And the much loathed "National Debt", F, is a positive item

Well, the sovereign debt also carries a counterparty risk (though legal tender laws complicate the analysis somewhat on this point...), which is properly accounted for as a part of R. It is perfectly possible for the sovereign to engage in a debt binge to the point where F₀ contributes a significant fraction of R. If the risk of sovereign default is underestimated, this is effectively equivalent to an unjustified increase in the bezzle and can lead to precisely the same situation of systemic insolvency.

until overwhelmed by the bezel, the perceived risk of which is represented by R.

No, R is the aggregate cost of default risk. The bezzle is different, and the bezzle isn't always bad (if it were that simple, you could have a computer run the central bank, like Friedman said he wanted...).

The bezzle can be perfectly justified - take the balance sheet of a major medical company, for instance. They have physical assets, financial assets, intellectual property, etc., but their biggest asset does not show up at all: Their organisation - their trained cadres of specialists working together in a coherent institutional framework. Why does this not show up in their book value? Well, because it has no liquidation value. Never the less, such intangible assets are very much real. In fact, the bezzle is the entire reason for keeping the going concern a going concern rather than liquidating it.

But it's impossible to device an objective way to compute the proper size of the bezzle from first principles, because (among other things) the bezzle includes expected future earnings, and there is no way to definitively state that any given expectation is justified. So while it is possible to say whether any given bezzle is clearly far too big or small, providing a precise number for its value involves a component of subjectivity. Part of the mechanism in a speculative boom is that this subjective valuation is exploited to substitute mysticism and glamour for reasoning and substance.

It's this ambiguity that makes economics interesting. And, incidentally, what makes precision in economics "a mock precision if we try to use such partly vague and non-quantitative concepts as the basis of our quantitative analysis."

- Jake

Friends come and go. Enemies accumulate.