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Income = Savings + Consumption

June 2, 2013

Essay. The “Equation of Life” is:

Income = Savings + Consumption

and, obviously, we need to allow that “gifts” may be received as income or disbursed as consumption. Governments tax both sides of that equation and seriously micro-manage it in the civil and criminal courts and engage the entire justice and legislative system because any exception is “un-taxed” income, savings, or consumption and that’s a crime (Reuters, May 31, 2013, Digital currency firms rush to adopt anti-money laundering rules and The New Yorker, April 29, 2013, The Underground Economy).

For example, an inheritance or gift is not a problem because it is declared and may be taxed as a consumption of the donor and the tax is deducted before the gift is given to the beneficiary as income (gift) which then shows up in their savings and, eventually, their consumption. Of course, someone’s consumption is always someone else’s income and that’s dealt with as a sales tax and an income tax, as long as the consumption is reported, and that’s where the problem is.

We could eliminate the “criminal economy” if we just reported all of our consumption and allowed a class of consumption called “nominally criminal consumption” that is tax-free – since the income or savings that pays for it has already been taxed, and will be taxed again as income in the hands of the criminal who is known to have received it under the “Know Your Criminal (KYC) Rule” – and penalty-free and there is no crime attached.

It’s a crime, of course, but it’s automatically pardoned because it was declared by the consumer of the crime. And the victims of the crime can then modify their procedures or policy to make sure that it’s less likely to happen in the future. And they should not receive a grant or government compensation to do so, else the commitment of a crime and its declaration would soon become a “crime-for-hire” business.

Consumers, then, can continue to purchase illegal drugs, prostitution, “jimmy” parking meters, jump tolls and fares, shop lift, and so forth, and they can work in the “grey economy” or the “internet economy” of “digital currencies” without fear, as long they report that activity and then are granted an automatic immunity without question or consequence. It’s only human, after all.

Columbia University School of Social Work (CUSSW)
Criminal Justice Initiative

The criminals, however, will need to report their income and consumption, even if it’s for theft or arcane services such as assault, kidnapping, or “murder for hire” as long as the “consumer” has reported the expenditure.

If they don’t report their income or consumption and are found to have a deficiency in the “Equation of Life”, then they will be seriously punished with minimal further due process because it’s a crime de facto. In other words, there is only one crime and that is to violate the “Equation of Life” to which they are denied further access thereafter, and which is not unlike the RICO Statute already in force, and provably effective.

Under the new rules, consumers could report their “grey” income or consumption without consequence, and the government could then be informed of the size of that economy – currently estimated at $2 trillion per year but most people think that it’s much bigger (ibid, The New Yorker) and we can only wonder at the size of the criminal enterprise – and learn how to tax it, should they decide to tax it at all, considering the consequences of not paying the tax. After all, it’s only human. But should they decide not to report the expenditure or the income, it becomes inhuman and so do they and they know it when they do the crime.

What about crimes of passion or murder by “road rage” or just “rage” for which there appears not to be a consumer? What’s done is done, sadly and unfortunately, but we should not grant immunity from prosecution to the person who merely declares the “debit”, so to speak, because there is no credit and because of that the person might not declare it, in which case they are declared inhuman, de facto, and no expense will be spared to hunt them down and deny them further access to the Equation of Life.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks.

Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.


We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to


Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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