I don't see the logic in that.
And in your model, what is the role of the investment banks? What do they do? Peak oil is not an energy crisis. It is a liquid fuel crisis.
Unsecured credit allows the circulation of goods and services, and the creation of productive assets with a value in use (productive Capital). Where unsecured credit creates productive assets it ceases to circulate, and must be replaced by more credit to keep the wheels of the economy turning. This process gives rise to a continuous flow of dynamic value.
It also explains why the National Debt - that piece of accounting insanity - can never be paid off.
C H Douglas - an engineer by background - had an interesting analysis which was a core part of his Social Credit movement - which went the same way as Henry George's Single Tax, being discredited and airbrushed from history
The A plus B Theorem of Social Credit
My analysis is that secured credit is qualitatively different from unsecured credit in its effects. It is a claim over a productive asset with a value in use. In particular, land which backs more than 60% of credit created today. The creation of secured credit to acquire existing productive assets is likely to cause asset price inflation and often, a Bubble.
Secured credit does not circulate. It is static. It cannot cause inflation of prices other than the prices of existing assets it is used to acquire. Having said that, further credit secured on the productive asset (Equity Release) could perhaps cause retail price inflation. Discuss.
It is a form of Investment, which I consider as a claim over a productive asset purchased for the revenue stream. ie the investor is looking for income, or an increase in the value of capitalised future income which he may sell for income.
Speculation, on the other hand, is buying - not for income - but to sell on at a profit. So is trading, but the former is held to be undesirable, and the latter an essential component of global trade.
The other form of Investment - with which secured credit is in conflict, is the claim of equity ownership, particularly the financial claims incorporated in shares in the legal person/protocol known as a Corporation.
It follows that there are two different types of banking.
Firstly; that relating to the creation and clearing of credit. This in turn distuinguishes two separate disciplines.
(a) credit used for circulation ("time to pay" or working capital); and
(b) credit used to create a productive asset (development credit).
The former requires analysis of the ability of an individual or enterprise (a group of individuals) to repay debt used for working capital; the accounting and clearing of debt obligations; and the handling of debt defaults.
The latter (Jeromes's discipline) requires consideration of the use value of the productive asset once complete, the likelihood that it will be developed on time and within budget. And so on.
Secondly, investment banking relates to the use of secured credit as investment in an existing productive asset through a process of appraisal of the ability of:
(a) the productive asset to create sufficient value in exchange to meet the financial obligations imposed upon it; and
(b) the capability of the user/owner of the asset to meet those financial obligations.
The recent property bubble was essentially caused by essentially lending to the property, and forgetting the person, because secured credit is a hybrid.
But Jerome's discipline - which is the extremely necessary one of financing productive assets - is essentially a hybrid. The development risks attaching to the creation of a productive asset, are very different to those of the long term financing of that same asset once complete.
I believe that there is no longer a need for credit intermediaries, which is just as well, because the capital necessary to rebuild the collapsing system, while it exists in the hands of investors (albeit dwindling) will not be deployed, and governments cannot replace it without the consent of their global creditors.
I believe the emergence of
Peer to Peer Finance
will solve the problem, and in so doing reinvent banking into two disciplines distinguishing between Credit = Time to Pay and Investment.
Banking as credit intermediation will gradually (or more likely, rapidly) become obsolete. Banking as service provision will replace it.
The entire edifice of economics is based upon an assumption that money is necessarily credit, whereas the truth is that credit is implicit within a monetary relationship, but need not - indeed should not, because interest creates instability - be monetised. Moreover. conventional economics does not make the necessary - IMHO - qualitative distinction between unsecured credit, which may be static or dynamic, and secured credit, which is static, and is unlikely to cause retail price inflation.
In other words conventional economics is entirely unfounded on the real world and is, in technical terms, complete bollocks. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
I can follow the traces of what you are saying, and some of the implications...but some graphics would certainly help. As much as I can appreciate the conclusions, I have never been able to completely grok all the steps that get you there.
I don't mean to imply that I am your target audience, but I've always been able to take an IQ test that put me in the top few percent (being the test makers target market helps) and can probably find other criteria which might imply that you have to be more clear for your target audience, who may be less clever than even me. Never underestimate their intelligence, always underestimate their knowledge.
Frank Delaney ~ Ireland
I suppose credit cards are also utility banking - that and a whole class of "revolving credit" lines to both individuals and corporations including simple overdraft allowances on current accounts. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
