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I need more explaination.

Let's take the wind turbine example...

In what currency is the investor paid? Does he get the right to use some kWh or is he paid money? Or does money even exist in your dream world? How do you handle, that a kWh at noon is more valuable than a kWh in the night? And how are investors in Japan paid, that don't have a access to the Scottish grid, and what about losses in the grid due to transportation? How do I pay my taxes on the return of investment?

In principle it is a good idea to have more equity like investments, rather than credit like investments. But now, if the wind turbine gets destroyed in an accident, those investors will lose their money, right? So you can't change the fact, that there is revenue, and there is a risk to this revenue. The bank sends Jerome to estimate the likelihood of all that risk and revenue and prices everything accordingly, bundles it, and I can have a simple checking account. I don't want to take risks on the money I use to buying rolls, that I don't understand.

And is your system really so much more stable? After all in the current situation, gov'ts can fall back to PRINTING money without any collateral. This isn't possible, when you have only utilisation.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Fri Feb 20th, 2009 at 08:12:20 PM EST
Of course the central banks money usually is NOT backed by land as collateral, but by the capability of the people to produce goods, because most CB money is build on gov't debt.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Fri Feb 20th, 2009 at 08:14:00 PM EST
[ Parent ]
What little Central Bank money that exists is backed by the government's power to levy and collect taxes.

CB money is not built on government debt; to all intents and purposes it is government debt:

The vast bulk of money in existence never went anywhere near a Central Bank. Over 60% of money in existence in the US and the UK was created as interest-bearing loans backed by mortgages over land.

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

by ChrisCook (cojockathotmaildotcom) on Fri Feb 20th, 2009 at 08:47:02 PM EST
[ Parent ]
Martin:
In what currency is the investor paid? Does he get the right to use some kWh or is he paid money? Or does money even exist in your dream world? How do you handle, that a kWh at noon is more valuable than a kWh in the night? And how are investors in Japan paid, that don't have a access to the Scottish grid, and what about losses in the grid due to transportation? How do I pay my taxes on the return of investment?

The investor is buying a financial asset, not unlike a share in an Exchange Traded Fund, or a Unit Trust. The difference is that this financial asset is redeemable for energy supplied.

The investor has the choice of selling the Unit at the market price for energy, or redeeming it against energy consumed. Japanese investors don't have much use for electricity in Scotland, and therefore have a sterling/yen currency risk. But what's new about that? They'd have a similar risk on anything they buy as an investment in Scotland.

As far as money and dream worlds go, I would say that it is perhaps you who inhabits what is increasingly becoming a nightmare world. Our system of Money as Debt is falling down around us: if you think there is a debt-based solution on the way, please point me to it.

Martin:

But now, if the wind turbine gets destroyed in an accident, those investors will lose their money, right? So you can't change the fact, that there is revenue, and there is a risk to this revenue. The bank sends Jerome to estimate the likelihood of all that risk and revenue and prices everything accordingly, bundles it, and I can have a simple checking account. I don't want to take risks on the money I use to buying rolls, that I don't understand.

I'm not talking about one wind turbine in isolation: that was merely an example of the fact that wind turbines are essentially "self funding". I am talking about the entire networked energy clearing system, incorporating cross border grids and other infrastructure.

As for the money you use to buy rolls, the pieces of paper you are accustomed to presenting in payment have no intrinsic value. It's a bit different if you present a redeemable Unit issued by the baker, though, isn't it?

Energy-based Units will only be a small part of value in circulation, but an important one because of their pretty much universal acceptability.

This is particularly the case for Units redeemable in (say) natural gas, which is IMHO capable of becoming both a pretty important global means of exchange and vehicle for investment during a period of transition to renewable energy.

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

by ChrisCook (cojockathotmaildotcom) on Fri Feb 20th, 2009 at 08:41:38 PM EST
[ Parent ]
Energy-based Units will only be a small part of value in circulation, but an important one because of their pretty much universal acceptability.

Well, I thought you mean this would be the only thing, so I simply didn't know what you mean.

Actually I don't think it will be universally accepted, because it is not so easy to redeem. For practical reasons, a gold standard would be easier with respect to that.

This is particularly the case for Units redeemable in (say) natural gas, which is IMHO capable of becoming both a pretty important global means of exchange and vehicle for investment during a period of transition to renewable energy.

This might make sense in a country, that has natural gas in its ground. But for a country, that imports most of its gas, that doesn't seem to be a very good idea, to have a currency redeemable in something that it has to buy, and that can't be easily stored.

As for the money you use to buy rolls, the pieces of paper you are accustomed to presenting in payment have no intrinsic value. It's a bit different if you present a redeemable Unit issued by the baker, though, isn't it?

Sure they have the same intrinsic value as a redeemable unit. The redeemability is dependent on the law enforcement by the gov't. My paper money is backed by gov't's debt, which is backed by the capability to produce stuff by the people living in my country. And even if somebody miraculously finds a way for cold fusion, this will still be something worth.

I'm not talking about one wind turbine in isolation: that was merely an example of the fact that wind turbines are essentially "self funding". I am talking about the entire networked energy clearing system, incorporating cross border grids and other infrastructure.

Well, but of course already now, there is the possibility to get credit for collaterised ownership in wind turbines. Where is the fundamental difference, if it is NOT to share risks between more people (Assuming that risk is zero, because there are so many wind mills collaterized, that accidents don't play a role)?

As far as money and dream worlds go, I would say that it is perhaps you who inhabits what is increasingly becoming a nightmare world. Our system of Money as Debt is falling down around us: if you think there is a debt-based solution on the way, please point me to it.
I have already given an answer. Just making non-debt based money to the rescue. Just printing net money, backed by nothing at all. Furthermore you describe an alternative world. It is not clear how to come from the current state, with lots of existing credit, to the alternative world, where credit plays a minor role. Somehow that has to be resolved. To create general inflation is not a nice way to do that, but a doable way.

The investor has the choice of selling the Unit at the market price for energy, or redeeming it against energy consumed. Japanese investors don't have much use for electricity in Scotland, and therefore have a sterling/yen currency risk. But what's new about that? They'd have a similar risk on anything they buy as an investment in Scotland.
So there ARE still sterlings. And what is now a sterling? Is this the old paper money running parallel, or is it something connected to this new form of financial asset? What is the market price of energy? I thought the currency than is pegged against energy.
And still, how do you pay taxes on your units, if this something different than sterlings, if you redeem the energy? This is not a trivial question. That is essentially what defines legal tender. Most local money projects et al. are simply tax fraud.

Unfortunately I still don't get the big picture, and what the role of your new financial idea in it is.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Fri Feb 20th, 2009 at 09:09:06 PM EST
[ Parent ]
Martin:

Well, I thought you mean this would be the only thing, so I simply didn't know what you mean.

Actually I don't think it will be universally accepted, because it is not so easy to redeem. For practical reasons, a gold standard would be easier with respect to that.

Is there a country you are aware of that does not use energy?

Gold is limited in quantity, of little practical use, and routinely manipulated.

Martin:

This might make sense in a country, that has natural gas in its ground. But for a country, that imports most of its gas, that doesn't seem to be a very good idea, to have a currency redeemable in something that it has to buy, and that can't be easily stored.

I advocate an International Energy Clearing Union, based upon an energy standard. Units redeemable in energy would be exchanged for other forms of value by reference to such an energy standard. Positive and negative balances will of course exist between nations. Energy imbalances will have to be dealt with within a coherent global energy market framework. I believe that not only is this possible but that such a system of global energy accounting is the only way in which carbon use can be addressed.

Martin:

Where is the fundamental difference,

The fundamental difference is that the cost of finance from a forward sale of production carries neither an interest cost nor a return on equity to rentier shareholders.

Martin:

It is not clear how to come from the current state, with lots of existing credit, to the alternative world, where credit plays a minor role. Somehow that has to be resolved.

Unitisation of land rental value is straightforwardly achievable now, with no need for any new laws, and such unitisation may replace secured debt.

Banks would gain from such a debt/equity swap of distressed debt because they would receive far more from the sale proceeds of Units than they ever could from a restructuring of debt.

This isn't an alternative world: it's a complementary world that could start working tomorrow.

Martin:

So there ARE still sterlings. And what is now a sterling? Is this the old paper money running parallel, or is it something connected to this new form of financial asset? What is the market price of energy? I thought the currency than is pegged against energy.
And still, how do you pay taxes on your units, if this something different than sterlings, if you redeem the energy? This is not a trivial question. That is essentially what defines legal tender. Most local money projects et al. are simply tax fraud.

Unfortunately I still don't get the big picture, and what the role of your new financial idea in it is.

I see energy as the basis of a new global common currency which will make the dollar redundant.

National currencies will remain, but I think may come to be re-based directly on land rental value through wholesale unitisation of property.

"Peer to Peer" credit clearing - as with the Swiss WIR - is what enables the circulation on credit terms of whatever forms of "Money's Worth" are acceptable between sellers and buyers.

As I have pointed out, billions of Swiss Franc's worth of goods and services change hands not for Swiss Francs, but by reference to Swiss Francs.

And as I understand it tax is payable in the normal way even though  "fiat" Swiss francs are not involved.

Naturally, if an entire economy went down this road, there would be no profit and therefore no tax on profit. That's not fraud - it's a consequence of a Peer to Peer" economy. The logic of such a P2P economy is of simple and inescapable levies on value transfers.

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

by ChrisCook (cojockathotmaildotcom) on Fri Feb 20th, 2009 at 10:01:49 PM EST
[ Parent ]
ChrisCook:
which will make the dollar redundant.

...in its role as a global reserve currency at least. It would still have a domestic role in the US.

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

by ChrisCook (cojockathotmaildotcom) on Fri Feb 20th, 2009 at 10:10:55 PM EST
[ Parent ]
I doubt the baker's redeemable unit is going to be worth much outside of a small geographic area - in the same way that Scotland's redeemable energy units won't be of interest in Japan.

This may be a minor problem when gas is in one place and people who need it are in another, while grain and rice are in a different area again.

Dollars and euros, ugly as they are, are truly universal. Dollars can be exchanged for real stuff almost anywhere on the planet.

But let's say I turn up with my redeemable gas unit in Africa. What use is it to anyone if it's part of a confusing economy of thousands or even millions of different possible units, each of which - presumably - can only be traded electronically?

You have to have a single core currency, or you have nothing. And that currency has to be in a physically tradeable form to make it accessible for the majority of the world's population who don't have access to electronic banking.

Everyone else needs access to a single currency pool. If I have a wide investment portfolio of redeemable units in different goods and services, I'm hardly going to be willing or able to trade in each individually every time I go the store to buy some lettuce or shoes.

If there are interfaces between units and everyday currency, parasitic speculation, arbitrage and bubbles become at least as inevitable as they are today.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 20th, 2009 at 10:07:17 PM EST
[ Parent ]
ThatBritGuy:

But let's say I turn up with my redeemable gas unit in Africa. What use is it to anyone if it's part of a confusing economy of thousands or even millions of different possible units, each of which - presumably - can only be traded electronically?

You have to have a single core currency, or you have nothing. And that currency has to be in a physically tradeable form to make it accessible for the majority of the world's population who don't have access to electronic banking.

Every nation needs liquid fuels, but most nations run a deficit in liquid fuels.

I am proposing an energy standard ( I call it the "Petro" for want of a better name) against which transactions in fuel (eg natural gas, gasoline, heating oil) and energy (eg electricity) may be priced.

The point is that Units redeemable in these fuels or in energy will have a constant price by reference to such an energy standard.

Such redeemable Units - if issued within a suitable global framework of trust - would be acceptable virtually anywhere the internal combustion engine is used, and could be priced by reference to an energy standard. So no Petros would change hands: fuel and electricity would be priced in Petros.

I see no reason why there could not be a global Energy Pool and Petro-denominated energy accounting system  (ie a shared energy Unit transaction and title respository) which would serve as a neutral and objective medium for international exchange.

ThatBritGuy:

And that currency has to be in a physically tradeable form to make it accessible for the majority of the world's population who don't have access to electronic banking.

There is no reason why an energy currency should not be in paper form as well. Bob Hahl - who has recently posted a couple of Diaries here - has actually done it in the US at his own expense to show it can work.

Kilo Watt Cards

 

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

by ChrisCook (cojockathotmaildotcom) on Fri Feb 20th, 2009 at 10:31:53 PM EST
[ Parent ]
Okay, so you've reinvented the gold standard, but tied it to hydrocarbon calories instead of giant piles of shiny stuff.

You're still not being consistent here. Firstly you've backtracked on the baker units. Secondly you're claiming that energy units and liquid fuel units will be interchangeable.

So will this currency be based on volumes of liquid fuel, or energy value of same?

Finally - what difference does this make? If I can go to a petrol station and buy petrol in pounds, there's no obvious advantage to using an alternative currency instead, even if it's petrol based.

Now - if the important feature of this is that energy resources will be held in trust, I'd like to know exactly how that's going to happen politically.

I certainly wouldn't argue with all global resources being held in trust, with access de-speculated and de-monopolised.

But that's a political problem. Currency is a footnote. OPEC is not, I think, going to be keen on handing over its primary assets - at least not without plausible threats of war.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Feb 21st, 2009 at 02:55:07 PM EST
[ Parent ]
ThatBritGuy:
Okay, so you've reinvented the gold standard, but tied it to hydrocarbon calories instead of giant piles of shiny stuff.

Energy is energy is energy. Calories are calories are calories. There's no "tie" involved, just a specification.

The "Petro" is not a "Value Unit" which changes hands, carbon-based or otherwise. It's a unit of measure of value.

An energy standard could be any amount of energy: its origin is immaterial to the function of measurement.

To specify a Petro as "the energy produced when burning 1 litre of n-octane at 20 deg C" means people can relate to it actual Value Units (a litre of gasoline, or heating oil) they understand, and give them a constant price expressed in the Petro.

We could equally define the Petro as the energy produced when x grams of such and such an isotope decays, but that is not as relevant to most people.

An analogy is with a metre as a unit of length. It's on  a human scale fine for many uses, but not for measuring the distance to Alpha Centauri or the dimension of an atom.

The key is to distinguish between Value Units of money's worth - which may be exchanged for other value - and the "Value Standard" by reference to which the exchange is made.

So a litre of Shell unleaded might always have an energy value in its use as fuel of 1 Petro. But that does not mean that litre is a Petro.

ThatBritGuy:

Firstly you've backtracked on the baker units.

In fact, baker units, butcher units, and candlestick maker units, cannot be the basis of generic currencies, since that would fragment the system as you point out. I merely used the example of baker units as an illustration that it is possible.

It has been done though...

Deli Dollars

I see the credit needed for the production and circulation of everyday goods and services as taking place within a "Credit Clearing Union".

The

WIR Bank

shows how it may be done, with the property backing of a charge over business property, in case of defaults.

I advocate the extension of the WIR concept more widely within a "Guarantee Society" framework.  Participants would make provisions into a default pool and backed up in a default situation by the capability of a defaulter to provide services to the community. ie the "backing" for credit would be hours of "unqualified" Labour.

ThatBritGuy:

Finally - what difference does this make? If I can go to a petrol station and buy petrol in pounds, there's no obvious advantage to using an alternative currency instead, even if it's petrol based.

Good point. Your ability to pay has nothing whatever to do with the currency you use in settlement.

The monetisation of energy is aimed both at providing a workable global "common currency" and at facilitating the transition from carbon-based energy to renewables.

If gasoline is 10 US cents per litre, as it is in Iran, then it gets phenomenally wasted - one day in Teheran is enough to appreciate that fact.

I am proposing that by adopting a "Petro" standard for their domestic and international energy sales they will be able to address the intractable issue of energy subsidies in a new way.  

Gasoline, heating oil and  natural gas prices would be brought up to international levels, and complete mayhem would be averted by issuing Energy Units - priced in Petros - equitably to all Iranians to a total amount equivalent to current consumption.

These would rapidly enter circulation, and would be acquired by those who need them with conventional fiat money (Reals) or otherwise (money's worth). There would be a powerful incentive to save energy, and a great many of the Units would not actually be redeemed, but would circulate instead.

New Iranian energy infrastructure, investment in energy efficiency, and in renewables, would be funded by selling Units redeemable in oil or natural gas, priced by reference to Petros. Rather than making loans secured against the sale price of future production, they would receive an interest-free loan for as long as the Unit remained unredeemed.

ThatBritGuy:

Now - if the important feature of this is that energy resources will be held in trust, I'd like to know exactly how that's going to happen politically.

For domestic transactions governments would be the "Custodian".

For international transactions then a generally acceptable  "Custodian" entity - probably Swiss - would be necessary. I am proposing just that in relation to a "Caspian Master Partnership" and a Global Gas Partnership"

ThatBritGuy:

But that's a political problem. Currency is a footnote. OPEC is not, I think, going to be keen on handing over its primary assets - at least not without plausible threats of war.

I have learnt the hard way that the vested interests of the oil market make it impracticable as a starting point.

This is why I propose the global market in natural gas as the best place to start.

(a) gas is homogeneous in a way that oil  - with its myriad qualities and types - is not;

(b) Iran, Qatar and Russia have around two thirds of all reserves, and could therefore credibly lead an initiative;

(c) there is no conventional (spot and derivatives) market in gas due to the constraints of long term infrastructure financing.

The mechanism I have in mind would revolutionise the financing of gas infrastructure, and create the basis of an "International Energy Clearing Union".

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

by ChrisCook (cojockathotmaildotcom) on Sat Feb 21st, 2009 at 04:32:38 PM EST
[ Parent ]
ChrisCook:
So a litre of Shell unleaded might always have an energy value in its use as fuel of 1 Petro. But that does not mean that litre is a Petro.

Indeed not. But you then have the interesting situation where a litre of fuel costs more or less than a litre of fuel.

It's possible some people may find this less than intuitive.

Deli Dollars

...are a different issue. My criticism was that you can't use local currencies universally, and that still stands.

That doesn't mean local currencies are bad or impractical. As always, the problems are political - the ability to create a workable currency is politically rationed.

This idea might work as a one off, but the difference between this scheme and a loan is that buyers are gambling - on the basis of a personal relationship - that they'll get their value back. In the real world some bakers would be able to do this, but some wouldn't, and the value would disappear.

What's different here isn't the structure of the currency, it's the personal and social accountability which it creates. A small business owner who has to personally apologise to customers why he (or she) can't make good on an implicit promise is going to have an interesting time starting another business in the same area.

Personal and social accountability would do more to revolutionise finance than new currency schemes will. The current system is designed to minimise personal accountability. If the CEO of FailBank drives it into the ground, he's not accountable to anyone except his peers at the country club. Governments have been supine and accomodating, so don't expect action there, except perhaps a show trial for an unlucky few.

Customers and victims have no legal, political or social recourse at all. Any alternative form of finance has to change that explicitly.

ChrisCook:

For international transactions then a generally acceptable  "Custodian" entity - probably Swiss - would be necessary. I am proposing just that in relation to a "Caspian Master Partnership" and a Global Gas Partnership"

Why Swiss?

Okay - proposing one particular solution for one particular problem is very different to making the entire world economy make sense again.

What's interesting about the current system is that even though it's as stable as a levitating anvil, it's self-consistent across every level of transaction. Wall St gets rich, everyone else gets screwed, and everyone knows what the rules are.

So far you've proposed a patchwork of solutions which don't necessarily scale - from DeliDollars to Petros to pipelines.

Any system needs to be more integrated than this. And it has to be based on personal and social accountability.

Custodianship won't necessarily fix that.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Feb 22nd, 2009 at 08:13:57 AM EST
[ Parent ]
ThatBritGuy:
So far you've proposed a patchwork of solutions which don't necessarily scale - from DeliDollars to Petros to pipelines.

Well, drilling down into detail in each aspect might give that impression, certainly in the course of answering numerous questions from different perspectives. But I believe I have now developed the basis of a pretty coherent and comprehensive political economy, thanks in no small part to the rigorous examination on this site.

I am proposing as the basis of a political economy a generic partnership-based framework.

This could be seen as a network of clearing networks, based upon shared transaction and title repositories. A myriad types of value (aka "money's worth") will circulate locally, nationally, regionally and globally, but the Value Standards enabling and acting as a reference for this circulation are few.

Firstly, unitised energy value gives us the means for international exchange exactly analogous to Keynes' International Clearing Union and Bancor. The difference is that it would be a globally decentralised WIR style credit clearing union, with a Petro value standard. It would not be the top down centralised authority Keynes envisaged issuing IOU credit objects the value of which derives only from political fiat.

ie an energy standard would form the basis of global trade. Natural gas is a market where this could start.

Secondly, land rental value gives us the means for national exchange. ie units of land rental value would form the basis of geographically bounded trade. Fixing the property credit crunch through unitisation could kick this off.

Finally, "Guarantee Society" agreements give us frameworks of trust which allow us to introduce and exchange the value created by individuals, whether as sole traders or collectively within enterprises. Introducing WIR clones at local level could kick this mutual credit off tomorrow. After all the WIR itself was a response by Swiss businesses to the Depression.

So in summary, energy value, location value, and intellectual value would be the key "fungible" money's worth in circulation.

"Community Partnership" agreements would incorporate both direct investments in local assets in common custody (enabling Community Investment), and also the collective "Peer" guarantee which enables community credit.

I see such linked consensual agreements as enabling all of the functions currently carried out by governments.

Community Partnerships would not be institutions or organisations of government. They are frameworks for self government and self organisation to a common purpose.

solveig tells me I've done enough detailed explanation - it's time to write the book... :-)

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 09:15:54 AM EST
[ Parent ]

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