European Tribune - Community, Politics & Progress.

Sovereign Equity

by ChrisCook
Tue Mar 16th, 2010 at 06:52:24 AM EST

It was pleasing to see that the editorial in the Financial Times on March 15th - which is entitled "Sovereign Equity" - suggests that perhaps financial instruments other than debt may be appropriate for governments. It is becoming daily more evident that UK Plc not only has no equity, but shows the debt on its balance sheet while ommitting the assets against which the debt is secured.

I have been promoting the concept of a National Equity, and a legal and financial infrastructure enabling it, for several years now. But merely floating the idea on LabourList elicited a mixture of incomprehension and derision.

In fact, as I pointed out, a National Equity has to all intents and purposes existed since the mid 18th century in the form of the UK Treasury's undated, but redeemable Consols, and the more recent undated, redeemable War Loan, both of which are interest-bearing government debt or 'gilts'

In addition to this apparently anachronistic undated debt, the UK's notes and coin, which are undated instruments of 'sovereign credit', are to all intents and purposes also a non-interest-bearing form of equity, and we have Mr Darling to thank for the fact that this stock of cash has now been boosted by £200bn of sovereign credit in the form of the much maligned and widely misunderstood 'Quantitative Easing'. The fact that the Bank of England chooses to pay 0.5% in respect of the bank reserve balances which were pumped up by QE has essentially created a form of UK Plc redeemable equity costing the public 0.5% a year. Cheap at the price.

I believe that it is possible for the public and private sectors to combine to create new forms of equity instruments within the framework of corporate partnerships, rather than archaic company and trust law vehicles. Such Public Equity is capable of revolutionising the long term financing of UK productive assets - such as affordable housing, renewable energy, new transport infrastructure, and the re-skilling of our workforce. As I have pointed out, such massive government investment can and should be funded by QE provided it is managed professionally under the supervision of a monetary authority.

It may not be conventional - but I agree with the FT that it is about time the UK issued some National Equity - just not the toxic form of equity comprised in a Plc.

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Sovereign Equity | 13 comments (13 topical, 0 editorial, 0 hidden)

Re: Sovereign Equity (4.00 / 2)

The Labour List exchanges were very interesting ;-)

You can't be me, I'm taken

by Sven Triloqvist on Tue Mar 16th, 2010 at 07:13:06 AM EST

Re: Sovereign Equity (4.00 / 2)

Indeed.

I've become their resident Tory Troll demolition/ re-education (you'd be surprised how may end up agreeing) person - at least on economic matters.

It's been an interesting experience honing arguments and so on. I've actually developed something of a new narrative.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Tue Mar 16th, 2010 at 08:48:43 AM EST
[ Parent ]

New narrative (4.00 / 2)

Yes, I noticed. Keep on truckin'! - we'll get there in the end ;-)

You can't be me, I'm taken

by Sven Triloqvist on Tue Mar 16th, 2010 at 09:00:07 AM EST
[ Parent ]

Re: Sovereign Equity (4.00 / 3)

Given that Ireland already has a National Assets Management Agency and a National Pensions Reserve Fund the concept of building up national equity may not be quite so strange here, and may also be the more necessary as we don't have the Monetary flexibility to engage in our own QE. I would be interested in your views as to how your concept of National Equity could be extended here, and how that would impact on national finances and governance.

It seems all the national narrative about, Nama in particular, is negative because of the excessive amount we are paying for very dubious assets. However it seems to me that if a more positive (and realistic) treatment of national assets - public housing, transport infrastructure, electricity and broadband networks etc. - could be included in a national balance sheet, then the Neo-lib focus on reducing public expenditure would no longer be the only game in town.

The term "public expenditure" is almost synonymous with waste because we have no means of accounting for the productive assets thereby created - or differentiating between efficient and non-performing public assets or expenditure programmes. PPP projects have been a disaster because, while the private operator is seen to make profits, there is no value put on the benefits (if any) that the public gets from their part of the investment - and thus no objective yardstick for evaluating the success or otherwise of specific projects from a public point of view.

I think we need to move beyond the Keynesian "public investment is good even if its only digging a hole and filling it in again" and the neo-lib "taxes are theft and public investment distorts the market" dichotomy and develop national accounting systems which can distinguish between good and better "investment opportunities" in public assets based on their contribution to the common good.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Tue Mar 16th, 2010 at 12:31:30 PM EST

Re: Sovereign Equity (4.00 / 4)

Since I heard of NAMA I suggested that the constitution of the statutory corporate form it uses should be the corporate 'Capital Partnership' framework I advocate, rather than a conventional (or genetically modified) Company.

In other words, a NAMA Corporate Partnership would not own anything, do anything, employ anyone or contract with anyone. It would be a framework agreement in a corporate wrapper which creates a NAMA Rental Pool derived from freehold land held by a decentralised network of custodians, probably local councils, and which would be divided into Units eg billionths.

This recent US article on Co-ownership is on a Georgist site, and has had pretty good feedback.

On the one hand the outcome is of an affordable housing mechanism: on the other there's a first rate new pension asset class.

It's not Rocket Science.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Tue Mar 16th, 2010 at 02:22:27 PM EST
[ Parent ]

Re: Sovereign Equity (4.00 / 7)

I find it harder and harder to engage seriously in debates about the management and meaning of imaginary money-units... Until the balance sheets reflect enormous game-altering, life-altering losses such as (e.g.!) the mass die-off of forests, it doesn't matter how the books are managed, the brick wall still looms ahead.

The national equity imho consists of a share of the global equity, and the global equity consists of... micro and macro organisms that make life sustainable. There is nothing else, no substitute. If you ain't got food and water -- and a climate conducive to long-term reproduction of same -- then you ain't got Nuffin. The whole complex casino game of currency and commerce is merely a frothy exuberance riding on the surface (and the hyperexploitation) of the abundance of life processes. When those processes fail -- or are vandalised and sabotaged -- the casino is over, and so is everything else we recognise as "civilisation." It seems so simple. And yet those life processes are failing and being sabotaged on all sides, yet the headlines continue to be all about imaginary money units and their better management.

Lehman's criminality is on the front page, while the criminality of governments in cahoots with liquidationist resource-extractors is buried in the third section or not mentioned at all (except in the increasingly elegiac and despairing academic and "green" press). Earnest discussions continue everywhere about the more just distribution of cowrie shells, while the essential resources like food and water (whose distribution those cowrie shells is supposed to enable) are eroding rapidly.

I suppose the pictures is not quite so bad as I paint it -- Elinor Ostrom is one economist who seems to get it -- the management of the planetary commons is the defining problem of our time. The Post-Autistic economics school has a clue or two also.

The concept of national equity is powerful, but imho it must be tied to the robustness of biotic systems. When national equity is based sanely on the quantity and quality of real national resources -- on the hectarage of healthy forest, the microbial count per cubic inch of arable soil, the health of streams and rivers, the health of coastal fish populations, the depth of topsoil -- then it might make some sense...

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Tue Mar 16th, 2010 at 12:47:20 PM EST

Re: Sovereign Equity (4.00 / 3)

You are knocking on an open door.

There's nothing equitable about the uniquely toxic Joint Stock Limited Liability Company as an enterprise model, particularly in its Public - stock exchange traded and absentee landlord - manifestation.

The key - as I have been banging on about here since I came - is a 'Not for Loss' legal and financial model based upon mutualist partnership principles, and upon location, energy and knowledge as the Commons that underpin the Economy.

I think that Peter Barnes' Capitalism 3.0 gets a lot right in this regard, but he unfortunately appears to advocate the legal model of Trust law, which was IMHO invented by lawyers for lawyers, and retains the management/agency problem of Company law.

Everything I have read (and it's not enough) of Ostrom's thinking is consistent with my perspective.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Tue Mar 16th, 2010 at 02:36:12 PM EST
[ Parent ]

Re: Sovereign Equity (4.00 / 2)

I find it harder and harder to engage seriously in debates about the management and meaning of imaginary money-units... Until the balance sheets reflect enormous game-altering, life-altering losses such as (e.g.!) the mass die-off of forests, it doesn't matter how the books are managed, the brick wall still looms ahead.

Agreed! And yet, at this late date, for those concerned with the economy, these are "externalities"! The way that the people and those in business view their activities and priorities MUST align with the needs of the bio-sphere if we are to survive. The clock is ticking and we are fiddling around with elite games of competitive wealth extraction that involves the destruction of that which sustains us.

I am glad that Lehman is on the front page, because that situation highlights the extent to which the organs of our society have been captured by a parasitic financial elite. Governments have to be the instrument for aligning the operation of the economy with the needs of the bio-sphere, not a tool of corporations for perpetuating their wealth capture games.

Edward Harrison, a prominent financial blogger, recently said:

I am being to conclude that no meaningful financial reform can occur absent an absolute collapse in the global economy and the financial system.

I agree with this and Chris has endorsed similar views in the past. But there is hardly a guarantee that what is rebuilt out of the crash will be an improvement. I fear that the odds are not favorable for such a required re-alignment of business principles and organizational structure with the needs of the eco-sphere. But we have no choice but to try.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Tue Mar 16th, 2010 at 03:15:39 PM EST
[ Parent ]

Re: Sovereign Equity (4.00 / 5)

"Pessimism of the intellect, optimism of the will"...

I've just been reading T C Boyle's wickedly funny, frankly heartbreaking A Friend of the Earth -- not much optimism there, but a lot of smouldering Swiftian wit. Anyone but me suspect that Boyle and Neal Stephenson somehow influenced one another, uni- or bi-directionally?

I've also been watching the herring fishery. The herring are not doing well up here in the NW of N America. And yet it is still perfectly legal during the spawning season to fish for roe, i.e. to catch and slaughter female herring, gutting them for their roe -- which is a delicacy commanding a high price in Japan. The rest of the fish (males, the carcasses of females) are ground up for cat food, fertiliser, etc.

It's beyond insane to be "harvesting" the pregnant (OK, they fertilise externally, but egg-bearing anyway) females of a species that's already struggling.

It's also quite legal, and the local papers crow happily about the tonnage caught, quotas met in a day or less, vast amounts of money made.

The fish are only in the news because of the dollars they are worth. It should be the other way around: the money should only be in the news to the extent that it's an indicator of how scarce the fish are becoming. But it's good news you see, that wealthy Japanese businessmen are willing to pay so much for herring roe -- it's good news that Japan has fished out its own home waters (making herring roe so scarce and valuable) and is now bribing Canadians to do likewise. It's good news that fish populations are declining, because that makes each tonne caught worth so much more. It's great that the catch is worth shipping by air to Japan, the planes each contributing their little bit, flight by flight, to the climate vandalism that lays one more pressure on the struggling species. And so on.

Because value = scarcity. So creating scarcity = creating value! So let's celebrate the destruction of our biotic wealth, because the market price per unit for the last pathetic scraps will be so high...

Don't even get me started on farmed salmon.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Mar 18th, 2010 at 02:23:28 AM EST
[ Parent ]

Re: Sovereign Equity (4.00 / 3)

Joe Bageant: From Wall Street to Skank Street

As I stood on the oily gravel in front of Gunther's Garage, I thought of the defense satellites whizzing overhead. And how somewhere over the Middle East, killer drones are being operated remotely by Americans in Nevada bunkers, as virtual and as removed from the blood and fire as any computer game. Both the real and the virtual warfare flourish, both fed on virtual money of the banking elites. If real money -- money not based upon endless future debt in an imaginary world of unlimited growth and perpetual war -- were required, neither would exist.
For now though, the capitalist growth-bot will march on unimpeded by the greater mass of Americans. Until it crashes. It is very hard to imagine capitalism being brought down by the uncomplaining masses below, who draw sustenance from it and offer their sons and daughters to its wars without complaint.
On the other hand, the inevitability of its collapse from within, due to its utter unsustainability, is heartening in a grim way. Billions will suffer. It seems the faceless laboring masses never make even a small gain, even an inadvertent one, without immense suffering. And even when they do, any advantage they gain is financialised in the virtual economy by the elites, and loaned back to them at compound interest, then tranched for more virtual profits, and on and on and on. Such is the architecture of our sickness.
Money for nuthin'
Defenders of capitalism claim that there can be no real economy, no real material value created by the real people on Main Street, without the financing of Wall Street's virtual economy. Allegedly, they are so intertwined as to be the same thing, which they are, and that no other way of doings things is possible, which is patently untrue. The storyline goes that without virtual economy financing from Wall Street, without the ever-expanding debt that drives the quest for limitless growth, the world would end. So strong is this hallucination that capitalist theoreticians such as Guy Sorman say, "even in this time of financial crisis, the global benefits of the new financial markets have surpassed their costs."
What the fuck globe are ya living on Guy?

tell it joe...

"Two wrongs don't make a right, but three lefts do." Jim Hightower

by melo (melometa4(at)gmail.com) on Thu Mar 18th, 2010 at 08:02:27 AM EST
[ Parent ]

Re: Sovereign Equity (none / 1)

Neal Stephenson's The Baroque Clycle trilogy is my all time favorite work of historical fiction-fantasy. I also loved Anathem. I am a bit of a Wellsian and he reminds me of H.G. Wells in his attempts to explore possible realities through fictive narratives.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Fri Mar 19th, 2010 at 01:42:40 PM EST
[ Parent ]

Hmm.. (none / 0)

What is the problem the National Equity is supposed to solve? As opposed to issuing fiat pounds?

Wait this is important. Someone is wrong on the Internet.

by generic on Tue Mar 16th, 2010 at 06:55:50 PM EST

Re: Hmm.. (4.00 / 3)

Fiat currency is not income bearing: it is the credit instrument in which income is issued and denominated.

A National Equity would create a National Dividend, and while this could be paid out in fiat pounds, I think we might see Units redeemable in payment for energy (an energy dividend) - acceptable anywhere - and Units redeemable in payment for land rentals, which would by definition be geographically constrained.

National Equity would replace the greater part of the National Debt which relates to the credit tied up in secured loans (mainly mortgage loans) and in conventional equity.

The only remaining National Debt would be that credit = time to pay necessary for the circulation of goods and services and the creation of new productive assets.

Once complete, the use value of productive assets may be 'unitised', and the development credit recycled, simply through the creation and issue of redeemable Units, and these units of 'money's worth' would circulate within a credit clearing union.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Tue Mar 16th, 2010 at 07:26:03 PM EST
[ Parent ]

Sovereign Equity | 13 comments (13 topical, 0 editorial, 0 hidden)

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