ-
and ESH-externalities
for their consumption excesses, (and which expresses as ESH-insurance
payouts?)
and an inflation-expanding 'PQ B - (ESH Group-Judge I) - LQ Bakey Oo'
to gold-hoarding Households; they also issue
a rising 'COLA
Due - Inflation Boo'
line to their middle-class counterparts (who,
in turn, forward the
same, either to
their employers for COLA raises, to Income funds that trigger
EO-Dividends with it, or, to send a message to the very political
parties they favored with 'Group PQ Bakey Gold Return' volatility
line), while exploiting an
'Inflation
Due Bakey FV - COLA Bakey FV- Consumer
Surplus 2 Oo FV'
that shrinks with inflation. Pinched in inflationary times, they also
resort to other means of fulfilling their urges, in particular drugs,
vice and crime, that are contra-priced to consumer goods. The
Subsidized-unemployed sub-group,
recipients of a 'PQ Buy - ESH Pee- LQ Ookey' line from the
Consumerists,
returns their favor by offering an 'Immoral Boo Excuse' (as opposed
to 'Immoral Due Pay') against the immoralities they are pre-empted
from due the 'PQ-ESH-LQ'
line. Consumerists trade-off their 'CS 2 FV' against the two lines
issued to the Subsidized (Un/)Employed, and the ESH Group Judge
line-cum-COLA Due-Boo to LQ-conserving Households, to choose an
inflation optimal to their lifestyles.
Positioned
between the Households and Consumerists in the Private tier, is the
Lokpal Opposite – Rich Representative, LORR. The LORR pursues the
strategic objectives of the Rich who choose the pace of innovation,
competition, and technology penetration, and bankroll private
employment for the middle-classes. He seeks an inflation rate and,
implicitly, a pace of innovation and competition consistent with
capital market expectations and realities, productivity-related wage
gains, employment-stability and lifestyle-driven demands of the
middle- and subsidized classes. That choice further ensures the
middle-class neither enriches inordinately with gold appreciation,
lurches toward unsustainability and encroaches upon subsidies meant
for the poor, nor seeks an ultra-right, populist-pv-nominal economy
that artificially inflates wages and labor income. The LORR, he may
be likened to an oppressive 'Technology-Manager - Nominal Economy
Administrator' who endogenously influences the pace of innovation,
technology choices and productivity gains to manage wages and
price-inflation (and Aggregate Household Demand) in a manner that
aggrandizes the Rich while holding the Households, Consumerists (and
the Subsidized masses) at bay. Thus, the LORR interrupts the
'aural-centric' designs of Households and the consumption/immoral
excesses of Consumerists, with the intent realty appreciation and
aural gains from unjustified inflation (and Consumer surplus from low
inflation) are more incident upon the Rich Capitalists – PQLQ
Bankers than upon immediate members of the tier. Put another way, the
LORR seeks a pace of (biased) technological innovation that manages
wage/earnings gains, and aggregate employment in this class
consistent with aggregate demand projections in the economy,
maximizes rupee volatility induced by unjustified, inflation-linked
appreciation in gold (in the opposite of Insurance Houses who seek to
minimize it), and which limits consumer-surplus gains to Consumerists
to PQ-embodied goods and services. In this manner, the LORR
attenuates, if not neutralizes the power of the Lokpal to influence
the macro-economic environment of the nation.
As
concerns the Poor Subsidized-Employed, an exacerbation of inflation,
though helpful in raising living standards that obtain from higher
hours of work and overtime pay, extracts a cost on their
health, safety and leisure. Though ESH-risks are priced in to their
wages (saving which in FDs obtains them a 'Nominal Kamkey') and the
Subsidized-Employed are favored with an ESH-Bakey, consider the
Leisure shadow value, reflecting how much the Subsidized-Employed
value their off-work time. That
SV increases with
work hours,
thus permitting the elicitation of an equilibrium
tolerance
for this group as that inflation where the marginal (falling)
tolerance for incremental ESH-risks (equivalently, an increasing WTP
to avoid them, and which is equivalent incremental overtime pay less
monetized discounted(?)
probabilistic irreversible incremental personal damages net of the
ESH Bakey and Nominal-Kamkey adjustments?) equals the marginal
(rising) shadow value for Leisure.
Members of this sub-group also offer a 'Bakey Profit' in
non-inflationary times to shareholders (albeit, post a share price
'PQ Volatility Boo', standing which further
entitles shareholders
to a 'Moulin
Long-Investor
Kamkey'), and claim a 'Producer Surplus Bakey Slice' as a 'Vacation
key'
sponsored by their unemployed/farmer brethren (post the partaking of
the same by the Firm Management).
Members
of Subsidized-unemployed poor group are sensitive to inflation in
Essentials bid up by the less-sensitive middle class. They band
together lest they be forced to compromise on morality and ethics
when subsidies are squeezed and temporary incomes turn uncertain. The
subsidized-unemployed group may justifiably lay claim to the Bakey of
the 'EO ESH Ookey' issued
by Capitalists on behalf the LORR to cooperative Unions,
and which, logically, should expand with inflation. They set their
inflation tolerance by the intersection of the rising 'EO ESH-Ookey
Bakey-Moulin Daily Monetize' against the shrinking 'Group Daily
Charity' they offer from their pocket money to their Gods. (In turn,
the prescient Gods alert the Lokpal to the condition of his very poor
via the 'Altar Net'). This sub-group either spearheads protests by
the 'Constituency Public' against essentials-inflation politically,
or suffers 'private' losses to family status from resort to
less-defensible practices (including,
but not limited to, child labor).
Between
the Subsidized-Employed and the Subsidized-Unemployed are positioned
Self-employed Farmers. Farmers seeks an inflation rate conducive to
their vocation. Thus, their interest in inflation is dichotomous.
They seek low prices and low-inflation for farm inputs, but
predictable, volatility-minimized price gains for their (perishable)
output. In the output space, farmers trade-off a rising 'Commodity PQ
Volatility U - LQ EV' line against a falling 'Commodity PQ
Appreciation BV' line to obtain their optimum desired output
inflation. In the input space however, farmers rely on the
participation of GEOSF Bankers and PQLQ Bankers – the former
seeking to support an important constituency in the Subsidy economy,
and the latter geared to advance the PQ economy among farmers. While
the former offer an 'GEOSF Banker Subsidy Bakey PQ' line – a line
that suggests farmers desist from buying in to PQ-related input price
hikes that inflate the subsidy bill (and which rises with inflation)
- the latter are more accommodative of PQ-inflation with a 'PQLQ
Banker PQ FV' line, a line that funds technology-/product
quality-incremented agriculture inputs and which rises(?) with
inflation. Implicitly, partaking the 'PQ FV line' offered by PQLQ
Bankers obtains farmers an 'LQ BV' post the harvesting of an 'LQ 2'
by Rich Capitalists (and Gold-endowed middle-class). The intersection
of the 'PQ FV' and the 'LQ BV' defines the optimum inflation
PQ-oriented Self-employed farmers seek in the input space.
GEOSF-oriented farmers determine their inflation tolerance at the
intersection of the 'Subsidy Bakey PQ' line and the 'GEOSF Banker EO
Boo' line, the former rising, and the latter falling with inflation.
Thus, self-employed farmers have a choice of leaning left and
preferring low-input inflation, and low-output inflation (accompanied
by a large 'LQ Bakey' usurped by the GEOSF Banker) – that imply,
both, a large subsidy economy and expanding social inequity, or,
preferring an innovation-driven regime in which PQ-driven input
inflation obtains them higher output price realization, albeit a
lower LQ Bakey in a more equitable society. Thus, the Subsidy tier is
characterized by inflation trade-offs within – the inflation sought
by the Subsidized Employed being at odds with the welfare of the
Subsidized Unemployed, even as the Self-employed Farmers seek a polar
input-ouput inflation regime.
Given
the multiple tiers, intra- and inter-tier relationships, their
FV-outlook, PV constraints, BV-worries and EV-threats, and the
particular subset of the inflation universe that concerns members in
each, differences in inflation tolerance/outlook reflect more than a
dissonance between patriotic-, public, political-, business- or
group-perspectives on inflation. Macro-economists may gauge
performance of the economy by the differentials in inflation
tolerances across these sections of the society, and undertake
anticipatory-structural, coincident-reactive, and
retrospective-compensatory policies, as they concern significant
sections of society and the economy. While these intra- and
inter-tier differentials in inflation tolerances are, and will always
be a reality, large and expanding differentials, on one hand between
FV-, PV-, and BV-inflationary returns, and on the other, inflation
diffferentials within and across tiers, could well be symptomatic of
unbalanced 'growth' (even 'de-growth'). It is in the interest of
members of each tier, and the interest of various tiers to seek a
compromise that ensures dynamic quasi-equilibrium in the monetary and
fiscal space, and preserves mutual advantage in a growth-oriented,
populist-pv-nominal economy.
Beware
the Shifters !
The
various classes of inflation-impacted/stakeholders, as elucidated
above, have different tolerances defined by their specific
'inflation-cross'.
The
limbs
of these inflation-crosses
are themselves further influenced by economic, financial, monetary,
perhaps even social variables that shift them up
or down,
thus and in turn, modifying equilibrium inflation tolerances.
An
example is appropriate. Recall PQLQ Bankers set their inflation
tolerance by the intersection of the 'Transaction
2 PV- M2 2 FV' and 'IIP Boo FV - Gold-ETF Inflation Hedge 2 PV Pay',
both rising with inflation. Any variable that shifted the
positively-sloped relationship between Transactions and Inflation,
such as a fall in the rate of consumer credit, would impact on
equilibrium inflation tolerances (in this case, the Transaction Curve
would shift up in the Inflation-Transaction space and, given a
positively-sloped and convex 'Hedge 2 PV Pay', imply a higher
inflation tolerance. See Figure 1). Simultaneously, practically any
significant monetary variable, such as for example, the FX, that
would shift the Inflation-Hedge PV line, would also move the
equilibrium tolerance. Acting on both lines of the 'Inflation
Tolerance Cross', these
shifters could potentially be just as significant as primary
variables in the Inflation cross, and would hence be specified in any
econometric exercise seeking to elicit tolerances in the various
inflation-tiers.
Figure 1
The
Battle Royale !
Now,
and
as indicated earlier, the SWF, sponsorer of the Land-Realty Mirror
Perpendicular-100% FV, that underlies the issue of R-IPNs (and
$-ILPs), to domestic Insurance Houses abroad, is empowered by that
sponsorship to issue Callable Bear-EO Bonds and, in its opposite,
Putable EO-Bull Bonds (See
Figure 2).
Together, these Bear-Bull bonds could well be interpreted as the
two-part decomposition of 'Sustainable GDP Trend Bond' sought by the
SWF that seeks a sustainable, if lower growth, 'hedge-floor' against
PGDP-oriented nominal economic policies of the Ruling party. These
bonds obtain their highest return when their pre-indicated GDP growth
rate is achieved, and return lower for under- or over-shooting them.
The Bear-Bull Bonds are issued along with WB MPs Constituency ZS FV
Fund, and in the opposite of, the 'PPPE $-FV Pot', the 'WB/SWF
Private Land Appreciation Perpendicular Key' and the 'WB SGDP
Perpetuity 2-IMF PPPE Mirror E' issued to Insurance Houses (who
forward an R-GETF-denominated(?) 'IMF $ FV 2 key' to the SWF. (See Schematic)
The
'MPs ZS Constituency FV Fund' is administered in 1-0 manner across
federal electoral constituencies to incentivize administrative
efficiency, voter diligence, and to foster competition &
FV-efficiency in funding constituency development proposals.
The
relative magnitudes of the Bear-Bull bonds, the Political Endowment
FV pot, and the Constituency ZS Fund reveal, respectively, the
relative probabilities of bull and bear phases, the strength of the
democracy, and the degree of competition among constituencies to
attract funding for FV-consistent development projects.
Figure 2
Now,
and at the start of the Bull phase of a new economic cycle under a
Populist-PV-Nominal paradigm, the SWF (ring)fences the capital market
with 'Putable EO-Bull Bonds' and 'Callable Bear-EO Bonds' issued,
respectively, to the 'LokPal Opposite – Ruling Party KG – Rich
Ombudsman', and the 'Lokpal-Impenured Group Ombudsman-Moulin Societal
KG' – Naxalite Representative' (with a free float among
non-insurance bond investors- possibly infra firms, PQLQ- and GEOSF
Bankers in the market). The SWF claims the 'IMF $ FV 2key' from
Insurance Houses as proceeds from issue of these bonds. First,
consider a bull run. When a raging bull fuels (Essentials) inflation,
hurts savings by the Middle-class households and injures the
subsidized-unemployed, when the blue-collared suffer, both, the loss
of family-time and an exacerbation of workplace risks, when
Consumerists choose to indulge in sin and vice than exploit the
infrastructural conveniences available to them outdoors, and the
society up in arms against an economy commandeered by the PV-focussed
Rich, the anxious Lokpal Opposite, fearing damage to the 'Private
Cause' due an exacerbation of workplace risks such as union action
and accidents, or social tensions and riots that might result from
extreme income-inequity, interrupts the bull by triggering the Put on
the Long EO-Bull Bonds trading at a high, and parks the bond-put
proceeds away. The
reduction in liquidity in the Bond market due
the Put on the EO-Bull Bond, forces
bond yields to rise ahead of interest rate hikes
meant to dampen accelerating inflation
(infact, even signals it; further, it triggers the graduated exit of
SWF-monies from equities). Now, Insurance firms, as guardians,
trustees and managers of 'EO Diamond Society – House/R-IPN Aural
Mirror Perpetuity - Capital market EO Per-capita FV 2', (that
represent a counterweight to their infra-bond holdings, and which are
denominated in R-GETFs, reversible to unmonetized TTC-Gold),
anticipating a withdrawal from Equity market due economic
unsustainability, and fearing a market crash due public angst, riots,
agitations, extremist events and immoralities that might occur in
such times if they don't, follow the Lokpal Opposite and pull out of
the Equity markets, divest of longer infra-bonds and shrink the
average tenure of their holdings, even as they act abroad to upgrade
the R-IPNs issued to them by the SWF to $ or $-ILPs ahead of currency
depreciation, and further, bank the R-GETFs (that turn superfluous
for the divesting of long infra-bonds) as TTC-Gold via the RBI that
runs an anti-inflation, 'de-monetization counter' to its M2-infusion
policies. Thus, the Lokpal Opposite in coordination with (the
Lokpal,) Insurance houses effectively limits inflation rate in the
economy with his tolerances and triggers, and successfully tempers an
unsustainable boom,
the exploitation of the working-, middle- and subsidized classes, and
secures the Private Cause of the Rich.
Next,
and when the economy falters due the inability to sustain Aggregate
Demand and due loss of export markets (when Bear-EO Bonds expand in
NAV), the Lokpal, fearing his enslaved, if not impenured constituency
might not withstand a prolonged and deep recession, triggers the Call
on the Bear-EO Bonds. Bound to follow, the SWF recalls the Callable
Bear-EO Bonds and returns proceeds of the foreclosed bonds to the
Lokpal. The Lokpal, anxious to protect his constituency, invests his
proceeds to compensate the aggrieved and re-stimulate the economy. He
compensates the Subsidized Unemployed thru Unions and the Subsidized
Unemployed thru NGOs with an 'EO ESH 2 Bakey' from the previous
cycle, and suggests them to cooperate with the Capitalists in wage
negotiations for the next cycle. Prior to the next cycle, the Lokpal
negotitates a new 'SGDP-Normal' as well as Bear-Bull twinned
Hedge-bond trends and returns with the IMF-WB, the SWF and the LO.
Thus prepared, he applies his bond-call proceeds to stimulate AD by
channeling a portion of his Bear-EO Bond-Call proceeds as 'Call 2' to
Gold markets for Households to harvest unjustified gains and exploit
the same in AD-stimulating purchases. Simultaneously, the Lokpal also
leverages another portion of the Bond-Call proceeds in a simple FX-ZS
strategy in which he buys into $-GETFs even as the SWF dumps Rupees
to jump-start the export economy with a weaker-than-normal currency
(that reverts to a stronger-than-normal currency with the reversal of
the earlier moves when the bull is well-established). He flushes the
productive sectors of the economy with low-cost working capital
through PQLQ/GEOSF Banks, enters equities at a low and triggers a
'Confidence bull' in the equity market. Insurance Houses, on
assurances from the Lokpal, Capitalists and Unions, and observing,
both, a robust AD and an uptick in export orders, follow and sustain
the bull with their 'Long FV' investments. Thus, the Lokpal, 'times'
the Bull with his pro-active intervention in the economy, and
protects his constituency from prolonged economic misery.
Do
we care? Are we ready?
It
is cliche that inflation is endemic to emerging economies. The resort
to Populist-PV-Nominal policies, policies conduce to equity markets,
Transactions volume-based GDP and banking, and the existence of
low-cost inflation hedging instruments, all stimulate an
inflation-exacerbating economic regime. The various hedges in IIBs,
FX and Gold-ETFs, beyond strategic political alignments, are
inflation-rewarding, as is Inflation-engendered volatility in Bond
and FX markets. Further, the term-strategies of political parties
centered around a perpetually-weakening rupee, and the preference for
labor-intensive, export-led growth-economy facilitated by a weak
currency, are exploited to perpetuate inflation at unsustainable
levels. Thus, it is amply clear that inflation, far from being
suppressed as a scourge that weakens the nation, is instead 'managed'
so it serves the many purposes of political, economic, even social
entities and classes. The losers in this game are unsubsidized and
salary-limited lower middle-class families, and, the subsidized class
- particularly the unemployed.....and indeed, the Nation (it's SWF).
Compounding the above problem, the existing monetary policy is
centered around Inflation targeting at the aggregate, thru the
control of interest rates, M2 infusions and repo rates. It largely
ignores the socio-political underlying dynamics of inflation
generation, the formation-, and the endogeneity/exogeneity of its
tolerances and expectations. More significantly, the monetary
rule-based inflation policy ignores the self-interest of various
social and economic sub-groups, and the conflicts of interest that
characterize involvement of political parties, the Rich, Insurance
Houses and Infrastructure firms in policy- making.
In
contrast, the proposed system, albeit yet in its conceptual stages,
may be expanded upon, both, to generate class-specific tolerances and
expectations that a) provide the basis for a more focused and
differentiated inflation policy that explicitly recognizes the
context around equilibrium inflation tolerances of tier-members, and
their FV/PV/BV endogeneity/exogeneity, b) provide a basis for
eliciting tier-specific and intra-tier discount rates, and most
importantly c) offer a socio-political strategy to justify
inflation-management within a populist-pv-nominal macro-cycle
paradigm that limits the Central Bank's role to short-term inflation
management, and d) provides for a self-balancing policy paradigm that
straddles the domestic-global financial system, and which operates
across FV/PV/BV divides, and even provides for concurrent
demonetization as a natural means to anticipate inflationary
unsustainability. The proposed system enlarges the role of the
Lokpal, his Opposite, and Insurance in determining societal
tolerances toward inflation. The socio-political paradigm elaborated
here provides for an alternative, parallel approach to manage
inflation leveraging market-based instruments that simultaneously
anticipate the PV-hastening inherent to nominal PGDP-maximizing
strategies of electoral politics and Populist-PV-Nominal regimes. It
permits non-political control of inflation in the economy by
bestowing non-political entities with control of SGDP-centered,
Bear-Bull bonds. These twinned bonds ensure the economy does not
stray beyond the socio-political limits on inequity and environmental
sustainability. It is proposed as a credible, macro-cycle alternative
to the traditional system of M2-based, short-term inflation
management by the Nation's Central Banker.
