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When you are talking about "Capital" you are essentially referring to "Property" - the legal claim to Absolute ("Divine Right of Capital") "Ownership" of productive assets and the revenues that flow from them.

Above all, we are talking about the concentration in fewer and fewer hands of "Property" in "Commons" such as Land, and, increasingly, Knowledge. We have simply accepted that privatisation of such Commons is acceptable, when in fact it is arguable - with Henry George - that those who have exclusive rights of use over such Commons should compensate those they exclude.

"Usury" is a term I detest since it immediately labels the user as some sort of medieval fundamentalist. I refer instead to "Deficit-based" finance, and the fact that Banks create interest-bearing Credit as Money at a multiple of their Capital base IMHO constitutes - with Absolute ownership of Commons - the two principal causes of the fix we are in.

It is the "gearing" to which this worthless credit gives rise that leads to a transfer of "Commons" wealth to the creditworthy (the "haves") from the rest of us.

We have reached a tipping point IMHO when the Irresistible Force of Economic Growth mandated by the mathematics of compound interest on a deficit-based money supply is running up against the Immovable Object of the lack of availability of energy, and particularly liquid fuels, to sustain that growth.

Something has to give, or something has to change, and as an optimist I believe that the emergence of new forms of property rights and monetary systems that will provide the solution.

Deficit-based Money has run its course, I believe, and the only sustainable alternative is an "asset-based" alternative.


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Jan 17th, 2007 at 01:27:21 PM EST
A very clear explanation, Chris. It is the "gearing" of fractional reserve banking that fixes the game in the lender's favor. Owning a thousand bucks lets the lender loan out ten grand, at interest, and away we go. Perhaps deficit-based finance WAS the closest thing to a perpetual motion machine ever invented.

But it has its limits, and as you say it is meeting its limits in the shortage of limitless, cheap energy.

I often muse about what will be owned in future? What will be ownable by any individual person?

Perhaps the very notion of "owning" a million acres of rainforest as personal property will one day be considered outright insanity, on the basis that those million acres are vital machinery in a thousand human lives. It will be considered as crazy as saying you own two percent of those thousand people's noses.

Thank you for spelling out what I was writing in watercolors.

Frames exist within larger frames. Draw a larger frame around your opponent's frame; he will appear wrong or insufficient. This is how wizards play.

by Antifa (antifa@bellsouth.net) on Wed Jan 17th, 2007 at 02:27:48 PM EST
[ Parent ]
Owning a thousand bucks lets the lender loan out ten grand, at interest, and away we go.

no regulated bank can have a ratio anything like 10X. they have to maintain a liquidity reserve and also have assets on the books equal to most of the rest.  Ordinary banks cannot print money.  

If you hold to the gold bug theory that fractional reserve bank are somehow a fraud on the world, just how would you propose to have a 100% reserve bank work?  Just a vault service charging you fees to sit on your gold or other specie for you?  There isn't enough gold in the world to replace fiat money with.  Barter?

by HiD on Fri Jan 19th, 2007 at 07:21:56 AM EST
[ Parent ]
no regulated bank can have a ratio anything like 10X. they have to maintain a liquidity reserve and also have assets on the books equal to most of the rest.  Ordinary banks cannot print money.  

True--it is the Federal Reserve that does the printing.  As a bank, all I can do is borrow money from the Fed to loan out on an overpriced McMansion, which would show up as collateral to balance my books (hopelessly overvalued collateral, it is true) and actually, I would be in a tight spot for doing something so insanely stupid, except that I bundle the loan with others like it and sell it to a security company, which will resell it to some (sucker of an) investor,  and the money supply is now larger to the amount of one absurdly overpriced box of chip-board and chicken-wire.  

Which is what is meant by flooding, and yes it is a form of inflation, far more byzantine but essentially equivalent to firing up the printing presses.  

The Fates are kind.

by Gaianne on Fri Jan 19th, 2007 at 08:51:47 AM EST
[ Parent ]
what you describe may well be a terrible banking practice and will lead to a recession when the bubble in real estate pops.  But we still have 55% equity in our homes.  Far cry from 10X gold buggy hysteria.
by HiD on Fri Jan 19th, 2007 at 05:48:56 PM EST
[ Parent ]
but it makes more sense if we are thinking in terms of the multiplier effect (a standard concept of classical macroeconomics).  

The Fates are kind.
by Gaianne on Fri Jan 19th, 2007 at 10:35:54 PM EST
[ Parent ]
We have reached a tipping point IMHO when the Irresistible Force of Economic Growth mandated by the mathematics of compound interest on a deficit-based money supply is running up against the Immovable Object of the lack of availability of energy, and particularly liquid fuels, to sustain that growth.

I don't think anyone who believes in monetist capitalism has ever to my satisfaction countered this very obvious and simple proof of the inherent absurdity of compound interest.  Chris?

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Jan 18th, 2007 at 05:07:14 PM EST
[ Parent ]
Any system that maximizes a single variable will either crash or explode.  

Crash means collapse to zero.  

Explode means to grow at an accelerating rate without limit, which in physical systems is always impossible.  

So the two come to the same thing:  The system will self-destruct.  

Which surely is what our civilization is doing.  

The Fates are kind.

by Gaianne on Thu Jan 18th, 2007 at 09:31:55 PM EST
[ Parent ]
I joined ET after that discussion, but you are absolutely spot on.

No disrespect to Jerome, but for an environment conscious Banker, deficit-based money is the Elephant in the Room.

It's why I am spreading the word on:
(a) "asset-based" alternatives to secured debt, involving revenue-sharing through "Co-ownership"; and
(b) mutual guarantees of bilateral credit through the Guarantee Society/Clearing Union concept.

The former essentially allows "Money's worth" in property rentals, energy and so on to be created free of debt: the latter gets rid of interest for credit and replaces it with a provision which covers shared system admin costs and defaults.

These partnership-based mechanisms are I believe, optimal through the way they share risk and reward. If I am right, then they are capable of spreading "virally" and will eventually extinguish the ludicrous Bank-centric National Debts at the heart of our problem by replacing them for the most part with a "National Equity".


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jan 19th, 2007 at 04:38:07 AM EST
[ Parent ]
the fractional reserve system is already asset based.

I've yet to understand any major difference between our current system where governments guarantee our money (via the power to tax) and where banks issue debt secured by assets to your new paradigm.  

Lots of fancy words but no hard examples.  

by HiD on Fri Jan 19th, 2007 at 07:25:50 AM EST
[ Parent ]
It is "asset-based" to as minute a degree as Banks can get away with.

My thesis is that any Interest charged by Banks over and above their operating costs and default costs is de facto inflationary: and if it is not inflationary, then I would be interested to know why it is not.

But that is a side issue: IMHO Banks as credit intermdiaries are simply no longer necessary.

There are two elements to the financial system I advocate: not one.

The first is the "Capital Partnership" - and this is capable of replacing all secured loans.

A hard example? I point to a £350m property development deal about three years ago involving Hilton Group and a consortium of financier and developers. No debt, no rental from a sale and leaseback, but instead, a 27 year revenue-sharing agreement.

The difference - and it is a colossal difference - is that instead of a fixed return on capital, we are looking at one which varies with the performance of the asset.

I believe that introduction of the Capital Partnership will come about through its capability of providing a better Equity Release mousetrap than anything else out there.

The second element is the "Clearing Union" / Guarantee Society, and this essentially is capable of replacing un-secured Bank credit.

Businesses and individuals operating within a Guarantee Society extend each other interest-free credit.

But it is not COST free. A provision is made into a Default Fund and this covers the system admin costs and the costs of defaults.

In the paradigm I am describing Banks are no longer intermediaries but service providers:
(a) as investment banks - bringing together investors in "Capital Partnerships" with investments;
(b) as managers of the bilateral creation of trade credit (with settlement in "Money" or "Money's Worth of barter) within the Clearing Union/ Guarantee Society.

Credit intermediaries - like Central Counterparty Clearing Houses - are obsolete, as are all intermediaries in the age of the Internet.

Central Banks aren't necessary either - they never were - as Hong Kong demonstrates by doing without one, and having a Monetary Authority instead.

www.zopa.com is merely an early illustration of what's coming. There, lenders connect peer to peer with borrowers and Zopa takes a commission as service provider.

With "Open" Corporate legal protocols like the LLP or LLC we simply take that process of "Napsterisation" to its ultimate conclusion.

And by the way, Governments need have nothing whatever to do with it, since the "Clearing Union" I see coming (unlike the one proposed by Keynes at Bretton Woods) may evolve simply through linking local initiatives together in a network.

Which is what I'm out there doing,on a small scale, starting locally to bring in local investment in local productive assets on the one hand, and local mutualised interest-free credit on the other.  

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jan 19th, 2007 at 09:53:55 AM EST
[ Parent ]
first, if banking profit is inflationary isn't all profit inflationary?  If I sell a widget for anything beyond my cost of goods and labor aren't I in the same position?  Isn't the fee charged by ZOPA also inflationary?

Secondly, I have no problem with your thesis that banks are no longer necessary.  I suspect you are wrong, but that is not important.  However, "not necessary" is very different from "dangerous and leading to the collapse of the world as we know it" (to risk putting words in your mouth".

Third, thanks for the Hilton example.  However, I question how that structure really differs from setting up a corporation or trust, issuing shares and then divvying up the proceeds based on performance like any other REIT or corporation.  I don't have any problem with the structures you describe.  I just don't see any substantial difference (other than the eruv style  window dressing to please religious types).  

As for Hong Kong and central banking.  They have taken a candy ass approach and just linked themselves to the US Dollar like a limpet.  No real need for monetary policy when you use someone else's.  

The rest of your description all sounds very nice.  But I can't pierce the marketing to detect anything beyond a trust based network with no powerful regulator or risk guarantor that would protect my investment.  no bid.  I don't have time to vet every loan in the syndicate to decide if I wish to participate.  That's what I pay a bank to do by accepting a lower return.

by HiD on Fri Jan 19th, 2007 at 06:04:17 PM EST
[ Parent ]
I missed that thread back then... We should brng it back as a recommended diary... those of you that did not recommend it then, can you do it now?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Jan 19th, 2007 at 05:53:15 AM EST
[ Parent ]
Huh? It is already in the archive and it was frontpaged in its time...

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 06:24:04 AM EST
[ Parent ]
the inherent absurdity is that in order for your example to work, there must always be a borrower willing to pay interest.  there isn't.  As japan has proved, if you have more savings than needed for investing, you can have zero interest rates for a long, long time.

it's not like adding yeast to dough and standing back in a universe with an infinite supply of oxygen and flour.

by HiD on Fri Jan 19th, 2007 at 07:32:47 AM EST
[ Parent ]

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