Otherwise, the only difference is that this model is sustainable,while the conventional model is mathematically unsustainable - as we now see.
Btw.
Further to previous discussion, was $147.00 oil a bubble, or just large volatility?
And is oil now oversold? I value your opinion.
As I have said before, while credit is implicit in a monetary system, it need not actually be money, as we are accustomed to thinking, and indeed, it is enshrined within the assumptions of conventional Economics that "Money is Debt" - which it need not be.
In a "Peer to Peer" credit system, Buyers give sellers bilateral trade credit or time to pay, and they do this because both benefit from a mutual guarantee within a partnership-based framework agreement or protocol of a Guarantee Society. This is not dissimilar from the mutual Islamic insurance model known as "takaful", by the way.
No interest is paid for the use of "money" but seller and buyer pay alike pay both a service charge ( to a service provider consortium operating the system) and a provision into a default pool for the use of the guarantee.
The buyer then settles his obligation to the seller in conventional "fiat" money, or in "money's worth" eg Units redeemable in (say) energy or land rental value units, or anything else the seller agrees he will accept. This may even include netting out another obligation ie A sells to B on credit; B sells to C on credit; and C sells to A on credit - and the obligations are "netted off".
See
Ripple Pay
The Brent 15 day market generates "chains" which may actually settle in this way through "Book-outs" of forward obligations.
I digress.
The role of the Service-Provider-Formerly-Known-as-a-Bank lies in operating the accounting system, setting managing the "guarantee limits" of both buyer and seller in accordance with policies agreed by the Guarantee Society, and managing any "defaults" again in line with policies agreed by the society.
ie pretty much what they do already, but this time without putting their capital at risk by creating credit based upon it. Which isn't a bad business model for a bank, I would suggest - just different.
The outcome is that the community of buyers and sellers create credit Peer to Peer a mutual guarantee backed by themselves collectively, as opposed to an implicit bank guarantee of the borrower's credit, backed by the Bank's pool of proprietary capital.
We see what is esentially a barter system with in built "time to pay". This is what a monetary system actually is. The Swiss B2B WIR system and proprietary systems like Bartercard are examples -and both require a "Value Unit", which is typically the local fiat" currency. ie transactions take place measured by the fiat currency, rather than using the fiat currency.
This model gives rise to Keynes' "Clearing Union" but without the central note issuing authority.
Keynes great insight was that he advocated that both holders of positive and negative trade balances in "Bancors" (the fiat currency / Value Unit he advocated) would pay an amount to the issuing institution.
He saw that if holders of negative balances were to pay holders of positive balances the result would necessarily be unstable - and so it has proved.
The $147 was froth. You can call it a bubble but I hate that term since the oil was still steadily being destroyed and no serious new production was possible in the short term. I believed then and now, that the $147 was composed of $50-80 or so steady state value of oil. By steady state I mean the world's economy would have kept right on keeping on at that price.
Add to that $30 or so of USD weakness. The dollar has pulled back from 1.6 to the euro to 1.25 as the rest of the world trusts our ability to pay taxes more than the others.
Add another $30 of war fear. Bomb bomb bomb Iran was on the table. Fear induces hoarding.
Summer demand fears and speculative pressure accounts for the rest.
Once we hit fall, the first $30 came out in a rush. No need to worry about supplying gasoline until April 2009 or heating oil until Nov 2008. Fear of war with Iran abated. Lots less saber rattling as election fever took that out of the news. And now global recession is knocking the stuffing out of demand just as new projects are beginning to come on stream.
If we get as ugly a recession/depression as I think we could be in the $30-70 range for a couple of years. $30 only if demand falls so far the Saudis have to cut more than 4 MMBD (they'll want half their production on line) and you have to back out tar sands/other to balance the market until demand growth comes back or natural decline offsets production growth.
Boom and bust. With ever higher peaks.
HiD:
The dollar has pulled back from 1.6 to the euro to 1.25 as the rest of the world trusts our ability to pay taxes more than the others.
I see the dollar strength as a direct result of deleveraging of dollar loans used for overseas investments. 75% of hedge fund leverage was in dollars.
ie to repay the dollar loans you sell foreign assets and buy dollars with the proceeds.
The Wellcome foundation,who have a very canny manager, are busily selling off their unlisted dollar assets while the going's good....
Calm before the storm, I reckon.
I still think they're toilet paper, just not a bad relative to the others any more.
