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Beyond Public and Private

by ChrisCook Fri Feb 20th, 2009 at 06:07:10 AM EST

This article is being published on a "walled garden" financial services site, and I thought I'd give it a more open circulation here.


Beyond Public and Private - Chris Cook, 20 February 2009

21st Century problems cannot be fixed by 20th Century solutions"....Dr Narsi Ghorban

The Credit Crash marks the end of an era for the global financial system, and the beginning of another.  Few understand our modern banking system, but in simple terms it consists of banks as "credit intermediaries" who create credit based upon an amount of capital specified by international banking regulators.

This interest-bearing credit constitutes most of the money in use, the balance (<3%) being notes and coin. Most people think that banks take in deposits and lend them out again, but a moment's thought will establish that if that were the case, then there could not be any new money.  In fact banks create credit as new money, and this is instantaneously deposited somewhere in the system.

However, it was not Bank capital which underpinned the credit which inflated the massive recent bubbles in Property and Private Equity. It was in fact the capital of investors to whom Banks had "out-sourced" credit risk through securitisation, credit derivatives, credit insurance and toxic "diced and sliced" cocktails of all three - such as "Collateralised Debt Obligations" (CDOs).

In or around mid 2007 the financial claims of this pyramid of credit exceeded the capacity of the productive economy to meet them - at a point I call the point of "Peak Credit". From this point on, the bubbles started to deflate, as defaults on loans started to literally destroy money.

This process continues to gather pace and governments are now pumping money into Banks in an attempt to stem the destruction of capital and the haemorrhage of credit. But to treat these visible wounds does nothing to stem the massive invisible internal bleeding from the "shadow banking system" of investors. Transfusions of new credit are useless unless this bleeding is stopped. To do so will require surgery, not the further application of leeches.

I believe that credit must be reinvented, and re-based, and that this is possible through a new approach to direct investment in productive assets such as land and renewable energy.

But what do we mean by "investment"? In fact there is no mechanism for investment by the Public sector: it is  excluded by the definitions we are accustomed to using.  

Governments may either fund assets directly from taxes, or borrow at interest: there is by definition no possibility of  "investment" in public assets. Investment may only be "Private", by which we specifically mean "owned by a Joint Stock Limited Liability Company" - a 19th century legal creation.

While all attention has been on the rapid evolution of the markets in credit, new legal and financial structures, or enterprise models, have quietly been appearing "under the radar screen". These are based not upon Company law but upon "judge made" Trust law and the consensual law of Partnership.

It is in the imaginative use of partnership frameworks for investment in productive assets that I have identified and developed a legal innovation enabling a solution to the current crisis.

Introducing the Open Corporate
On 6 April 2001 a new UK legal entity, the Limited Liability Partnership (LLP), came into effect in order to protect professional partnerships. Confusingly, an LLP is not legally a partnership. It is, however - like a Corporation - a corporate body with a continuing legal existence independent of its members. Also, as with a limited liability company, you cannot lose more than you invest in an LLP.

The `LLP agreement' between members is totally flexible and need not even be in writing, since simple provisions based upon partnership law apply by way of default. The LLP may truly be thought of as an "Open" Corporate, and it is being used for purposes never envisaged.

In particular, it is being used as a  framework for investment in productive assets of all kinds. LLP's are routinely in use in the public sector, and the City of Glasgow currently has three municipal  LLP joint ventures, albeit conventionally financed.  

The Hilton Group first demonstrated the potential of an LLP framework for development and long term financing in a > £1bn plus Capital Partnership.

The Capital Partnership allows risk and reward to be shared equitably in proportional shares of production or revenues : in a good year, Hilton and Investors have a good year; and in a bad year, they share the pain.

This model has universal application, and any enterprise; whether Public or Private; commercial, social or even charitable in aims; whatever the legal form; may opt to share production or revenues in this way.

Within a Capital Partnership framework it is possible to create:

(a) Equity Shares - proportional shares which are not redeemable (there must always be 100%) but may be transferable.

(b) Units - redeemable in "money's worth" such as Kilo Watt Hours;

and these enable entirely new mechanisms for the financing of assets of all kinds.

In particular, we may create a new class of Community-owned enterprises which allow the production or revenues from assets in Public ownership to be shared equitably as between the providers and users of finance. Let's have a look at how this might work.

Community Energy Partnership - Energy and Heat Pools
Imagine that a community wishes to finance a wind turbine.  The turbine is held by a custodian, and  Units are created redeemable for (say) 10 Kilo Watt Hours of energy each, which are then sold to investors. The sale of  between 30 and 40 percent of production will typically finance a turbine. After a percentage of production is allocated to a manager, the balance from the Energy Pool will be an "Energy Dividend" to the Community.

Investment in energy savings is also possible through (say) retrofitting Combined Heat and Power.  Investment by a local "Heat Pool" fund will finance the CHP connection of the houses. It results in an "Energy Loan" denominated in energy, to the house, not the owner. This energy-denominated investment is then repaid to the Heat Pool at the market price of energy. The savings in energy value are therefore shared between the property occupier and the investors.

Community Land Partnership - Rental Pools
Imagine that a bank has a portfolio of "distressed" properties which are about to be repossessed.

These properties may instead be transferred to a custodian, such as a local municipality, and a rental may be set at an affordable level which is then index-linked. The resulting Rental Pool is then divided into proportional units (eg billionths) allocated between Investors and a Manager.

For occupiers, this is a new form of rent-to-buy, since any amount paid in excess of the rental will enable them to buy Units. For investors, Units provide a reasonable, index-linked, secure revenue stream, ideal for risk averse long term investors such as pension funds.

For Banks with a portfolio of distressed mortgage loans  this "asset-based" form of refinancing will raise more money than any debt-based refinancing which leaves intact the obligation to repay the loan.

While the Community Land Partnership opens up a way of refinancing existing property, it also opens up new options for the sustainable development of new property. If the model is used for new development it is in the interests of a Developer member to develop to high standards of quality and energy efficiency since this will minimise the cost of occupation and therefore maximise the rental value. The Developer's interests are therefore aligned with those of everyone else.

Outcomes
These partnerships require no legislation, since they are based upon consensual agreements that individuals and enterprises are free to enter, or not, at their discretion. This proposal therefore complements and augments the existing system: it is not an alternative to it.

Through omitting a repayment date, credit evolves into an open-ended form of Equity.   A new generation of direct "Peer to Peer" investment in Units of production or revenues from productive assets may evolve to complement conventional secured debt and shares in companies.

A partnership-based model enables new possibilities for direct  investment in "Community Equity"and even "Municipal Equity" which together constitute a "National Equity".

Why sell ownership and control of assets when it is possible to unitise production or revenues and sell it to stakeholders?

In this networked "Peer to Peer" model, banks need no longer act as credit intermediaries putting capital at risk by creating credit based upon it. They may instead become providers of investment banking services, and managers of bilateral "trade" credit creation.

By addressing the Quality of credit, rather than its Quantity we may address the Credit Crash  and avoid both the conventional unpleasant economic choices of Depression - caused by a drastic reduction in the quantity of credit; and Inflation - caused by increasing the quantity of credit in order to avoid Depression.

So, to conclude, in the networked 21st Century economy we may transcend conventional alternatives and go beyond Public and Private.



Display:
How's that?
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 20th, 2009 at 08:44:57 AM EST
This is a very nice article Chris.

The more I look at it the more it seems that the way through Peak Oil, Peak What-Have-You and Exponential Growth in general will have to go through a new monetary/financial system. Abstract currency is not bad per se, but the way it is created won't work without underlying physical economic growth. Anyway, the system you propose is way beyond my personal concerns entered on energy, I take my hat to you.

Energy can be a commodity currency without the main downside of previous commodities tried (e.g. gold) its supply is virtually limitless. This sounds like a counter-sense in these times, but it is not. While for precious metals their production is limited in several ways (geographically, etc) there's always space for more wind turbines, more solar panels, more mini-hydro, more tide turbines, more geo-thermal points, etc. Objectively we use a small fraction of the energy available to us, both coming directly from the Sun, or created by the eternal planetary motion.

Other commodities can become so valuable that become more appealing than investment itself - folk sit atop their precious coins and the economy stops. With energy, if the watt-hour goes into price deflation (i.e. buys more stuff than before) there's an automatic incentive for investment on new energy productive infrastructure. And since the amount of energy produced in the lifetime of an infrastructure can be known beforehand with relative accuracy, new currency can be put in circulation swiftly, as soon as a compromise to finish the project is reached (as implied by the article). Compare this to gold mining, were yearly production is just a small fraction of the world stock and production from mining projects is uncertain.

Where I might slightly diverge from you Chris, is the absence of "state intervention". As energy currency gets a higher share of the whole currency in circulation, price inflation can eventually become a problem, at least some regulatory framework might be need to avoid it getting out of control. I'm not really certain it is needed, and energy currency inflation has the good outcome of shaving off low EROEI infrastructure. Another thing worth mentioning is that some technological support would have to exist for watt-hour accounts. Upfront, I'd say this would be a job for the energy grid: watt-hours would be credited in your account when you deliver energy to the grid and subtracted when you consume energy.

So Chris what do you think is missing for all this to start rolling?

luis_de_sousa@mastodon.social

by Luis de Sousa (luis[dot]de[dot]sousa[at]protonmail[dot]ch) on Fri Feb 20th, 2009 at 11:05:20 AM EST
Luis de Sousa:
Abstract currency is not bad per se, but the way it is created won't work without underlying physical economic growth. Anyway, the system you propose is way beyond my personal concerns entered on energy, I take my hat to you.

I agree that fiat currency is not inherently bad. It is possible to conceive of a technically sustainable system, and that is what Keynes had in mind with his "Bancor" and International Clearing Union at Bretton Woods.

To charge interest only on debit balances is inherently unstable and unsustainable. Keynes' Bancor proposal applied a Gesellian approach by specifying a levy on credit balances as well, and this would IMHO enable stability, depending upon what happened to the levies.

Actually getting people to use such a neutral abstract unit as the Bancor is another issue. I don't think people would be inclined to accept such a unit unless it is hegemonically imposed, as with the US $ now, and the £ before it.

My proposal is for a "Petro" as an "Energy Standard".  

The Petro is a constant amount of energy to which people can actually relate - (say) the energy released by burning 1 litre of n-Octane at 20 degrees centigrade. Not that anyone has a clue what n-Octane is - but they have a shrewd idea what a litre of gasoline or heating oil is worth to them, and also a related amount of natural gas, or the equivalent in kilo watt hours.

We could then see the emergence of Value Units redeemable in fuels such as natural gas, gasoline and heating oil. These would all be pretty much constant in terms of their energy value expressed in Petros. Note that nothing would be exchanged for Petros.  "Money's Worth" or Value Units of fuel would be changing hands by reference to the Petro as an "Energy Standard".

So what I am proposing is Energy Accounting on a global basis within a networked International Energy Clearing Union by reference to a Petro Energy standard.

Luis de Sousa:

Where I might slightly diverge from you Chris, is the absence of "state intervention". As energy currency gets a higher share of the whole currency in circulation, price inflation can eventually become a problem, at least some regulatory framework might be need to avoid it getting out of control. I'm not really certain it is needed, and energy currency inflation has the good outcome of shaving off low EROEI infrastructure.

I think that what you are missing is that in fact by far the greatest amount of value created and circulating today relates to the value of land rentals (most money in existence emanates from property-backed loans).

So, through unitisation of land rentals I think we could see new land-based currencies circulating, primarily domestically, since they are by definition only redeemable where they are issued. But there is no reason why they should not circulate by reference to the Petro - there is indeed a great deal of energy tied up in the average building....

The function of the Petro as an energy standard, and of energy based value units priced in Petros, would be to facilitate trade and development, replacing the dollar globally.

I see no state intervention in the future, because I think we will reinvent the State into a more participative form. The future of regulation is self regulation IMHO, since all constituencies, and not just the middlemen, will be involved.

Luis de Sousa:

Upfront, I'd say this would be a job for the energy grid: watt-hours would be credited in your account when you deliver energy to the grid and subtracted when you consume energy.

This is pretty much as I see it. I refer to an "Energy Pool" into which energy is delivered, and from which energy is received. The "Pool" will be owned by all, or by none, being nominally held by a custodian.

It will issue the redeemable Units (not unlike a central bank) in exchange for value, and will also nominally "own" the transaction/title registries aka the energy acounting system.

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

by ChrisCook (cojockathotmaildotcom) on Fri Feb 20th, 2009 at 07:02:32 PM EST
[ Parent ]
Very succinct summary.  What is preventing Governments, Bankers and the other stakeholders from going down this road if it is in everyone's interest?  Hidebound conservatism?  Lack of imagination?  A belief they can still game the system to their own greater advantage?  An insufficient appreciation of just how broken and unfixable the current system is?

I know you are proposing a new model of finance, but what would you do with the old ones?

  1. Let insolvent banks go bankrupt
  2. Recapitalise them with public funds
  3. Guarantee all their liabilities
  4. Nationalise them
  5. And then what?  How would you enforce or incentivise a massive change to your model?


notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 20th, 2009 at 11:29:38 AM EST
Monetizing paper debt with more paper would be a nice incentive on investment that would yield an energy backed currency. Just an idea...

luis_de_sousa@mastodon.social
by Luis de Sousa (luis[dot]de[dot]sousa[at]protonmail[dot]ch) on Fri Feb 20th, 2009 at 11:52:20 AM EST
[ Parent ]
What is preventing Governments, Bankers and the other stakeholders from going down this road if it is in everyone's interest?
My guess is that those who have so powerfully benefited from their ability to manipulate the existing debt based finance system to their advantage don't believe that a system such as you describe is nearly so easy to rig to their advantage and everyone else's disadvantage.  This has a lot more explanatory power than "hidebound conservatism" which is more of an excuse.  Were we using a system such as you describe and should the opportunity to switch to a debt based system arise, I seriously doubt they would exhibit such hidebound conservatism.  That would be the term they would use to describe the opponents to such a change.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 20th, 2009 at 02:09:44 PM EST
[ Parent ]
Frank Schnittger:
What is preventing Governments, Bankers and the other stakeholders from going down this road if it is in everyone's interest?

At the moment, they are not aware of the possibility, which is to be expected.

Frank Schnittger:

An insufficient appreciation of just how broken and unfixable the current system is?

I think that it will take a few more months before this really sinks in, although we are well down the road.

Frank Schnittger:

I know you are proposing a new model of finance, but what would you do with the old ones?

  1. Let insolvent banks go bankrupt
  2. Recapitalise them with public funds
  3. Guarantee all their liabilities
  4. Nationalise them
  5. And then what?  How would you enforce or incentivise a massive change to your model?

What I have in mind is more akin to what is known in the insurance world as a "run-off" of liabilities.

Put all assets and liabilities into the hands of a Custodian.

Share the revenues (ie the net interest income) between an "Investor" (ie the original Private shareholders, plus the Public state capital injection) and a "Manager" (ie a John Lewis-Style cooperative, where ownership and control of existing banks - stripped of assets and liabilities - is transferred in trust to the staff).

Capital losses (from defaults) are then shared proportionally between private and public investors.

I would advocate expediting the "run off" with a programme of conversion of existing secured debt into "units" of land rentals. ie a Debt/Equity swap.

The outcome would essentially be the transition of the distressed banks from credit intermediaries to service providers facilitating "Peer to Peer" investment in property "rental pools".

What's in it for the banks is that they no longer have to risk their capital creating credit based upon it.

There's no enforcement necessary. If it works, banks will do it, and the last to market will "have their lunch eaten" (or clocks cleaned), as they say...

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

by ChrisCook (cojockathotmaildotcom) on Fri Feb 20th, 2009 at 07:20:35 PM EST
[ Parent ]
... attitude, but that institutions are intrinsically past-bound, without any need of motive or attitude to explain that fact.

That is, institutions are regular habits of behaviour and legitimising folkviews regarding those habits that provide regularity to social interactions which allows people to function. They are at their most fundamental level supported by our need to make ourselves understood if we want to mobilize any social activity -- they provide the grammer and syntax to social interactions that make people's actions comprehensible to others.

Institutions are intrinisically part of those things we take for granted as we make the routine decisions of our day to day life.

Institutions are not completely rigid, but institutional change normally involves a substantial investment in effort and quite often an intrinsically risky appeal to sovereign authority to resolve disputes over what rules are applicable ... so there has to be a more than trivial pay-off to changing institutional rules, and there is of course no guarantee that a "socially optimal" choice will be made when there is a fight over the institutional rules in force in a given setting.

Further, once a change is achieved in a given social setting, it is easier to win change in a neighbouring setting by appeal to the precedent of the change that has already been established, rather than winning support for a novel institution, so institutional change often runs in "tracks", as decisions are won based on innovations already established in what are seen as similar social settings.

And of course, the more dramatic the institutional innovation, the more dramatic the unexpected consequences of the change are likely to be.

Indeed, a major appeal of this mix of all-equity finance and right-to-output finance is the institutional conflict between debt finance and Islamic prohibitions on fixed debt obligations ... this is a structure of finance that can be quite readily approved as not falling foul of those prohibitions.

As far as why banks are not aggressively pursuing this form of financial partnership, note that under existing capital adequacy requirements, the same amount of money put into fixed nominal debt obligations of the same credit rating would be allowed to back more obligations than this form of direct participation stake in revenue or profits or output. That is, the fixed interest obligation is assured income until it can no longer be serviced, at which point it collapses, while this form of finance degrades gracefully when faced with system-level adverse impacts (like, say, a synchronized global recession mixed together with an international financial meltdown).


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 Feb 22nd, 2009 at 03:09:21 PM EST
[ Parent ]
BruceMcF:
Institutions are intrinisically part of those things we take for granted as we make the routine decisions of our day to day life.

I see no future for institutions or organisations in the emerging post-Internet "Peer to Peer" economy. I see the future in networked self organisation within consensually negotiated legal framework agreements.

BruceMcF:

As far as why banks are not aggressively pursuing this form of financial partnership, note that under existing capital adequacy requirements, the

In my own simplistic language, banks lend: they do not tend to invest.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 03:20:06 PM EST
[ Parent ]
... institutions as far back as our history stretches, the idea that Peer to Peer networks will eliminate regular habits of behavior and suddenly people will start making conscious decisions for each and every one of their actions, a la neoclassical fantasy economics, is just an outlandish claim.

Maybe you are reading "institutions" in a derivative sense, rather than its fundamental sense? EG, the often described "financial institutions"?


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 Feb 22nd, 2009 at 04:05:13 PM EST
[ Parent ]
BruceMcF:
institutions as far back as our history stretches, the idea that Peer to Peer networks will eliminate regular habits of behavior and suddenly people will start making conscious decisions for each and every one of their actions, a la neoclassical fantasy economics, is just an outlandish claim.

..and it's not a claim I'm making.

BruceMcF:

Maybe you are reading "institutions" in a derivative sense, rather than its fundamental sense?

Possibly.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:16:38 PM EST
[ Parent ]
... institutions in the fundamental sense ... the sense of the definition that I gave at the front of my comment ... is that you say:
I see no future for institutions or organisations in the emerging post-Internet "Peer to Peer" economy. I see the future in networked self organisation within consensually negotiated legal framework agreements.

Since a legal framework is a formal institution, supported by informal institutions, and consensual negotiations rest in part on informal institutions, often supported by formal institutions, this is saying there is no role for social institutions because the future will be dominated by activity in the context of a named list of social institutions.


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 Feb 22nd, 2009 at 04:34:42 PM EST
[ Parent ]
Well I'll stick to "organisations" in future if that is how "institutions" are to be defined.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:37:08 PM EST
[ Parent ]
... themselves "institutions" because it sounds so much more august, but social institutions are the regular patterns of social behaviour combined with the folkviews of participants regarding those patterns of behaviour.

Financial enterprises may be more to the point ... there will be going concerns engaged in providing the peer to peer networks, but under your thesis, they will finding ways to make money off of the communications traffic they generate, rather than from taking a financial stake in the process of extending credit, so they would not be financial enterprises as such.


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 Feb 22nd, 2009 at 04:46:54 PM EST
[ Parent ]
Your assumption seems to be that the nodes in a network will be of somehow comparable size and power.

That is not obvious, necessarily true or even (in my view) likely to be true: it seems to me that you've managed to hide institutions and organisations away in the details of your peer-to-peer network.

When it comes down to it, everything in human society is a peer-to-peer network with some structure on top.

by Colman (colman at eurotrib.com) on Sun Feb 22nd, 2009 at 04:09:58 PM EST
[ Parent ]
Colman:
Your assumption seems to be that the nodes in a network will be of somehow comparable size and power.

Where do you get that idea from?

Colman:

When it comes down to it, everything in human society is a peer-to-peer network with some structure on top.

Correct.

Our current conflicted and obscure legal and financial overlay or "structure" is the problem, and it is here that changes are not just necessary, but already taking place.

I see a decentralised and non-hierarchical network of networked partnership protocols coming about bottom up to gradually make the existing system redundant.  But it's not a case of "either/or", rather of organic evolution.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:26:22 PM EST
[ Parent ]
And I see a reasonably chance that your new network turning into something like the old one very quickly.
by Colman (colman at eurotrib.com) on Sun Feb 22nd, 2009 at 04:30:51 PM EST
[ Parent ]
...and your suggested solution is?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:32:29 PM EST
[ Parent ]
Probably putting in place a collection of laws and such things to try and equalise the power disparities.
by Colman (colman at eurotrib.com) on Sun Feb 22nd, 2009 at 04:35:31 PM EST
[ Parent ]
....and what is the difference between "a collection of laws and such things" and networked partnership protocols other than that the former is imposed willy nilly by gubmint and the latter are agreed between consenting adults?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:41:07 PM EST
[ Parent ]
Ah now. That's an interesting way of putting it.

Is this just a reformulation of libertarianism then?

by Colman (colman at eurotrib.com) on Sun Feb 22nd, 2009 at 04:42:54 PM EST
[ Parent ]
That is, the fixed interest obligation is assured income until it can no longer be serviced, at which point it collapses, while this form of finance degrades gracefully when faced with system-level adverse impacts (like, say, a synchronized global recession mixed together with an international financial meltdown). (My bold)
This is a key advantage in my view, along with the lack of need for exponential growth of any sort.  The drawback of it not providing greater returns in boom times mostly applies to those at the top who are savvy and agile enough to avoid losses in the periodic crashes.  Unfortunately, almost everyone thinks that THEY will be savvy and agile.  We are now testing those assumptions.  When will they ever learn?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 22nd, 2009 at 11:53:05 PM EST
[ Parent ]
Very interesting, but how is this much different than cooperative enterprises that are functioning, particularly in agriculture and rural energy distribution, in many parts of the world already.
by santiago on Fri Feb 20th, 2009 at 07:57:03 PM EST
This inherently cooperative model differs from conventional Co-ops in the relationship with investors and banks, since most Coops find it pretty difficult to raise sufficient development capital in an acceptable way.

Perhaps the biggest difference lies in the relationship between members and their agents, the management. This isn't usually a problem for small Co-ops, where members may be closely involved, but conventional Co-operative businesses do not "scale" at all well.

Co-ops have IMHO not fulfilled their potential precisely because of the inadequacy of the existing dominant enterprise model, where financial capital comes either from shares in Companies or from credit created by banks.

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

by ChrisCook (cojockathotmaildotcom) on Fri Feb 20th, 2009 at 08:11:34 PM EST
[ Parent ]
I used to 'do' co-ops in the late '60s and early '70s, as Chris knows.  We could make them work, as long as there was a core group of true-believers, who would take up the slack when general energy levels were low or when we hit the occasional financial obstacle. (Only one of the various co-ops still exists today - Lexington Food Co-op in Buffalo, NY.)

The missing ingredient for us back then was that we could not find - could not conceive of - a role for investors.  (It took us awhile to even accept the idea of manager - or, as we often called it, coordinator.)  Chris has 'put them in their place' in my opinion.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Sat Feb 21st, 2009 at 10:45:41 AM EST
[ Parent ]
Okay, so how is this different then from traditional Islamic financing?
by santiago on Sat Feb 21st, 2009 at 10:56:30 PM EST
[ Parent ]
santiago:
Okay, so how is this different then from traditional Islamic financing?

No difference at all. It's just a new way of doing it.

The Peer to Peer investment I advocate Muslims know as Musharakah. The Peer to Peer Credit / Guarantee Society I advocate is to all intents and purposes what they know as Takaful.

It was only when I started to present partnership financing in public about three or four years ago that someone in the audience pointed out that Sharia'h compliance is inherent in it.

As I understand it, the sharing of risk and reward of partnership-based finance, and the stewardship of Commons in the model, is in accordance with the values underpinning all religions.  

It's just that it's only Islam that still - nominally - makes an issue of it. Most "Islamic Finance" in fact consists of putting Islamic lipstick on a distinctly unIslamic deficit-based pig. A select few scholars make extremely good money finding ways in which this may be done, which is IMHO virtually indistinguishable from the purchase of indulgences by Catholics that got Martin Luther so worked up.

Some would say an Islamic reformation is long overdue, but that would be a Diary in itself, and not one I am qualified to write....

I believe that partnership-based enterprise models may welkl be optimal, which is why they are emerging. The fact that they are also ethical is an interesting attribute.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 05:55:11 AM EST
[ Parent ]
Some would say an Islamic reformation is long overdue...
Careful what you ask for. It depends of how it comes down.  How many reformations have been followed by fundamentalist upsurges in the great mass of believers?  I doubt it is unique to Protestant Christianity.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 22nd, 2009 at 02:49:23 PM EST
[ Parent ]
I didn't actually say I was asking for this, but I think that few believe that seventh century desert Islam can adequately address 21st century problems.

And if a fundamentalist upsurge has not been going on this last fifty years (if not longer) then I don't know what has!

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 03:02:54 PM EST
[ Parent ]
Well there theres enough that believe that 7th century BCE  Talmudic social rules can adequately adress 21st century problems, so it may be that there are more than would be liked who might think thatdesert islam is the best way.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Feb 22nd, 2009 at 03:25:16 PM EST
[ Parent ]
I agree that it would be good to reconcile Islamic values with 21st century understandings, such as they are, of tolerance for diverse cultures and beliefs.  But it always seems that movements that emphasize tolerance and compassion and that originate among elites of a given society and religion have a nasty way of being followed by fundamentalist backlashes among the not-so-elite. Wish it weren't so....

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 22nd, 2009 at 04:45:03 PM EST
[ Parent ]
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 ]
21st Century problems cannot be fixed by 20th Century solutions"....Dr Narsi Ghorban

I think that this is the fundamental difference of analysis that I have with you: I don't think the current problems are 21st century problems. I think the biggest problems are 19th century problems that have been resurrected after already being solved (more or less) once before (at least in the First World(TM)).

Machine politics, union busting, government-for-profit and systemic Ponzi schemes are not new things. They're old things, that used to be safely buried under the sea, until a gang of fuckers decided to wake up Cthulhu for fun and profit.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 21st, 2009 at 08:53:09 AM EST
Merlin: "It is the doom of men that they forget."

To which I would add: It is the curse of men that some never learn.

And:  

The world always ends in the same way.  A Trifalmadorian test pilot blows it up while testing a new fuel.  after Vonnegut.

The problem is eternal.  Someone will always wake up Cthulhu as long as we inhabit a world vulnerable to him.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Feb 21st, 2009 at 10:44:05 AM EST
[ Parent ]
Chris is looking at a 21st century problem; he's trying to promote a 21st century solution.

No matter what system arises, history will not end.  The world will still cycle.  The best that we can do is try to find and to support the 'good'.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Sat Feb 21st, 2009 at 10:54:40 AM EST
[ Parent ]
The great value of CC's "asset based" approach seems to be that it avoids the known danger of having to rely on exponential growth, thus insulating society from a known periodic shock.  Once epidemic disease has been dealt with it is easier to devote more effort to other ills.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Feb 21st, 2009 at 11:13:18 AM EST
[ Parent ]
But the requirement for continuous growth in the output of the industrial production is not a feature of the monetary system - it's a feature of the broader political economy. It is perfectly possible to construct a political economy using the current monetary system, which does not require continuous growth in the industrial production. Conversely, it is possible to device a new monetary system along the lines proposed here, without even touching the underlying problem that the way our political economy is organised requires continuous growth.

Because the underlying problem is in the way we distribute the work and the value added:

  • When we insist that everyone who is working should be working full-time, any productivity increase must translate into greater consumption, or result in un- or under-employment.

  • When we insist that those who do not work full-time should suffer deprivation (in some countries rather more so than others, but the principle is virtually universally enforced), unemployment causes loss of quality of life, political unrest and other Bad Things.

  • When we insist on not taxing negative externalities like pollution and consumption of non-renewable resources, we encourage increases in productivity (efficiency relative to man-hours) that are made at the loss of efficiency relative to other input variables.

Nothing whatsoever in this logic is addressed by rearranging the monetary system. It can only be addressed by changing the distribution of employment and value added.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 22nd, 2009 at 06:08:57 AM EST
[ Parent ]
JakeS:
Nothing whatsoever in this logic is addressed by rearranging the monetary system. It can only be addressed by changing the distribution of employment and value added.

Great post, JakeS.

The growth of the deficit-based money supply drives growth, but it is not the means by which it occurs.

Addressing the monetary system is IMHO necessary but not sufficient: we have to address Capital, and the property rights and relationships which enable it.

We must therefore address what I call the "enterprise model" or legal and financial structure, and this is what I have been working on these last 8 years or so. This is where the subject of property rights generally, and the particular legal construct known as the "Joint Stock Limited Liability Company" comes in. Also the concept of double entry book-keeping and "profit and loss".

The reason (ie the anthropocentric assumption underpinning conventional economics) why only Labour is defined as "productive" is that this means that taxes on Capital can be excluded. So the rich get richer through untaxed "unearned" returns from Capital.

The route to taxing Capital is IMHO to address the privilege of private Property over Commons (such as land)  and the privilege of limitation of liability (which leads to externalisation of costs).

So a rational tax system would consist of levies on privilege applied inescapably at the clearing level.

In relation to profit and loss and double entry book-keeping my first point is that if inflation has principal "causes" then "profit" is one of them, virtually by definition. rentier "owners" will always increase prices ro maximise profit -if they can - if that is not a "cause" of price inflation, I don't know what is.

Be that as it may, I am observing that where transactions take place within a partnership framework then while there is exchange of value (by reference to a value standard), and creation of value, there is no "profit" and no "loss". The accounting within such a framework is not "double entry" but rather what I term a "shared transaction repository" and "shared title repository".

In other words, in a true "Peer to Peer" networked partnership economy, profit and loss (and rentiers) will be excluded from the system as simply unnecessary.

The cooperative movement talk about the "Cooperative Advantage" - ie the freedom from making returns to rentiers. However, there never has been, until now, a scalable enterprise model for Cooperatives.

I would take this further and say that conventional "For Profit" capitalism is about to be hoist by its own petard. "Profit" to rentiers is simply inefficient - an unnecessary cost, when necessary capital can and will come directly from stakeholders.

In the model I advocate - which is emerging as we speak, I'm just one of the only people looking out for it - Labour will work with not for Capital. In fact, as Marx theorised early on - Labour,and Property (as we know them) will be "abolished".

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 06:51:08 AM EST
[ Parent ]
I still don't see how it drives growth in the amount of funny-money, nevermind the real economic output. I don't understand the deterministic causal mechanism you postulate exists between interest-bearing debt and a requirement for ever-increasing industrial production. It seems to me that I can construct a toy steady-state economy by having the government exercises its power to issue and confiscate fiat currency appropriately.

Now, that's not to say that I don't think there is some merit in re-arranging the relationship between debtor and creditor so the creditor takes more of a haircut when the debtor goes bust. But that's a rather less sweeping reform than re-arranging the entire monetary system...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 22nd, 2009 at 10:30:30 AM EST
[ Parent ]
JakeS:
I still don't see how it drives growth in the amount of funny-money, nevermind the real economic output. I don't understand the deterministic causal mechanism you postulate exists between interest-bearing debt and a requirement for ever-increasing industrial production.

Since our Money consists of interest-bearing debt - which few realise - then all else being equal, the money supply must increase more or less exponentially.

It cannot do so unless productive assets exist (or are expected to exist) over which credit institutions may make financial claims. ie growth in money supply requires economic growth which is denominated in this funny money.

JakeS:

It seems to me that I can construct a toy steady-state economy by having the government exercises its power to issue and confiscate fiat currency appropriately.

There are several ways which have been postulated for arriving at a steady state economy, all of them aimed at counterbalancing the malign and unsustainable effect of money created as interest-bearing debt.

Keynes' Bancor took the Gesellian approach of interest being charged on both credit and debit balances.

Social Credit postulates issuance of interest-free credit by State Treasuries.

State capitalism implies the government issuing credit to itself.

JakeS:

But that's a rather less sweeping reform than re-arranging the entire monetary system...

I have to say that moving from your toy-sized economy to an adult-sized one is every bit as sweeping a reform.

Besides, I am not proposing reforming or re-arranging anything - I see the system reforming and re-arranging itself by rapidly evolving from its current unsustainable centralised financial dinosaur architecture to a decentralised disintermediated furry mammal playground... ;-)

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 10:56:29 AM EST
[ Parent ]
Since our Money consists of interest-bearing debt - which few realise - then all else being equal, the money supply must increase more or less exponentially.

I'm not tracking here. I'm a farmer. I borrow money for my seed grain from the banker. This expands the money supply. I sell my produce to the banker. This also expands the money supply (because the banker can, as long as he has equity and meets reserve requirements, create money to cover his own debts - in fact, his debts are money). I repay the banker the loan plus interest. This contracts the money supply. The principal nets out by definition, and I can't see why the money destroyed in the interest payment can't equal the money created by the banker buying consumer goods (grain, in this case) on credit.

Even if it doesn't, for whatever reason, net out, the government can tax either of us and compensate the other so that money is, in the aggregate, neither created nor destroyed.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 22nd, 2009 at 11:39:39 AM EST
[ Parent ]
JakeS:
I'm not tracking here. I'm a farmer. I borrow money for my seed grain from the banker. This expands the money supply.

Correct.

JakeS:

I sell my produce to the banker.

Bankers would not buy your produce, unless of course it's for onward trading to someone else, an end consumer.

But for the sake of argument let's say the Bank buys it, and you make a profit, after deducting your costs of production sufficient to pay the bank's interest.

JakeS:

I sell my produce to the banker. This also expands the money supply (because the banker can, as long as he has equity and meets reserve requirements, create money to cover his own debts - in fact, his debts are money).

Incorrect.

This purchase creates no new money. Your account in the banks's books is credited, and the bank's asset account is debited. The bank replaces an obligation from you to them, with ownership of an asset - the produce you sold them.

The credit the bank created is repaid, and money is therefore extinguished.

But the bank's interest income remains, and bolsters the year's profit. You are essentially sharing the surplus value you create with the Bank.However, someone somewhere is also going to have to create more surplus value (economic growth again) in order to be able to afford to buy the produce from the bank at a price reflecting the bank's own trading profit - a purely speculative and financial profit.

You were able to pay the bank's interest charge out of your profit, but it may well have been the case that the price at which you sell - which would necessarily have to exceed your costs - would have been insufficient for the purpose.

JakeS:

Even if it doesn't, for whatever reason, net out, the government can tax either of us and compensate the other so that money is, in the aggregate, neither created nor destroyed.

The problem is that you are considering only the "working capital" of the economy ie the credit that oils the wheels of trade. You are assuming that money flows around in a closed loop. It doesn't. Gigantic amounts of credit are locked up in claims over productive assets: in excess of 60% of credit = money in the US and UK is tied up in land and real property.

New credit must constantly be created to compensate for this incorporation of credit into the national Capital stock, and to enable the "use value" of these productive assets to be paid for on a continuing basis.

Unsecured credit actually in circulation is de minimis compared to credit tied up in productive assets, whether private or public.

The national capital stock increases with economic growth, but our insane national accounting system does not incorporate any idea of a "National Equity", and the National Debt therefore increases, more or less exponentially.

By definition, investment can only be through a "Corporation", and "Equity" only in private hands of individual or corporate ownership.

I think it is time for a change. there is no reason at all why a National equity may not be created - it requires only the use of a different enterprise model, and this process of transation has already begun.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 01:25:57 PM EST
[ Parent ]
Bankers would not buy your produce, unless of course it's for onward trading to someone else, an end consumer.

The banker needs to eat. I am the only guy in our toy economy who makes food. Ergo, the banker will buy my products. Banks are not computers that only have balance sheets - they have real-world expenses (their employees have to eat and sleep, and their shareholders need to eat and sleep too...).

This purchase creates no new money. Your account in the banks's books is credited, and the bank's asset account is debited. The bank replaces an obligation from you to them, with ownership of an asset - the produce you sold them.

I don't follow.

Scenario 1: I pay the bank interest of - say - € 100 on my debt. This destroys € 100. The bank then pays its employees and shareholders € 100 that they use to buy my produce. This creates no new money. Aggregate change in the money supply: - € 100.

Scenario 2: I cut a deal with the bank when I take out the loan, saying that don't pay any interest, but in return I have to give € 100's worth of my produce to the bank's employees and stockholders. Aggregate change in the money supply: € 0.

But these two scenarios are functionally identical! The same stuff gets moved around in the same way between the same people. The only difference is in the bookkeeping. I realise that fiat money is kinda sorta fictional, but surely it's fictional in a consistent fashion?

The problem is that you are considering only the "working capital" of the economy ie the credit that oils the wheels of trade. You are assuming that money flows around in a closed loop. It doesn't. Gigantic amounts of credit are locked up in claims over productive assets: in excess of 60% of credit = money in the US and UK is tied up in land and real property.

I fail to see how this changes the scenario. If I have a secured loan of € 1 million and operating credit of € 100 thousand, then it just means that the effective interest rate I'd pay on the € 100 thousand in the above example would be ten times as high. The question here is where the interest payments go, not what happens to the principal, because the principal always nets out to zero when it's repaid, in terms of money created and destroyed.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 22nd, 2009 at 02:15:39 PM EST
[ Parent ]
JakeS:
The banker needs to eat. I am the only guy in our toy economy who makes food. Ergo, the banker will buy my products. Banks are not computers that only have balance sheets - they have real-world expenses (their employees have to eat and sleep, and their shareholders need to eat and sleep too...).

Indeed. But we must distinguish between:

(a) the bank as a legal person;

(b) the bankers as professional employees; and

(c) the owners of the bank as rentier shareholders.

Sure, individuals need to eat, too. But you are talking about the bank buying the food. Banks only buy food to sell. Banks don't eat, bankers do, and rather well, at that.

JakeS:

I don't follow.

Scenario 1: I pay the bank interest of - say - € 100 on my debt. This destroys € 100.

Your payment in relation to interest destroys no money: only repayment of loan principal destroys money.

JakeS:

The bank then pays its employees and shareholders € 100 that they use to buy my produce. This creates no new money. Aggregate change in the money supply: - € 100.

It is very little known (even by people who think they understand the system) that when banks credit the accounts of employees and shareholders (ie pay them) they are creating credit aka new money in just the same way as they do when extending loans. The difference is that these payments are not interest-bearing loans.

Any profit they have made from the interest you paid the bank will extend its capital base and underpin more credit creation of new money, whether for loans or for expenses or dividends.

JakeS:

Scenario 2: I cut a deal with the bank when I take out the loan, saying that don't pay any interest, but in return I have to give € 100's worth of my produce to the bank's employees and stockholders. Aggregate change in the money supply: € 0.

Interesting scenario. The bank would credit your account, extinguishing money.  But they now have an additional €100 of assets instead of (say) an additional €100 on their account with the ECB. They also have commodity price risk.

JakeS:

But these two scenarios are functionally identical! The same stuff gets moved around in the same way between the same people. The only difference is in the bookkeeping. I realise that fiat money is kinda sorta fictional, but surely it's fictional in a consistent fashion?

They are not functionally similar but I can see why you thought so.

JakeS:

I fail to see how this changes the scenario. If I have a secured loan of € 1 million and operating credit of € 100 thousand, then it just means that the effective interest rate I'd pay on the € 100 thousand in the above example would be ten times as high. The question here is where the interest payments go, not what happens to the principal, because the principal always nets out to zero when it's repaid, in terms of money created and destroyed.

The point is that economic growth has to take place to enable both the principal and the interest tobe repaid.

What happened at the point of Peak Credit (about mid 2007, I reckon) is that the pyramid of financial claims - comprising both principal and interest repayments - outstripped the capacity of the productive economy to meet these claims.

One of the limiting factors was the supply of liquid fuels I think, which was the straw that broke the camel's back.

My solution is not to change the quantity of claims but rather their quality, by removing the debt obligation of a repayment date.


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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 02:56:27 PM EST
[ Parent ]
The point is that economic growth has to take place to enable both the principal and the interest tobe repaid.

Why? If the interest rate is lower than the real return on investment in terms of consumables (that is, if the investment sustainably yields more - say - grain per year than is required to pay the interest), then no economic growth - that is, increase in the amount of stuff produced each year - appears to be needed.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 22nd, 2009 at 03:17:23 PM EST
[ Parent ]
Now you are looking at economic growth in terms of real stuff. Unfortunately it's measured in funny money, not actual money's worth.

It is true that at a minimal interest rate which covers the costs of defaults and reasonable system operating costs (ie without insane banker salaries and perks), and with serious constraints on credit creation, then the system can actually burble along reasonably well for quite some time before strains would become apparent.

Unfortunately that's not what happens, because in a "For profit" system greed always gets the better of people, whether shareholders, managers, or both.

Greenspan's triumph was that he enabled the system to come crashing down many years to early by letting greed rip.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 03:35:25 PM EST
[ Parent ]
Retail banks should not be run for profit. Retail banks are utilities and should be run by the government, like all other utilities. And their interaction with the rest of the financial system should be heavily regulated.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 22nd, 2009 at 03:43:33 PM EST
[ Parent ]
JakeS:
Retail banks should not be run for profit.

Retail banks are unnecessary - and in fact moribund - intermediaries. Retail banking - ie credit creation and clearing - is a necessary utility function.

JakeS:

Retail banks are utilities and should be run by the government, like all other utilities.

I do not believe Government should run utilities.  I think that an optimal enterprise model for utilities is a cooperative of service providers in partnership with a cooperative of service users, within parameters set by government.

I believe that such a "Not for Loss" utility model is both possible and necessary.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:50:02 PM EST
[ Parent ]
I wasn't trying to give precise prescriptions for the fine details of the architecture.

In a well-run society, it is not clear that it is trivial to distinguish between "government" and "non-government" - witness the role of labour unions as a kind of quasi-government in 20th century Scandinavia. So what I meant to say was "should be run by an entity that's more state and/or collective than private and/or individual." Your model would certainly qualify as that. Although I'm not convinced that it's necessarily the optimal model for things like water and railroads (and to some degree electricity) which are by their very nature large, integrated systems that must be micromanaged to a considerable extent by a central hub.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 23rd, 2009 at 02:40:41 PM EST
[ Parent ]
JakeS:
Your model would certainly qualify as that. Although I'm not convinced that it's necessarily the optimal model for things like water and railroads (and to some degree electricity) which are by their very nature large, integrated systems that must be micromanaged to a considerable extent by a central hub.

Ummm...good point, but a strong management core need not necessarily mean hierarchy,just a much more significant node on the network.

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

by ChrisCook (cojockathotmaildotcom) on Mon Feb 23rd, 2009 at 03:19:51 PM EST
[ Parent ]
More and less significant nodes are a hierarchy.
by Colman (colman at eurotrib.com) on Mon Feb 23rd, 2009 at 03:26:46 PM EST
[ Parent ]
I don't think so, any more than more or less significant people connected directly are a hierarchy.

It's about direct routing of information, disintermediation, and flat, rather than multi-level structures.

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

by ChrisCook (cojockathotmaildotcom) on Mon Feb 23rd, 2009 at 05:20:06 PM EST
[ Parent ]
Railways are fundamentally a different kind of network that the internet. The internet is scale-free, railroads are not. So an organisational structure that's adapted to internet reality has a high probability of not being viable when applied to railroads, and vice versa.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 23rd, 2009 at 04:40:02 PM EST
[ Parent ]
hmmm running the railways as the internet. Packet switching individual carriages? Passengers allowed to debark when the train is re-assembled at the far end?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Feb 23rd, 2009 at 05:07:21 PM EST
[ Parent ]
My point is that direct - instantaneous "network presence" - connection is leading to an entirely different architecture of generic application.

The enterprise model - legal XML, if you like - is only just beginning to adapt to this.

For physical networks, different rules apply.

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

by ChrisCook (cojockathotmaildotcom) on Mon Feb 23rd, 2009 at 05:16:10 PM EST
[ Parent ]
Because the underlying problem is in the way we distribute the work and the value added:
  • When we insist that everyone who is working should be working full-time, any productivity increase must translate into greater consumption, or result in un- or under-employment.
  • When we insist that those who do not work full-time should suffer deprivation (in some countries rather more so than others, but the principle is virtually universally enforced), unemployment causes loss of quality of life, political unrest and other Bad Things.
  • When we insist on not taxing negative externalities like pollution and consumption of non-renewable resources, we encourage increases in productivity (efficiency relative to man-hours) that are made at the loss of efficiency relative to other input variables.
This comment and the ensuing thread should be a diary...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Mar 15th, 2009 at 06:49:56 AM EST
[ Parent ]
JakeS:
I think the biggest problems are 19th century problems that have been resurrected after already being solved (more or less) once before (at least in the First World(TM)).

I see the Credit Crash as a 21st Century problem due to its rapid - IT expedited - time horizon, and global extent. However, the underlying problem - unsustainable debt bearing compound interest - dates back thousands of years, and the concept of "Jubilee" was historically used to address it.

The problems caused by debt-inspired growth have never been "solved", because the cause has never been addressed. We have always, one way or another, "reset" the system. We have never solved the underlying problem.

What is entirely new IMHO is that due to direct Internet connections we are seeing the end of the middleman. This is - as migeru puts it - a "Telluric", once in a thousand years, shift.

I see the possibility of a once and for all Jubilee whereby dated debt issued by centralised middlemen/credit institutions will be replaced by undated credit issued by a networked clearing union of actual producers of value, within a framework of trust.

I believe that the Peer to Peer finance already out there will spread virally because those who do not use it will be at a disadvantage to those who do.

Classic emergence.

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

by ChrisCook (cojockathotmaildotcom) on Sat Feb 21st, 2009 at 01:55:35 PM EST
[ Parent ]
Isn't that really just another name for loan sharking, though?  With the Internet, maybe more loan sharks can enter a market for capital and drive down costs of financing, but I think I'd like to see a comparison between costs of capital under your plan and costs of capital under traditional financing methods.  It's the cost of obtaining financing and the ability to do it at in huge amounts that will determine whether or not P2P will ever emerge.
by santiago on Mon Feb 23rd, 2009 at 08:08:11 PM EST
[ Parent ]
santiago:
Isn't that really just another name for loan sharking, though?  

There's no loan involved in my proposal.

Investors buy (say) units (eg billionths) in a pool of index-linked rental revenues. The pool could run to thousands, if not millions, of properties.

Investors are not entitled to any repayment of their investment, but they are entitled to an index-linked return provided properties are occupied.  Since the rents are affordable it is by definition more likely that the returns will be paid.

The market price of this new asset class will be a matter of supply and demand. It is a close relative of a Real Estate Investment Trust, and Islamically sound, unlike conventional debt, a fact which broadens the pool of potential investors.

By way of an indicator, Wessex Water -a UK regulated water supplier - raised a 50 year loan last year at 1.49% index-linked.

I believe there are huge amounts of money out there looking for just this type of secure index-linked return, and the fact that UK base rate (on non-index-linked money) is now 1% would make it even more attractive for risk averse investors

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

by ChrisCook (cojockathotmaildotcom) on Mon Feb 23rd, 2009 at 08:38:50 PM EST
[ Parent ]
Just some quick undeveloped thots:

We need currency in Kwh maybe, but the system also requires stable long term units of energy storage, to represent investable capital rather than income.

I'd propose two kinds of fuel: some synthetic liquid fuel like maybe that Dimetheyl Ether some people propose, which would work on a scale of years, and maybe Uranium or Thorium, that are essentially permanent.

by PIGL (stevec@boreal.gmail@com) on Sat Feb 21st, 2009 at 07:25:04 PM EST


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