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LQD - China grumbling about the dollar

by Metatone Mon Oct 27th, 2008 at 04:21:17 AM EST

Rumours and counter-rumours abound about the Chinese feelings on the dollar:

naked capitalism: China Launches Salvo Against Dollar Hegemony (Updated)

We have seen reports on various China-focused blogs and even in the US media that China is increasingly chafing over the US dominance in financial affairs, and is particularly unhappy about the role of the dollar.

A Lazy Quote Diary that serves its purpose: setting off a good discussion - afew


A commentary in the People's Daily:

naked capitalism: China Launches Salvo Against Dollar Hegemony (Updated)

The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.

Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.

"The grim reality has led people, amidst the panic, to realise that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.

Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.

"The U.S. dollar is losing people's confidence. The world, acting democratically and lawfully through a global financial organisation, urgently needs to change the international monetary system based on U.S. global economic leadership and U.S. dollar dominance," he wrote.

Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.

But then some different signals have been sent:

naked capitalism: China Launches Salvo Against Dollar Hegemony (Updated)

Update 11:20 PM: Reader Chris sent us a link to a report from Jiji which put a different spin on the dollars. Note the emphasis on dollar decline. The dollar fell 3% versus the yen yesterday, and only 0.1% against the RMB.
Leaders of Japan and China agreed Friday that the two countries will cooperate to stem the dollar's further plunge and overcome the U.S.-originated global financial crisis.
Japanese Prime Minister Taro Aso, in separate meetings with Chinese President Hu Jintao and Chinese Premier Wen Jiabao, confirmed that the two nations will strive to maintain the current monetary system with the U.S. dollar playing the role of the world's key currency.

Aso told Hu that the further deepening of the current financial crisis would undermine national interests of the two countries. Aso stressed that world countries must take their respective measures to stabilize their financial systems.

Hu replied that countries must cooperate in dealing with the current crisis including in an emergency summit of the Group of 20 countries in Washington next month, which will be joined by the two countries.

After meeting with Hu and Wen, Aso told reporters that Japan and China are not hoping for a further plunge in the dollar and a meltdown of the dollar-based currency regime, adding the two countries should contribute to maintaining the currency regime.

Display:
I am totally confused about why investors of the world are rushing to the US dollar; like a parcel of crapulous drunkards on a Sunday morning, waiting for the bar to open.

It seems to me that this would be an excellent time for the Chinese to make their move, and sell off their dollars. Most other currencies go not where to go by up, eventually. Meanwhile, the Chinese could rebalance their foreign exchange portfolio and have a world of panic-stricken fools pay the cost.

Since this is apparently not happening, I must be missing something. But someone please explain to me why US$ are treated like diamond-encrusted gold bricks stuffed with platinum served with an incredibly generous sauce of light sweet crude? Are the underlying assets not depreciating like mad?

by PIGL (stevec@boreal.gmail@com) on Sat Oct 25th, 2008 at 09:35:40 PM EST
PIGL: It seems to me that this would be an excellent time for the Chinese to make their move, and sell off their dollars. Most other currencies go not where to go by up, eventually. Meanwhile, the Chinese could rebalance their foreign exchange portfolio and have a world of panic-stricken fools pay the cost.

My understanding of the conventional wisdom is that if China started to sell off their dollars, a world of panic-stricken fools would join in the stampede, and the value of the dollar would collapse in a flash -- instantly turning hundreds of billions of $U.S. held by the Chinese and Japanese worthless.

However, that was assuming world economic and financial conditions were "normal".

Now that everything is turning upside-down, who knows if a Chinese sell-off would provoke the same reaction?

... someone please explain to me why US$ are treated like diamond-encrusted gold bricks stuffed with platinum served with an incredibly generous sauce of light sweet crude? Are the underlying assets not depreciating like mad?

I had the exact same question.  Here is one explanation:


... Since the US is a single sovereign nation, as opposed to the often-fragile federation of competing sovereignties that is the European Union, foreign investors still have more confidence in US Treasuries than other government bonds.  So as toxic US mortgage debt started to bludgeon European banks and markets, European bond investors rushed to exit this hazardous realm.  They parked their capital in short-term US Treasury bills. <...>

The more intense the financial panic grew, the greater the deluge of flight capital desperately seeking the safety of short-term US Treasuries.  For American investors, this was easy.  But foreign investors selling their local bonds for local currencies couldn't buy T-bills directly.  After selling their bonds, they first had to convert the proceeds into US dollars to enter the Treasury market.  This drove the unbelievable US dollar demand responsible for its huge spike.

The US Dollar Index is traders' favorite proxy for the US dollar's relative price among major world currencies.  And it is dominated by Europe.  The euro alone accounts for 57.6% of this index's total weight, and the UK, Sweden, and Switzerland add another 19.7% on top of this.  So a whopping 77.3% of the dollar's behavior, as reckoned by the USDX, is driven by Europe.

European financial stocks, and hence stock markets, were hit hard in recent months by the growing problems with mortgage-backed debt.  Many analysts believe that European banks' exposure to bad mortgage debt (both US and European) is much worse systemically than US banks' exposure, which is rather ironic since the sub-prime mess originated in the States.  So European investors aggressively liquidated European bonds and stocks and sought a temporary safe haven to weather this storm. ...

And naturally, if other countries see Europeans fleeing their own currencies on such a scale, they certainly are not going to start buying pounds and euros themselves.

Nevertheless, there is also this to consider:

The buck gets a boost amid global turmoil - Los Angeles Times

What's more, many global investors used borrowed money to boost their portfolio bets in recent years. Those loans are being called in by lenders, or pared back by choice. If the debt was denominated in dollars (and much of it was), the result is a "short squeeze" -- a rush to find dollars to repay what was borrowed in the currency.

"A lot of this is deleveraging," says Sophia Drossos, a currency strategist at Morgan Stanley in New York. "People are selling assets and paying back the loans they used to buy them."

But,

Once the deleveraging process is complete, that segment of demand for dollars should ebb. And in theory, low U.S. interest rates eventually should reduce the appeal of Treasury securities.


Truth unfolds in time through a communal process.
by marco on Sat Oct 25th, 2008 at 11:31:54 PM EST
[ Parent ]
Thanks for this, Marco.

I guess the Chinese have decided to stick with $$$ because: if they wanted to diversify, this would have been a good time, what with the huge demand. Could they not have sold into this sellers market, thus acquiring non-US assets on favourable terms? Under the circumstances it seems there would be no danger of triggering a collapse in the dollar because of all upwards pressure.

I mean if I were them, I'd be tempted to sell some of my $$$ for the Europeans. Then I'd take half of my Euros and Swiss francs and buy Brazil, maybe parts of India, South Africa, and the Ukraine, all at bargain prices.

As they don't seem to be doing this, either:

1)the Chinese are not really pursuing a rational long-term strategy as someone suggests below, or;

2)they are bullish on the dollar, long term, or;

3)they feel huge $$$ reserves confer some valuable strategic influence on the US, sort of like a nuclear-free MAD.

by PIGL (stevec@boreal.gmail@com) on Sun Oct 26th, 2008 at 09:54:18 AM EST
[ Parent ]
As maestro Greenspan noted last week, you can't rely of "self-interest strategies" anymore :-]
by das monde on Mon Oct 27th, 2008 at 06:28:43 AM EST
[ Parent ]
i saw a chinese official, an ex-ambassador to a western country for 15 years, speaking the other day on the doha debates, (an excellent bbc show btw), i found his attitude disarmingly pacific and pragmatic.

the gist of it was that china is completely devoid of imperial or militaristic expansion fantasies, and while i added the rquisite shovel of salt, he really did get to me with the almost-ingenuous, conciliatory tone he used-

friends with everyone...

so if that's true, maybe they know what a godawful splat the us economy would go through if they pulled the plug, and they genuinely don't want to be responsible for that, even if on predator-capitalism grounds, it's be a sane (!) thing to do. i'm guessing it's not kumbaya that's moving them this way, or even some asiatic beliefs about karma or compassion, just a cautious, don't rock the boat too much approach, that i decided to (possibly naively) take at face value.

they want an orderly transition to a new world (chinese-style) order, for sure, but i give them a lot of credit, if they are wise enough to know that great changes can evolve without brutality, providing people put aside the 'killer instinct' so redolent of present day neolib, 'fuck you' capitalism.

they don't want to stomp on anyone's grave, iow.

i know, completely irrational, even socialistic.

i sure wish they had such an evolved attitude with tibet.

my 2 rembibis

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Oct 26th, 2008 at 11:49:46 AM EST
[ Parent ]
China can't stomp on the U.S. graveyard without sinking it's own ship. Colorful language,right?
by Quentin on Mon Oct 27th, 2008 at 11:17:49 AM EST
[ Parent ]
Right! As someone said, the only good metaphor is a mixed metaphor!

You betcha! :-)

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Mon Oct 27th, 2008 at 12:26:40 PM EST
[ Parent ]
It seems to me that this would be an excellent time for the Chinese to make their move, and sell off their dollars. Most other currencies go not where to go by up, eventually. Meanwhile, the Chinese could rebalance their foreign exchange portfolio and have a world of panic-stricken fools pay the cost.

Conventional Wisdom around here seems to be that the Chinese consider their forex reserves the tail, and their trade and exchange rate policies are the dog. And if that's the case, they should be buying up even more dollars as the dollar drops.

Unless, of course, they change their trade and exchange rate policies, in which case the dollar Goes Boom.

(Which incidentally highlights one of the advantages of being a government, not a corporation: You can do stuff that doesn't make narrow profit-sense in pursuit of wider policy objectives.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 26th, 2008 at 03:52:57 AM EST
[ Parent ]
eggs-actly, jake.

they aren't going for the jugular, the no-holds-barred, winner-takes-all, devil-take-the-hindmost way.

it's doing what's needed, not the killer ace shot that destroys your opponent-

it's complementary, not antagonistic-

they're humouring our cranky old machine, seeing as it's breaking under the weight of its own dishonesty.

we're so trapped in this mindset of sports games reports: 'the rams slaughtered the jets, the hooglies annihilated the wooglies, the dodgers pounded the bodgers etc', big attachment to win-lose model.

velly foolish policy...we won't kick you when you're already down and squirming... we sympathise...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Oct 26th, 2008 at 11:59:54 AM EST
[ Parent ]
I wouldn't trust Chinese benevolence - that's historically A Bad Idea when you're dealing with powerful countries. But it just so happens that right now their idea of what serves the interests that the people running the PRC are interested in serving appears to not involve crashing the dollar.

There can be a variety of reasons for that, ranging from benevolence, over fear of what kind of mischief the US might get into if they go Weimar and have a clear idea of who pulled the plug on their economy, to a cynical appraisal that it is in their best interest to prop up the dollar for a little while longer.

If I had to bet, I'd put my beer on a combination of those three, but anybody who claims to know precisely what the Chinese leadership is thinking is probably blowing smoke.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 26th, 2008 at 02:38:04 PM EST
[ Parent ]
... DOING, so working out the thinking behind actions we are guessing at is doubly impossible.

That is, they could be letting the peg ride.

They could be sliding down the composition of the dollar in the currency peg they are using, but shifting the peg around to mask that fact.

Heck, if the Yen was going up and the Euro going down against the dollar, they could be sliding the composition of the dollar in the peg down but masking that by the amount of additional Euros and Yen in their basket.

In the face of the various currencies that could be in their basket-peg moving around different ways, its entirely obscure exactly what exchange rate policy they are pursuing. That is the point of the currency-basket peg, after all.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 26th, 2008 at 09:48:39 PM EST
[ Parent ]
We could do a factor analysis on a series of exchange rates to try to estimate what they're most likely to be doing...

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Oct 27th, 2008 at 04:02:50 AM EST
[ Parent ]
Sounds like a worthy thing to try to do...
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Oct 27th, 2008 at 04:15:03 AM EST
[ Parent ]
Which works until they change tack ...

... sooner or later it becomes clear where the peg stands, but it takes time and different currencies moving in different directions against each other for a picture to emerge, unlike a conventional peg where you know immediately after a change that a change in policy has happened.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Oct 27th, 2008 at 06:58:34 AM EST
[ Parent ]
China can hide their activities within the currency market by the judicious use of direct swaps/sales/buys,  swaps/sales/buys in the spot markets, or use the Futures Markets and all the neat little tricks that can be done there, or a combination of all the above.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Mon Oct 27th, 2008 at 12:01:17 PM EST
[ Parent ]
Well, we do know that they're not actively trying to crash the dollar. Because if they were actively trying to crash the dollar, the dollar would have Gone Boom already.

Of course, that still leaves quite a wide array of options for them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 29th, 2008 at 12:15:19 PM EST
[ Parent ]
JakeS:
a cynical appraisal that it is in their best interest to prop up the dollar

I think this aspect might play a pretty significant role. Much of China's "growth" and "prosperity" has been linked (via Walmart) to the US asset bubble, so the wind-down is going to impact Chinese jobs accordingly (or: the US jobs that got offshored over the last 20 years are about to turn into massive offshored layoffs). In all their considerations, I would imagine that the Chinese leadership is estimating how much discontent they can deal with and calibrating their financial policy accordingly.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Mon Oct 27th, 2008 at 05:48:47 AM EST
[ Parent ]
When Model Building don't forget to add two important factors:

  1.  The Chinese need to purchase food in the World Markets - especially protein

  2.  The Chinese, outside of the Pacific Rim Economic Zones, aren't all that prosperous


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Mon Oct 27th, 2008 at 12:08:02 PM EST
[ Parent ]
Add to the list that China needs to purchase oil and gas on the world market and that these commodities are currently denominated in dollars.  China has at least as much incentive as the US to pursue renewable energy from a national account basis alone.  They have an even greater need to pursue renewables from an environmental view point.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 27th, 2008 at 12:44:42 PM EST
[ Parent ]
PIGL:
I am totally confused about why investors of the world are rushing to the US dollar; like a parcel of crapulous drunkards on a Sunday morning, waiting for the bar to open.

My understanding is that this is a consequence of "deleveraging", particularly by hedge funds.

If you are paying off debts denominated in dollars, then you have to have dollars to pay them off with.....

This does nothing to underpin the true worth of the dollar, where your appraisal of its actual value is correct.

The problem the Chinese - and everyone else with lots of dollars - faces is that if they sell the dollar, what do they buy....?

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 26th, 2008 at 05:45:06 AM EST
[ Parent ]
Thanks for this, ChrisCook: the buying dollars to de-leverage explanation seems to make sense, so far as I can tell. Can we formulate a prediction on that basis? What should happen after the deleveraging is complete? A slow decline in the dollar, or inflation in the US?

My remarks about China are upthread and "what should they do instead" are upthread.

by PIGL (stevec@boreal.gmail@com) on Sun Oct 26th, 2008 at 09:41:49 AM EST
[ Parent ]
Either a slow or rapid decline of the dollar against both Yen and Euros would be a prediction, since deleveraging implies that interest-income inflows into the US will decline in the out years ... which is to say that going forward they will be heading south, so going forward prices in the US will be heading north.



I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 26th, 2008 at 09:53:15 PM EST
[ Parent ]
buying Euros?

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Sun Oct 26th, 2008 at 09:50:24 AM EST
[ Parent ]
Isn't the dollar strength right now a sign of great weakness, ie caused by wholesale liquidation of foreign assets to pay for dollar denominated debt?

Which means that, as soon as the unwinding is over, the movement will go the other way round (that may take a while,... or not). In the meantime, someone is buying (domestic) assets at dropping prices from the Anglo pension funds, and is having its dollar debts serviced at a good rate. This looks like the creditors winning, not losing...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Oct 26th, 2008 at 01:43:41 PM EST
[ Parent ]
... "weakness" of the € in the early naughties ... driven in part by Eurozone domiciled corporations buying up operations formerly owned by US-domiciled corporations ... a short term capital outflow that extinguished ongoing current account outflows.

These are capital account inflows that are extinguishing ongoing current account inflows.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 26th, 2008 at 02:21:24 PM EST
[ Parent ]
I understood the rising dollar to be a purely technical result of the credit crunch; ie., that entities who needed dollars were no longer able to borrow them because no one was lending, and thus, had to buy the dollars creating a technical demand.
This is expected to end and the dollar should resume its fall. That's not a prediction. it's folly to predict the foreign exchange market.

Hey, Grandma Moses started late!
by LEP on Sun Oct 26th, 2008 at 06:02:31 PM EST
[ Parent ]
... the first question is not, what are they seeing looking ahead, but what do they have to cover right now.

That is, people are unwinding positions, and dollars are required as part of the process.

The ¥/$ carry trade is also winding up, with the interest rate differentials that made it pay drying up.

There is also the nagging worry whether the Eurozone can cope with such a big Panic.

For the Chinese central bank, they are not running a hedge fund, they are managing foreign exchange rate policy. A massive sell-off of US$ denominated assets would undermine their peg.

Of course, with their basket-peg, its hard to tell what they are doing, whether the yuan/renminbi is just moving on the existing peg and existing composition of currencies in the basket, or they are shifting the composition of currencies, or shifting the peg, or both. Indeed, they could be reducing the composition of US$ while shifting the peg to cover the action ... the point of a basket-peg is to allow exchange rate policy to be shifted incrementally without causing shock-waves in foreign exchange markets.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 26th, 2008 at 02:16:38 PM EST
[ Parent ]
The PRC needs to manage and keep dollars to purchase commodities in the spot and futures markets.  99% of these dollars are in the form of M3 - call it - and the only chance of finding a place to 'park' the bucks is in dollar-denominated instruments.  

In a very real sense, the Chinese are trapped by their entanglement in the US economy and, until another Currency-of-Choice for the international trade and commodity markets is selected, they are trapped by the global entanglement with the US dollar.

They may be able to get themselves out of the first by their own efforts but not the latter.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Oct 27th, 2008 at 12:20:15 PM EST
[ Parent ]
If the US goes belly up, what about all those nukes in the hands of a desperate Pentagon?

Also, I still think the Chinese should exchange worthless paper for ownership of US real estate.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sun Oct 26th, 2008 at 07:47:44 AM EST
... for first refusals on wind-power installations in the Dakotas.

As long as they are not entering into foreign exchange markets with the US$, it would not cause any problems for their peg.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 26th, 2008 at 02:18:17 PM EST
[ Parent ]
Better yet, as the US is rapidly developing substantial windmill manufacturing capability which would be sold in US $s, they could buy these for a good while.  Install them their selves and figure out how to make similar devices themselves.  Same for anything we make that they need.  That would be recycling them WallMart $s.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 27th, 2008 at 01:46:15 AM EST
[ Parent ]
Above, Chris asks:

ChrisCook:

if they sell the dollar, what do they buy....?

In this subthread there are three propositions: real estate, energy, information.

What can we make of that?

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Oct 27th, 2008 at 04:44:29 AM EST
[ Parent ]
A very astute observation afew and not one that had occurred to me. I think the reason is that all three have a "use value".

It points the way to the architecture of a new system which replaces debt secured over such assets with new forms of equity through a process of "unitisation" as an alternative to unsustainable secured debt.

The big one is land. Land rentals back about 70% of money created. Unitisation of land would create new land based currencies with purely domestic/ national application.

Energy is the obvious choice for a global reserve currency and I refer explicitly to unitisation of energy as a possible outcome within the global gas

Market 3.0

architecture I've sketched for the Iranians. Hopefully they will table this at forthcoming

Gas OPEC

meetings.

ie Unitisation of natural gas as the basis of a global gas market and the possible of evolution of a "carbon dollar" as a neutral and objective generic value unit.

Finally, there is the "unitisation" of knowledge.

A return on Knowledge (Intellectual Capital) and on other valuable Intellectual Property (music,video) is what constitutes an increasingly large part of most Corporations' revenue stream these days.

ie Knowledge is increasingly being unitised in the form of shares in Corporations. And there are numerous examples eg Microsoft of massive Corporations built on nothing else other than the use value of Intellectual property. Note here that the value of unitised knowledge and other IP is more subjective.

I believe that the reason LLP's and LLC's are emerging as enterprise models is simply that they work better than Corporations, which will therefore wither on the vine.

All three of these, Land, Energy and Knowledge are "Commons" and I think that a reasonable tax system would abolish all taxes on earned income and replace them with taxes on the privilege of exclusive rights over such Commons.

Indeed, at a conference where I was speaking at yesterday, there was an interesting presentation on

Systemic Fiscal Reform

I agree with much of this, but I don't think they have maybe quite got to the bottom of the rationale for it, and they do not address the subjects of the privilege of property rights over Creative Commons and the privilege of Limited Liability which come together in the "Corporation".

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

by ChrisCook (cojockathotmaildotcom) on Mon Oct 27th, 2008 at 05:44:01 AM EST
[ Parent ]
Chris  - there really is a book in there that needs to be written. A kind of 'new economic theory of everything'. And a TV series!

You can't be me, I'm taken
by Sven Triloqvist on Mon Oct 27th, 2008 at 09:05:07 AM EST
[ Parent ]
Finally, there is the "unitisation" of knowledge.

If you would, clarify your usage of "unitisation". I understand your modeling with respect to real (tangible) capital, generally, and am unconvinced by the premise of knowledge "commons."

Commodification and pricing of knowledge are the fundament of society and its institutions. Including marriage. Yes, that is a deliberately grandiose conclusion.

Commercialization of knowledge is a "share in a corporation" in as much as any token --a license whether of trade, patent, or to software rent, for example-- ever "unitises" a generalized apprehension of specialized knowledge.

Developments in technology, tax identity for example, do not necessarily predicate common knowledge or a  general utility. The internet, usages and contents, is not an exemplary model of knowledge "commons;" it is a description of knowledge.

Diversity is the key to economic and political evolution.

by Cat on Mon Oct 27th, 2008 at 12:17:31 PM EST
[ Parent ]
Unitisation is the creation within a legal framework - eg a Company, a Trust or a quasi-Partnership (UK LLP, US LLC) - of Units which are redeemable against Money's Worth (as opposed to conventional Money).

So a electricity producer may sell Units of electricity which are redeemable in (say) 10 Kilo Watt Hour chunks.

Any of his customers will be able to pay for electricity in conventional money, or alternatively may redeem Units he has bought, either from the issuer, or on an open market in Units.

For a Producer a forward sale is an interest free loan - but if the price of energy goes above the price at which they sold, then he "loses" the excess.

For an investor it's a straightforward investment in energy which is very similar to an ETF invested in energy.

The difference is that currently ETF's invested in energy will probably be invested in futures and would be hit with the cost of rolling over futures positions every month. Also such ETF's are typically "geared" investments, and hence not for widows and orphans.

With Units, if gearing is needed, then the buyer may simply borrow to buy them.

For a consumer it's a chance to lock in or "hedge" energy prices.

I believe that a partnership structure beats Companies and Trusts because, unlike either, it aligns the interests of management with those of other stakeholders, and is an order of magnitude simpler to document.

Re knowledge, I am proposing a model that is a hybrid of Closed = Proprietary and Open.

The Intellectual Property is kept in the hands of a Custodian, and the revenues - if there are any - are shared proportionally between the creator and the financier within the framework of an LLC or LLP agreement.

A partnership model is both Open and Closed.

It is Closed in that only members of the Partnership may use the IP: but it is Open in that anyone who consents to the agreement may be a Member.

Essentially I am proposing an entirely new form of property right of indefinite duration.

If you haven't read it you might be interested in the paper I presented to the University of Lancaster's Institutue of Advanced Studies...

Knowledge based value and Intellectual Property

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

by ChrisCook (cojockathotmaildotcom) on Mon Oct 27th, 2008 at 01:38:30 PM EST
[ Parent ]
Pricing a knowledge management solution is the title of my dissertation :). I asked you once before if you wanted to read it. I'm not going to put it online though.

Re knowledge, I am proposing a model that is a hybrid of Closed = Proprietary and Open.

Intellectual property is intangible. A body of literature discusses typologies of "knowledge," or intellectual properties. Some types are formalized, or documented, so to be reproduced reliably. Some types are not. In any case, intellectual property is peforce proprietary, since individual realization is synonomous with ownership.

Your interest is appropriating individual or collective intellect. This problem has been studied for centuries and solved to the extent the IP is appropriable, formalized, and reliably reproduced. If the IP cannot be formalized, it cannot be "unitised".

The earliest instance perhalps is the institution, a market for, chattel slavery. Seriously: "creation within a legal framework of Units which are redeemable against Money's Worth." Equally profound unitisation is monasticism. Today, "Web 2.0" social networking and "Wikinomics" are methods of appropriating and harvesting IP. Tapscott and the Goldcorp Challenge (2000) is a hilarious example; The $575 prize returned $9B (Open/Closed?) And Google does this every quarter (Closed/Open?), harvest redeemable units (PPC).

The Intellectual Property is kept in the hands of a Custodian, and the revenues - if there are any - are shared proportionally between the creator and the financier within the framework of an LLC or LLP agreement.

What is the intellectual property? When we determine the type of formalized IP, we are able to identify a "custodian," if this is not also the creator. Down the ages the types of custodians to which a creator voluntarily or involuntarily entrusts IP are many. Process such as literacy and numeracy are IP. Music composition is IP. Mechanical designs, broadcast news, and trade relationships are IP, and so on.

You have not articulated either a business case or necessity for a particular type of "partnership" in marketing or distributing IP. Let's think of an example of a trust which should but does not unitise IP. The Vatican? hmmm ...

A partnership model is both Open and Closed.
It is Closed in that only members of the Partnership may use the IP: but it is Open in that anyone who consents to the agreement may be a Member.

"Open and Closed" partnerships and their permutations is a restatement of present IP "unitised" conditions. One patronizes a library. Another attends public school. One pays dues to a "center of excellence," to a film. Another subscribes to a knitting circle. Further, the "boutique LLC" distributes free IP and paid IP from a collection.

Diversity is the key to economic and political evolution.

by Cat on Mon Oct 27th, 2008 at 06:08:42 PM EST
[ Parent ]
MarketTrustee:
What is the intellectual property?

Well, as I say in my paper, Property is in fact a relationship, not an object.

What I am proposing is essentially to encapsulate the property relationship within a partnership based legal framework, and for the various rights to be shared as may be agreed between the stakeholders.

An Open Corporate LLP or LLC doesn't actually "own" anything: the custodian nominally owns the asset,and has certain veto rights (eg moral rights ) over it.

What I am describing is a mechanism that permits a "Common Source" hybrid between proprietary and Open Source, neither of which works particularly well.

The other stakeholders agree who has rights of use and what they give in exchange for it.

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

by ChrisCook (cojockathotmaildotcom) on Mon Oct 27th, 2008 at 06:54:25 PM EST
[ Parent ]
Property is in fact a relationship, not an object

OK. "Property" is one expression of a relationship of one object to an object. A possessive pronoun such as "mine, hers, theirs" and soforth. These words are in fact subjective declarations of exclusivity to the objective world.

If you want to be all philosophical --rather than practical-- about your business case. (NB. ARGeezer's allusion below to lawful idiom "ownership", generally, and a principle of capitalist doctrine, specifically: enforceability of private ownership.)

And what is business? Another type of "relationship," exchange, or transfer, of any thing, an act which may or may not occur. The thing may or may not be tangible (physical) as I mentioned above.

What I am proposing is essentially to encapsulate the property relationship within a partnership based legal framework, and for the various rights to be shared as may be agreed between the stakeholders.

I understand. You repeat. I demonstrate myriad instances of commercial, legal, extralegal, formal, informal, tacit, and explicit relationships of, or the scope business ethics to, "intellectual property." The reality is: unlike objects of finite quantity and productive capacity, human intellect is infinite and inalienable. A more significant characteristic, its use-value and "Money's worth" is indeterminant.

So the historical, administrative problem of the capitalist (feudalist, industrialist, etc) has been, how to appropriate, if not a person, an intellectual process --thinking, in the first place-- then to prevent externalities in order to extract transaction "value." Patent laws exemplify the internal contradiction of a theory of intellectual property which depends on voluntary bounded rationality. Not tax identity.

It matters not a whit how many persons claim ownership or "stakeholder" rights to an intellectual property (or relationship if you insist), "knowledge base," or blog, when those rights are unenforceable at either point of production or point of "sale."

The status of the ET LLC project is a case in point.

I will now read your paper, keeping at hand a bibliography you may find helpful in advancing the business case. I encourage you however to elaborate applicability of the theory to general utilities, finite resources.

Diversity is the key to economic and political evolution.

by Cat on Wed Oct 29th, 2008 at 10:39:23 AM EST
[ Parent ]
In any case, intellectual property is peforce proprietary, since individual realization is synonomous with ownership.
 I would say "is synonomous with possession."  Ownership implies certain rights of use which are not implied by mere possession.  In fact possession might be evidence of a crime: at worst, being in receivership of stolen property; less seriously, unauthorized reproduction of copyrighted material; in any case, food for lawyers.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Oct 28th, 2008 at 04:14:15 PM EST
[ Parent ]
Possession is 9/10 the law.

Diversity is the key to economic and political evolution.
by Cat on Wed Oct 29th, 2008 at 10:39:52 AM EST
[ Parent ]
CC
Thanks for the link to your paper.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Oct 28th, 2008 at 04:18:33 PM EST
[ Parent ]
Seems to me that there are various kinds of knowledge and intellectual property and that they relate differently to the concept of "commons."  One basic distinction has to do with the necessity of sharing that property in order to be able to profit from it. Novels, movies, and songs as well as scholarly papers, magazine articles and newspaper articles are one class of "commons" that only have value as a result of sharing.  

Copyright law is the means of assuring some value is extracted by the "owner" to these properties.  Patents are another.  Once a patent has been reduced to commercially profitable practice, it is vulnerable to reverse engineering.  It could be argued that tort litigation is an inefficient, and on an international level, often ineffective means of enforcement of intellectual property rights.  Patents and copyrights constitute licenses to sue.  This can be awkward when the abuse occurs in societies with vastly different or virtually non-existent legal systems.

There was an old Cold War joke about the Soviet Union: "Who is the most prolific inventor in all of the Soviet Union?" "Comrade Reguspatoff!"  The Soviets had no respect for capitalist intellectual property rights.  In China and south east Asia piracy of CDs and DVDs is ubiquitous and is performed on a decentralized scale by what amounts to a cottage industry.  Enforcement of copyrights by local authorities is perfunctory at best.  I am sure that Hollywood would be happy to make a case that a substantial portion of the US paper held by the Chinese government should rightly belong to them as compensation for uncompensated dissemination of their intellectual property in China.

The other class of intellectual property, the one which can be more closely held, would be such things as business accumen, internal operating practices, human resource management techniques, client lists, how closely to the edge of the law and where one can skate with relative safety, etc.  And, yes, this can apply directly to marriage.  Some of the most successful small businesses I know are family enterprises where each spouse contributes significant expertise in which the other is relatively deficient.  Although these considerations need not apply only to marriages that constitute a joint business.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 27th, 2008 at 01:53:59 PM EST
[ Parent ]
"Intellectual Capital" exists only in the brains and interactions - structured and ad-hoc - of the people working within an organization.  

 

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Oct 27th, 2008 at 12:29:09 PM EST
[ Parent ]
A funny observation. Commodification continues apace. Have you seen the latest wiki aricle "capital"? LOL

Diversity is the key to economic and political evolution.
by Cat on Wed Oct 29th, 2008 at 11:22:19 AM EST
[ Parent ]
Is it certain that China is indeed NOT selling dollars, as posters seem to suppose?
by Quentin on Mon Oct 27th, 2008 at 11:28:59 AM EST


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