Gaia: Knights & Maidens of the Roundtable - Economics

Re: Economics from the ground up

http://seek2know.gaia.com — Wed, 22 Oct 2008 19:21:35 GMT

Janos good to see your post and timely reminder here. Economics is too important a subject to be left to Economists, says author Jim Stanford. I am grateful to get his comment in my blog and just teceived another one from a lawyer on my monetary vision today. I need help to spread it globally.

Please visit my blog and share it with your spanish or african, chinese friends in developing world. And also send me your kind comment, so other people feel encouraged to explore, discover, learn, think and engage differently. Our freedom, our children's future and the survival of our planet's ecology depends on it. Lets wake up and resolve to create a sane reality that works for all.

Do me a favor. Please search here a cool visual metasearch engine

Transforming Money Debt to Empowerment

or

Deep Conscious Capitalism

Wish I could have some spanish translation. Google translator do not do a good job. Thanks

Peace
mita

cheers

Re: Economics from the ground up

http://goodworld.gaia.com — Tue, 21 Oct 2008 15:47:10 GMT

Good people's general lack of interest in how economics dominate and determine everyone's private life ensures that not effective coalition can be brought together to change economics from master into the servant of humankind.

Wake up spirituosi!
On earth, those who control nature's resources, control the conditions of every soul's incarnation.

Don't understand? Meditate on it.

Re: Money from nothing into debt

http://seek2know.gaia.com — Sat, 26 Jan 2008 05:23:17 GMT

There is much to learn from the history of money and maney-changers and rise and fall of civilization with the soundness and stability of currency. While people have been historically kept divided by ethno-religious-ideology based conflicts and wars of all kinds by the powerbrokers, the real source of power has always been the agreement (voluntary or involuntary by force or threat) of people.

What we the people have forgotten that our true power resides on collective co-operation and intelligence (and not unhealthy competition with one another), especially in accepting a fair currency and medium of exchange. We can talk endlessly about fair trade, right livelihood, compassionate capitalism, sustainability but unless fractional reserve based lending, debt-money and usury is transformed to 100% trust and usury-free (not necessarily interest free) sustainable currency and allocated fairly to all through citizen's income the chances of achieving millenium goals and preventing death by poverty and war.

Lawyers and politians will only work after at least 2.5% of the citizens become aware of the insanity of debt-based monetary system. Our inner perception and reality must shift before outer changes can take place....I feel it is shifting and more we share the info and educate others globally especially our youth...we will make the cut.

Janos I like your idea "Park cars outside every bank in a district with windows plastered by leaflets saying to passers by something to the effect that ”do you know that the banks are lending you what they do not have and costs them nothing?”

We can just put the leaflets on the front windshield wipers ;) I've done that for Election Frauds on last Election Day. Banking frauds are still the most hidden and people do not see the entangled connections...even the accounting system is fraudulant.

Peace
http://conscious-capitalism.blogspot.com

Re: Money from nothing into debt

http://songofstorms.gaia.com — Tue, 08 Jan 2008 22:29:13 GMT

This word "devil" has been of late (ok, almost always) quite misunderstood! In my mind, the 'devil' is only the thoughts and actions that are not based in love, but in the void. But the thoughts associated with money do tend to be the devil sometimes, aren't they? But in order to rid the world of money-- well, we'd have to sidestep the paradigm where money gets you the things you need to live. Brilliant method of 'control' that, by those with devils in their pretty brains. We work for paper, and being busy working for paper, we stay in forgetfulness. Ugly thoughts that lead to the creation of money, but pretty brains...

Re: Money from nothing into debt

http://serafimer.gaia.com — Tue, 08 Jan 2008 19:42:49 GMT

If only the heart would be awake and bit!

However, prefered it seems is Ressurection or a maybe a Loaner.
And if they have no brains for carring action, but choose to drive into destruction, who would care?

Souls will incarnate when truth, love and belief manifests.

But is it the money matter creating the problems?
or the Zombism of cloned Greediness, Selfishness, Impotence to Act , Corruption and Irresponsibilty.

Are people working for the Devil because the Devil is rich?
Is money the cause of evils or the putrid void inside the talking heads?

When a soul knows the truth, believes and lives! ...by Taking Action to lead away injustice, mischief and prejudice!

Who is awake?

Re: Economics from the ground up

http://goodworld.gaia.com — Tue, 08 Jan 2008 14:26:18 GMT

Susmita,

Thank you for this extract from you paper.

The question is how to validate (make information able to transform the situation that it clarifies).

Knowledge is power only when it is applied. Corporate Personhood is a good case in question.

If lawyers created the phenomenon progressive lawyers can be asked to tame this dragon praying on people. We want a team of honest lawyer-knights to do this. How do we find these willing Knights?

Another task is waiting for a different team--people who are into action.
Park cars outside every bank in a district with windows plastered by leaflets saying to passers by something to the effect that "do you know that the banks are lending you what they do not have and costs them nothing?" then in smaller print provide some details to explain the headline slogan.

Re: Economics from the ground up

http://seek2know.gaia.com — Sun, 06 Jan 2008 22:52:22 GMT

Just quickly posting a section from my paper. All this conflicts between individual and society, private and public, personal vs collective are in our perception and perpetuated by ideologies for divide and rule purposes to keep status quo or make changes in ways that don't touch the heart of the monster. I feel education and awareness is a must and change has to come from the fringes (neither totally in, nor totally out) by conscious engaged citizens.

Public Vs Private and Other Assumptions: The definition and perception of “public” entities Vs. “private” corporations has been blurred historically through a complex system of legislations. Giving gobal mega-corporations with employees in different countries and continents the "private" status to avoid public accountability legally is something that needs to be questioned (see corporate personhood).

Each person is simultaneously a public and private citizen in his/her daily life. Any institution dealing with people, land resources and environment must hold a greater degree of civic responsibility and accountability than maximization of profit for a few shareholders alone.

The two basic assumptions of economics regarding "scarcity" and "competition" (as the best model for free market allocation) need to be seriously questioned. Human ingenuity, creativity and enterprise have always overcome scarcity or lack anywhere within society. Such progress has been always accompanied by mutual cooperation and collaborative behavior and ingenuity of individuals rather than competition among private corporations ( see 'Unequal Protection’).

To build economies from ground up we need public-private (real private not corporate) partnership and rethink money and currency.

cheers

Re: Economics from the ground up

http://andrewmarkmusic.gaia.com — Sun, 07 Oct 2007 18:37:51 GMT

There is a simple, practical and eminently feasible socio-economic solution to this distorted economic relationship between individuals and groups; but more of that in another post--this post is getting too long and transgresses against my private rule that "too many words bury the truth".

I'd be interested in hearing about some of those ideas! It does kind of seem to me that humanity has tried pretty well everything: religious communities, political ideologies, well, we've tried it all and it appears to have all fallen hopelessly short in creating authentic sustainable egalitarian type societies......Are we now doomed?

Don't we really need an 'outside' saviour to rescue us from our collective ignorance/arrogance/greed and well, to be honest- our downright myopic, short-sighted stupidity..........

Can we do it Janos or do we need 'outside' help?

Re: Economics from the ground up

http://goodworld.gaia.com — Sat, 06 Oct 2007 17:48:26 GMT

Grace, Andrew

Thank you for taking up this thread. Your comments about some concrete "reality" issues are most apt.

Questions of property and livelihoods are an important part of "practical spirituality".

Somewhere I read the view that the "original sin" was really to do with choosing to value the fruits (results) of doing Good's will (tending the Garden--earth) over the process of doing it.
In due course that degenerated into the yard stick of "what is in this for me, here and now?". The business ethos is the most extreme manifestation of this descent into doing everything for an identifiable reward.

A Grace says, a good deal of self knowledge needs to be deepened as part of learning to work as a team. And part of that self knowledge is developed by working in the external world. Here, I can often appear as a "curmudgeon" to spiritually minded people who insist that "the only thing you can change is yourself". In my view it is a "yes" and "no" question.

Part of the "from the ground up" process is to realise that, whereas until about five hundred years ago we could, as individuals, choose to "negotiate with nature for survival", since the "closing of the Western frontiers"--meaning the gradual enclosure (privatisation) of natural resources--we have been reduced to having to negotiate with fellow human beings for the "right to live" by doing "jobs" for one another to get a monetary income. This change has opened widely a "market" for mutual exploitation.

There is a simple, practical and eminently feasible socio-economic solution to this distorted economic relationship between individuals and groups; but more of that in another post--this post is getting too long and transgresses against my private rule that "too many words bury the truth".

There is also a solution of similar quality to the basic question of "property" highlighted by Andrew. This is the solution to do with a distinction between owning pieces of nature and controlling natural creative processes for private benefit, and claiming ownership over things we produced through our own skills and effort or acquired from others in fair and free exchange.

Re: Economics from the ground up

http://andrewmarkmusic.gaia.com — Fri, 05 Oct 2007 01:02:00 GMT

I don't see that private property in and of it self is necessarily a destructive force. I certainly don't resent paying rent to my landlord. It seems to me that the American Dream does seem to be obsessed with private property (and now the world in general). My remark about private property as being a primary tenet of Fascism is only relevant to a Fascist state. My concern lately is that it seems to appear that other elements of Fascism ( complete control of populations via an alliance of corporations, governments and banks) are becoming increasingly prevalent.......Maybe this is just my skewered projection........

From the Christian perspective the idea of stewardship i think is healthy and i think modernism has done a disservice to all life by tossing spiritual principles into the sewer of time......Maybe it's time we took the healthiest and best/excellent principles of the worlds spiritual traditions and reintegrate them before we end up in a place we don't want to be. Also, from the Christian perspective the appearance of a one world Fascist state is just too disturbing to ignore, as the only thing these recent trends is missing is that lone world dictator aliasly known as you know who.......I'm sure we don't want to go there either.....

Profit is not a dirty four letter word but the pathological pursuit of profit may be the undoing of us all..........................

Re: Economics from the ground up

http://sunight.gaia.com — Thu, 04 Oct 2007 22:36:28 GMT

Janos,

I am just coming up to speed with many of these posts. As I was responding to the question of my "Vision" for the future, and reading your post in the "Go here first" for today, I felt compelled to post here. Whatever we decide to do, be, activate, evoke, etc., it is important that we have done enough reflection on our personal natures to be able to design any new way of living. It still, in my opinion, comes down to individual growth and change. For instance, the issue of being slaves to employers for that magic carrot. We must look, on an individual basis, to how we are buying into that way of living. If we can't see what we are doing to keep the 'system' going, and be willing to change it, then we continue to perpetuate it.

For instance, when I was purchasing a condo, my value was that I didn't want to purchase anything newly built, that took up land for the purpose of greed. I really don't believe in 'owning' land, but you have to live somewhere, and the system requires you to be a part of it, if you want to be as economical as possible, within that system. How many folks are working at jobs to make money for their creature comforts, as slaves to the system? In order to change the status quo, one has to be willing to rock the boat, one's own, as well as others. We can't point to others and say 'you have to change' - and not practice what we preach. We must be the change....And others will have to see the benefit of making that change - that's human nature.

Re: The Nugget: Resource Depletion, Part 3

Tue, 02 Oct 2007 12:40:18 GMT

Economic Impact of Peak Oil Part 3: What's Ahead?

Posted by Gail the Actuary on October 1, 2007 - 10:00am
Topic: Economics
Tags: collapse, deflation, foreign trade, hyperinflation, monetary system, méxico, saudi arabia

This is the third article in a 3-part series.

We cannot know exactly what is ahead. In this part, we look at one possible future scenario. When we think of economic impacts, we usually think of the impacts that the squeeze of higher oil prices will bring–such as energy price inflation, food price inflation, and the need for more mass transit.

While these “squeeze” impacts are expected to occur, the real problem may be the discontinuities that occur, because of pressure on monetary systems and pressure on political systems. These pressures can cause unexpected results such as:

• Hyperinflation or deflation that indirectly results in a major decline in imports of all kinds (not just oil),

• Major changes in governments, and

• Fast declines in oil production in some oil exporting countries.

1. What impacts do you expect peak oil to have in the future?

There are three types of impacts that may occur. In the scenario that is presented here, we will assume that they all occur.

Squeeze impacts These are the impacts caused by gradually higher prices and slowly reducing world supply. This type of impact is already squeezing some of the poorer countries out of the world oil market. While this type of impact can be expected to increase over time, in this scenario, it is of far less importance than discontinuities.

Discontinuities for oil exporters In these countries, there is the possibility of social unrest and overthrow of governments once oil production begins to fall. This may happen because government revenues begin to decline, resulting in a cutback in governmental services and imports. The impact is likely to be a faster decline in oil production.

Discontinuities for oil importers Once real growth falters, the combination of increasing debt and decreasing real incomes may overwhelm monetary systems for oil importers. The infinite growth paradigm will come to an abrupt halt. Depending on the type of governmental intervention, the resulting discontinuity could either take the form of hyperinflation or rapid deflation. My analysis suggests either of these may result in a decline in the amount of oil and other goods a country is able to import, because of debt and monetary problems.

2. How soon might such discontinuities occur?

Discontinuities could start very soon, and continue in different countries over many years.

With respect to oil exporters, Mexico, with its declining oil production, is already at risk for social unrest and overthrow of the government. Saudi Arabia has a high risk of government overthrow, once its oil production starts clearly declining. Because of this type of discontinuity, world oil production may begin to decline considerably faster than models based on “business as usual” would suggest.

With respect to oil importers, we indicated in Part 2 that the debt situation in the United States is already in a precarious situation. A little more squeeze in oil availability, or a sharp drop in the value of the dollar, or even widespread knowledge of the likelihood of peak oil and its effects could further destabilize the debt market. Faith in the ability of long-term borrowers to repay their debt could evaporate. Depending on how the government deals with this situation, the result could be either hyperinflation or deflation.

If there are discontinuities, the timing is likely to vary from country to country, depending on the situation in that particular country. Once there is a discontinuity in a major country such as the United States, the impact may to spread to some other countries as well. Some countries may be able minimize discontinuity effects by finding a group of lesser-affected countries and sharing resources within the group.

3. If there is hyperinflation in the United States, what kinds of effects might there be? How about massive deflation?

With peak oil, there are likely to be many debt defaults, ultimately caused by the squeeze of higher oil prices. (This squeeze of higher oil prices may actually cause problems before the peak arrives. See Part 2, Question 12.) If the response of the government is to guarantee payment of debt, so as to prevent business failures, the money supply may expand greatly and hyperinflation may occur. If there are many defaults and the government does not intervene, or its intervention is unsuccessful, the money supply may contract, and deflation may occur.

Hyperinflation. If there is hyperinflation, people and businesses will find that money in their bank accounts and fixed income retirement funds will purchase very little. Incomes of people with jobs are not likely to rise as fast as the price of goods, so they will find it necessary to reduce their purchases. Demand for many optional goods and services will drop.

After a short time, the government will find that its revenue is very low compared to the huge amount of debt that it has guaranteed. Buyers for government bonds are likely to disappear, and the monetary system will collapse.

Whether or not the monetary system fails, foreign governments holding US debt will be very unhappy. Even if there is not a default, the bonds will be redeemed with dollars that are worth much less than when the bonds were purchased. Either way, foreign governments will feel cheated.

Massive Deflation With massive deflation, there will be many business failures –banks, money market funds, hedge funds, insurance companies, and ultimately businesses of many kinds. FDIC insurance will cover some of the bank losses, but this would soon be depleted. Many people will find their life savings wiped out.

Governmental revenue will decline in such a scenario, making it difficult for the US government to repay its debt. Exceedingly high interest rates might be needed to attract buyers for US debt–higher than could be afforded with the decline in revenue. If the problems were to become severe enough, the whole monetary system could collapse.

4. If the monetary system fails, what are the options for replacing it?

In a scenario where the monetary system fails, there will be big problems. In such a scenario, it seems like there is a significant chance that the government may also be replaced, because the existing government will have no money and there will be a huge number of people who are very angry about the situation. Waiting up to four years for a new president, and up to six years for new senators, may seem unacceptable. Open revolt seems possible.

Once we are talking about replacing the government, we are really speculating. One question is whether the new government would cover the same 50 states as it does today, or a smaller area. When the Soviet Union collapsed in 1991, the governments of its constituent states remained, and these took over.

If the analogous situation happened here, we would fall back on the 50 individual state governments. This would be the easiest new government to implement. It is theoretically possible that the 50 state governments could each set up its own fiat monetary system. It seems to me that this may be the most likely outcome.

5. What kind of new monetary system would work?

If we are talking about 50 state governments issuing currency, I would expect that the level of planning that would go into each of the new systems would be limited. Each state would issue some type of money, good only in that state. A governor might choose to increase the amount of money available whenever he or she found it politically expedient to do so.

With this system, money would still act as a means for facilitating the transfer of goods. No one would reasonably expect money to be a store of value because the amount of money in circulation in the future may be quite a bit greater than today, and the amount of goods available for purchase would likely be decreasing.

In a scenario where a new 50-state monetary system is created, the monetary system would still not act as a store of value. The inflation rate would likely to be very high, and interest rates would not be sufficient to offset the inflation. This result is expected because the amount of goods available to society will be decreasing over time because of peak oil and decreasing imports. Unless someone figures out a way to keep contracting the money supply on a regular basis (ask for 5% back from everyone?), the decrease in available goods would almost certainly result in persistent inflation.

If it is necessary to create a new 50-state government, the length of time it takes to put all of the pieces in place–a new government, a new monetary system, and probably a new banking system–could be a problem. If a new democratically elected government were to be formed, it would seem like the process could take up to three years. We would most likely be without any monetary system at all during this time. If some type of dictatorship took over, the timeframe might be much shorter, but there would be different issues.

6. What kind of financial system would work with a fiat monetary system, long-term inflation, and a declining economy?

In such a scenario, people would expect to spend money pretty much as soon as they earned it. Banks would be primarily for convenience, rather than as a place to store money for the future.

Insurance products with a very short time horizon could be sold - for example, term life insurance, health coverage, auto coverage, homeowners coverage, fire insurance for buildings, and cargo coverage for shipping.

Loans with very short time frames might be offered–for example, short-term financing of goods for resale. Long term business and personal loans would generally not be available, because of the uncertainty of the value of the currency in the future, and also because of the declining economy. (If the only problem were the variable inflation rate, variable interest rate loans might work.)

Because of the uncertain nature of money, it is possible that longer-term loans could be made to individuals that would be paid back in services rather than money. For example, a city might pay a person's tuition for medical school in return for his/her agreeing to work for that city for a set number of years to repay the loan. (Does this sound a little like being an indentured servant?)

Financing of large projects by businesses or individuals would be very difficult, because of the lack of long-term loans. Because of this, large projects would most likely need to be undertaken by governments, and financed by tax dollars.

A country with an economy of the type described would likely be very poor. It would theoretically be possible for the country to have a social security-type retirement program financed by a tax on workers. Because of the poverty of the country, such an arrangement seems unlikely, however. Instead, I would expect most people to work as long as they are able, and live with children in later life.

7. I learned that money is always a store of value. Isn't that what economics teaches?

Economics may teach that money is a store of value, but unfortunately this cannot be true when an economy is in a period of long-term contraction. Economists have developed their theories looking at an atypical period in the world's history–one where growth was the norm. They have never stopped to realize that our world is finite, so infinite growth is not possible. Their theories may hold for a specific time period, but aren't true in general.

In some ways, their assumptions are similar to the assumptions of the people in Columbus' day, who thought the world was flat. At some time in the not too distant future, people will come to realize that the most important word in the phrase “economic theory” is the word theory.

8. What will future trade look like in scenarios such as you are discussing?

If we are looking at 50 state governments, each with its own type of money, future trade is likely to be pretty limited. There will be some trade across state lines, but long-distance transport of people and goods is likely to decrease significantly. It may be possible to import some goods from overseas, but I would expect that an equal-value export would need to be traded at the same time with the same country.

If we are looking at a unified United States, prospects for trade are better. Trade within the United States will most likely continue unhindered. Overseas trade may still be a problem. For one thing, foreign countries will be unhappy about the default on US debt (or its payment in inflated dollars), and will want to retaliate. At a minimum, they will be unwilling to extend credit, unless it is clearly earned. I expect that countries will develop a close set of allies whose credit can be trusted, and trade mostly with those allies.

In either scenario, I expect that the total amount of foreign trade will drop sharply. As an upper bound, I would expect imports from overseas to equal about 56% of our current imports. (See Part 2, Question 8.) This kind of drop would be needed to eliminate our current balance of payments deficit. Even this level of imports is almost certainly unreasonably high, if our ability to produce goods for export decreases, or if there are barriers to trade. Also, some of our trading partners (like Japan) are likely to have economic problems as well. A better guess might be that overseas imports will equal 10% of current imports.

The decline in trade is a key issue. In a scenario where the US monetary system collapses, there will be oil somewhere in the world, but we won't be able to buy it. The inability to buy the oil will cause the problems, not the lack of oil itself. We also will find ourselves unable to buy most of the other goods we currently import.

9. What will happen to large companies?

In scenarios such as this, I expect that most large companies will either cease to exist, or will break into pieces that fit within a single country. There are several issues:

• If a US company has assets in overseas locations, there is a significant possibility that foreign governments will find an excuse to confiscate those assets, as partial payment for the US default on debt.

• Business airline travel is likely to disappear very quickly, because of the squeeze effect of declining oil supply. It will be very difficult to manage overseas locations using boats as the primary means of travel.

• Financial system problems may be a huge issue. It will be difficult to expand operations without the availability of long-term debt. Stock values are likely to be very low if the economy is in long-term decline, so raising funds from the issuance of stock will not work well either. If there are 50 states with non-interchangeable currencies, business operations across state lines may be very difficult.

• The decline in imports is likely to be a real problem. Local replacements will need to be found for raw materials and parts that were imported from abroad–even replacement parts, to keep machinery operating. Fuel for transportation of products will be very limited. Customers will have difficulty visiting stores, because of limited fuel supplies.

10. What kind of economy can continue, without large companies, with very few imports, and with a finance system as you described?

In such a scenario, I expect that the economy that can exist long-term would be a very simple system, with most people either growing their own food or manufacturing some type of product using local materials. Such a system might be similar to an economy from 1900 or earlier.

If this scenario should happen now, the new economy would not work as well as the economy in 1900 in many ways, because the country would be lacking some of the things available in 1900 – for example, draft animals for labor and farm tools that do not require fuel. People now are also lacking the required skills to live as people lived then - knowledge of farming, food processing and woodworking, for example.

For the first several years, I expect we would be able to carry over some of our current lifestyle. People would continue to live in houses that were built prior to the discontinuity–perhaps two or three families in a single house, if the house is conveniently located. Clothing and other manufactured goods would be used as long as possible. I expect that there would be considerable trade in used household goods.

Electricity would continue to be available as long as the grid can be maintained and power plants can be operated. I expect that if new power plants are built, they would use local materials for generation– wood pieces where there are forests and oil where oil is produced. The availability of electricity is likely to vary by the part of the country. Grids are likely to be difficult to maintain, so eventually electricity is likely to be generated close to where it is used. Many homeowners are likely to be without electricity.

11. Will there be rationing of gasoline and diesel fuel?

In this scenario, it is possible that there would be rationing of fuel for a few years, but I expect the whole transportation system would collapse pretty quickly, so that the need for gasoline and diesel would decline. The reason I see a problem is the fact that our vehicles – cars, semi-trucks, fire engines, ambulances, farm equipment, and airplanes–have many parts that need to be replaced regularly:

• Batteries
• Oil filters
• Tires
• Brake linings
• Head lights
• Fluids such as anti-freeze, transmission fluid, and motor oil

In addition, roads and bridges that the cars and trucks use need regular maintenance. If we are very much restricted in terms of imports, we will not be able to import the parts and raw materials that we are accustomed to. Because of this, it will be difficult to keep the cars and trucks running and the roads repaired. Even if we have plenty of gasoline and diesel fuel, the system will come to a stop.

Boats and trains may be better, in terms of needing fewer replacement parts. Electric trains would seem to be OK as long as the grid is running. Once the grid stops, electric trains will stop.

12. How much new infrastructure would we be able to build, after the discontinuity?

Very little. There are a lot of things we would like to use our resources for, including:

• Building factories to manufacture all of the things we used to import from overseas, but can no longer import.

• Maintaining roads and bridges.

• Maintaining the grid.

• Transporting raw materials from one end of the country to the other.

• Building new battery powered cars.

There would simply not be enough resources to go around, since the resources we will have will be those within the country itself, plus a few imports. Financing is also likely to be a problem, because of the lack of long-term loans. Most of the infrastructure development would need to be undertaken by governments, because of financing issues.

13. If we need to use more manual labor to grow our food, how will that work? Right now it seems like there are a lot of huge farms.

I can think of two approaches that might be used to make the transition from large mechanized farms to farms using more manual labor. One approach is for the government to print lots of extra money, and use the extra money to buy up the large farms. The extra money will add to inflation. The government will then divide the large farms into small tracts, and assign families to the tracts.

A second approach would be to keep the farms intact, and assign people to work on the farms, much like serfs. The farm owner would assign people to tasks and keep a portion of the crops as his share.

Regardless of which approach is used, a large amount of housing will be needed in areas where farms are located. If existing houses are located in the area, they can be subdivided and used. If not, there will be a need for houses that can be built at low cost with local materials. I would expect homes would be built of local materials such as straw, sod, logs, or adobe. These new homes would lack amenities such as electricity, heat, and running water.

14. Which countries are likely to fare best in the transition to a scenario such as you describe?

The countries that are likely to do best in the transition are the ones whose economies are at a fairly low level currently, so that the people have the skills and the tools needed to grow local crops, and make clothing. It would be helpful for the countries to have fertile soil, adequate rain, and a relatively low population for the area available. It would be best for most people to already be living in the countryside or small towns, because it is doubtful that economies will be able to support large cities after the discontinuity.

Finally, it would be helpful for the countries not to be too affected by climate change. If climate change kills the native crops, there will be a huge problem.

15. What might a country do to prepare for life after the discontinuity?

If a scenario such as the one we have discussed takes place, the world will look much like it did before the industrial revolution in not too many years. Most products will be grown or produced locally. Foreign trade will play a minor role. The array of goods available will be much smaller than today. Finance will play a smaller role than today.

If a country is to prepare for a scenario such as this, one major thing that needs to be done now is to train people for life in a low energy world–teaching the many skills required. It would be helpful to collect open-pollinated seeds for grains, legumes, and vegetables suitable for each area. It may also be helpful to manufacture some tools and easy-to repair machinery for use in the future. A country may even want to re-build some older technology like grain mills powered by waterfalls and cotton gins, since these can be built to be fairly sustainable in the future.

If a scenario such as we are discussing happens in the next few years, spending time and money on attempts to extend our current lifestyle would be counterproductive. The decline would be so significant that we would not be able to maintain our new technologies in the years ahead.

Hopefully, a scenario such as what I have described will never happen. Thinking about it, and why it might or might not happen, can perhaps give us better insight as to how we should prepare for the years ahead.

Re: The Nugget: Resource Depletion, Part 2

Tue, 02 Oct 2007 12:31:57 GMT

Economic Impact of Peak Oil Part 2: Our Current Situation

Posted by Gail the Actuary on September 25, 2007 - 9:45am
Topic: Economics
Tags: balance of payments, Bretton Woods, debt, economic growth, FDIC, productivity growth

This is the second of a three part series giving my view of the economic impact of peak oil.

Peak oil seems likely to make a huge change in our economic system–more than would be expected by a worldwide decline in oil production by a few percentage points a year. In Part 1, we looked at the contrast between economic systems before the industrial revolution and the current economic system. We also looked at economic studies that suggested that energy, and the more efficient use of energy, seem to be big contributors to the real economic growth that took place since the industrial revolution.

In this segment, we will look at some other changes affecting the economy besides the growth in the use of fossil fuels. We will look particularly at debt and how peak oil is likely to affect a financial system that is tied to debt. We will also look at some the stresses that the economy is currently under. Some of these stresses seem to stem from a failure of the United States to fully adapt to its own decline in oil supply since 1971; some of these stresses come from the fact that the world is finite, and we are reaching the earth's limits with respect to more than just oil.

1. Why is debt important to our economy today?

Debt, and the trust that makes debt work, is the glue that holds our economy together.

There is a very close relationship between debt and the supply of money. When a person borrows money from the bank, the loan actually increases the supply of money available. When more and more people take out mortgages and other types of debt, the people taking out the mortgages end up with more house then they would otherwise have. When homeowners refinance their homes and take the equity out, they get additional cash that they can spend on other things.

If we suddenly have a situation where there are many defaults on mortgages or other debt, we end up with a reverse of the above situation, so that there is in fact less and less money. If a bank takes possession of the house when a purchaser is behind on payments, and tries to sell the house to get its money back, the house is added to the large inventory of other unsold houses. This tends to bring the prices of houses down further, and tends to reduce the amount of equity other homeowners have in their homes.

Besides this role of debt, debt (in the form of bonds of various types) makes up a large share of the assets of insurance companies, pension funds, and banks. If there are suddenly many defaults on debt, most of the financial institutions in the country are at risk.

Debt is also a means of smoothing financial transactions. We use credit cards for personal purchases. Businesses make purchases from other businesses, and are often given some specified period to pay (say, 30 days or 60 days), before interest starts accruing. This is a form of debt. Because the US has a trade deficit, there is debt associated with purchases we make abroad. If we buy a car from overseas, on average, there are not enough exports to balance out our imports. Japan (or whoever is selling the car) ends up with more cash than it can use for imports. It often takes its excess dollars and buys US Treasury bonds–another form of debt.

2. How did we get to a situation where debt is so important to the economy? Weren't panics and crashes (like the bank failures during the depression) between 1800 and 1932 so disruptive to the economy that debt could only play a minor role?

During the time when panics and crashes were frequent, it was difficult to use debt widely, since defaults were a major problem. A number of changes were made over the years in an attempt to provide stability. The indirect result of these changes was to make greater use of debt possible. (Increased use of debt was also enabled by going off the gold standard in 1971, since the money supply was no longer tied to the amount of available gold.)

Factors which contributed to the stability of the system included:

• Establishment of the Federal Reserve System in 1913. This acts as a central bank, and tries to regulate monetary supply, primarily by adjusting interest rates.

• Establishment of the Federal Deposit Insurance Corporation in 1934. The FDIC insures deposits in banks and savings and loans up to a specified limit (now $100,000), to prevent runs on banks.

• Establishment of rules for international financial relations at the Bretton Woods Conference in 1944, including the establishment of the International Monetary Fund in 1945.

Another factor adding stability to the system was the economic growth that came through the growing use of fossil fuels.

3. Why would economic growth–pushed along by growing fossil fuel use–make the debt system more stable?

The reason that economic growth makes a debt system more stable is that we are dealing with a system in which a person (or company or government) borrows money at one date, and pays back that money plus interest at a later date. If the economy is growing rapidly, incomes tend to be rising, making the payback of loans, with interest, easier. A person who has taken out a home loan, or a loan for college expenses, will find that his higher income over time makes debt payments relatively affordable. Default rates tend to be low, so interest rates can be relatively low.

If there is no real growth (that is 0% economic growth), there will still be a few situations where loans make economic sense. These projects will have a good enough return that borrowed money can be used, and the return on the project will cover the interest on the loan. In general, the process will not work very well, however. Real incomes will not be rising fast enough to provide a cushion to make interest payments more affordable. Default rates will be quite high, so lenders will need to charge a higher interest rate to cover defaults. This will make loans affordable only in fairly rare circumstances.

If we get to a situation where there is long-term economic decline, rather than growth, debt becomes a losing battle. Default rates are likely to be very high, making required interest rates (to cover expected inflation, a “rent” payment on money, and expected defaults) extremely high. Virtually no project will have a high enough expected return to be financed by debt in such an environment.

4. Where do we stand now with respect to economic growth?

Wikipedia tells us that income per capita was essentially flat until the industrial revolution. Between 1790 and 1946, Economic History Services data shows that the US experienced long term economic growth. There were a lot of ups and downs, related to the bubbles, panics and crashes that were so much a problem in that era, however.

Since 1946, Economic History Services data shows that the US real growth has been about 3% per year. Year to year fluctuations have been smaller than prior to 1946, due to the changes described in Question 2 and the interventions of the Federal Reserve to maintain stability.

Going forward, it seems very probable that the US real growth rate will decline once world oil production begins to decline. From Part 1, we know that there is a close tie between energy use (and more productive use of energy) and economic growth. We also know from Part 1 Question 6 that productivity growth at this point is relatively small - only 1% or 2% per year, so that we are unlikely to make up a very big decline in supply by efficiency gains.

Surprisingly, a decline in US real growth rate may come even before peak oil. The issue is really one of how much oil is available to the US, through its own production and through imports. If something happens to reduce our imports, such as a drop in the value of the dollar, or greater competition for existing supply, we could find ourselves with less oil, even before the world reaches peak oil. If the decrease in oil supply is large enough that we cannot make up the shortfall by other means (increased coal or biofuels, for example), we could face declining real growth on a long term basis, even before peak oil.

5. Wouldn't declining economic growth cause problems in an economy that is as tied to debt as ours?

Yes! I It is likely to cause a lot of problems.

If no intervention is made, there are likely to be a huge number of defaults. This will lead to many insolvencies and deflation, most likely.

If steps are taken to guarantee the payment of loans, this may lead to hyper-inflation. We may still have our bank accounts and pension plans, but we will find that the funds in them will purchase much less than in the past.

It is possible that there will be such serious disruption that the monetary system as we know it disappears. We could temporarily end up with barter as the primary means of exchange. Presumably, an alternative monetary system would be developed fairly quickly, but it could still be quite different from what we have today.

New agreements with trading partners to facilitate inter-country trade would also be required. These new agreements could prove to be a more difficult problem than developing a new monetary system for use within the country.

6. Hasn't planning been done that considered the possibility that over the long term, economic growth may not really be possible?

No. Economic theory has grown up since the industrial revolution, during a period of long-term economic growth. Recent economic work has been done using data since World War II. No one has stopped to think that the analysis period data might not be typical of the situation over the long run.

Some examples of calculations that are distorted by looking at data from only periods of economic growth include the following:

• Pension calculations. Much higher contributions will be needed, it economic decline is expected.

• Loan calculations. A much higher margin for default is needed in interest rates, if a decline in economic growth is expected. Thus interest rates on loans will be higher.

• Projections of stock market values. An analysis that considers only periods of economic growth will show good prospects for stock market growth in the future. An analysis that considers the possibility of long-term economic decline will show declining values.

• Models used by quantitative analysts to price derivatives and sliced and diced bond funds. It is not clear that these models are very good in the best of circumstances. If one adds the major shifts caused by declining economic growth, rather than increasing economic growth, the models are likely to be hugely distorted.

7. I have heard that the US has been spending more than its real income in recent years. It seems like this will only make the problem of a future decline in real income worse. In what ways are we overspending?

There are several ways that we are spending more than our real income:

• We keep adding more and more debt (personal, business, and governmental). We use debt to finance our expenditures, with the idea that our income will be higher in the future, so we can afford to pay for our expenditures plus interest later. One example of this is refinancing home loans, and using the equity to pay for current purchases.

• The government has developed programs like Social Security and Medicare that promise payments in the future, that are only partially funded today.

• We defer maintenance on our infrastructure - roads, bridges, pipelines, and electric grid, for example.

• We are depleting our non-renewable resources. Besides oil, we are depleting our natural gas, so that declining production is expected in North America in a few years. We are also using water from our aquifers more quickly than it can be replenished, and we are depleting our soil by not returning enough organic matter to it.

• Debt payments are artificially low,

• We are importing more than we are exporting, resulting in a growing balance of payments deficit.

8. I'd like to know more about the last two points. Tell me first about the US Balance of Payments situation.

US oil production began to drop in 1971, and the US went off the gold standard the same year. Since then, the US has been importing increasing amounts of oil and other products. This increase in imports has not been balanced by an equivalent increase in exports, so our balance of payments is getting more and more lopsided.

Figure 1: US Balance of Payments, 1970 – 2006

What is happening is the US standard of living is increasingly being subsidized by the deteriorating balance of payments. In 2006, this deficit amounted to about $2,700 per US resident, or somewhat more than 10% of US per capita income. This deficit relates to a wide range of products –only about 15% of our imports are currently petroleum products.

US trading partners are becoming increasingly unhappy about this situation, partly because they realize that they are financing a lifestyle Americans cannot really afford. In addition, many trading partners are becoming aware that world oil production is likely to decline in the next few years. Peak oil is likely to result in declining real GDP and a much greater chance of default on debt. Our trading partners do not want to be caught with a lot of worthless debt.

9. What about the other point in Question 7, “Debt payments are artificially low”?

There are several reasons debt payments are artificially low:

• Foreign trading partners in recent years have been using the excess cash they received from the US purchase of imports to buy US debt. This has helped to keep interest rates artificially low. This issue is closely tied to the balance of payments situation above.

• Low interest rates set by the Federal Reserve have also tended to keep interest rates low.

• Some new debt products have artificially low teaser rates for the first few years they are effective.

• The charges required for defaults on loans have been calculated in a period of economic growth, so are artificially low.

• Underwriting of loans has often been very loose.

If payments on loans are artificially low, lenders will generally fare poorly. Such a situation is not sustainable–In the long term, debt payments (on all new loans and some existing loans) are likely to rise, resulting in market contraction and defaults.

10. Are there problems with the debt system, over and above the artificially low payments that may cause defaults in the future?

Yes. Confidence in the system is being severely tested. One of the basic characteristics of a debt-based finance system is that there must confidence in the system for it to continue to exist–-otherwise lenders will stop granting credit and the system will come to a screeching halt. For example:

• Debt products have been put together without adequate concern for protecting the lender. Home loans were made with initial teaser interest rates and little down payment. Commercial loans were made without proper covenants.

• Questionable loans were repackaged (after being sliced and diced) and resold around the world. These repackaged loans cannot be valued properly, partly because of the questionable nature of many of the underlying loans, and partly because the valuation system that was planned (using rating agencies and theoretical models) works very poorly in practice.

• Off-balance sheet financing of banks makes it impossible to assess a bank's true financial situation. Banks are becoming less willing to lend to each other, because they cannot tell what each other’s actual financial situation is. Banks lending to other banks are not protected by FDIC coverage, so they are concerned when there may be a risk of default.

11. What other issues are currently on the horizon?

The world is finite, and we are reaching its limits in many ways. Besides energy-related impacts discussed in Part 1, there are many others:

• There is increased competition for soil and fresh water. It is not easy to increase production of biofuels, because of competition with food production. Costs of food and other products tend to rise with scarcity, adding to the overall pressure on consumers, and pushing real economic growth downward.

• Many minerals are becoming harder and harder to extract, because the locations with high concentrations have been mined. The real cost of mining these minerals is rising, both because of the higher cost of fuel and because of the additional work required to extract these minerals.

• Climate change is becoming a serious issue. There is a significant possibility that climate change will disrupt food production in not many years. There is also a possibility of coastal flooding causing significant damage.

12. How would you sum up what we are seeing here?

We are facing a world that is already stressed - by a debt market that is not working well, by pressure on limited resources, and by climate change. In such a world, it does not take much of a change to disturb the debt system, and to cause serious problems with the world monetary system.

Peak oil, or even the squeeze preceding peak oil, is likely to result in a decline in real growth. Even a slowdown in growth might cause a problem at this point, given the existing problems in the system. This disruption of economic growth is likely to put pressure on the monetary system, because our monetary system is tied to debt, and debt is easily disrupted by declining economic growth.

The United States is particularly vulnerable to problems because we are living beyond our means and because we are already straining our debt-based system to its limits. There is a significant possibility of a discontinuity of some type–either deflation or rapid inflation. There is even a possibility that our monetary system will fail completely, and need to be replaced.

The long period of economic growth in the past 60 years has lulled analysts of many types into believing that the favorable patterns associated with economic growth will last forever. It is pretty clear that these favorable patterns are in fact temporary. Peak oil, or the squeeze preceding peak oil, is likely to result in a rapid change in the financial situation that may have more impact than the decline in oil production itself.

In Part 3, we will look at the changes that are likely to occur in the years ahead.

[It looks like my internet problems will last until Monday so apologies once again for any links not working. Here is the link for the article so you can read the Comments section too: http://www.theoildrum.com/node/2983#more. ]

The Nugget: Resource Depletion, Part 1

Tue, 02 Oct 2007 12:28:09 GMT

This is a three part article about the impact of Peak Oil on human civilization, focussing on Industrial civilization. It is also posted in GW's Age of Turbulence Pod. I would like to introduce it here because I feel that we are so far away from the real problems that face us at the present time in this pod. I am also posting it in several other topic threads to see where the dicussion can go. Please have the patience to read the whole three part article. It may enliven your interest in the discussions... it might change your life, who knows?

Here is an article from The Oil Drum by a contributor named Gail The Actuary who has presented some of the most clear explanations of how resource depletion works. So I thought I would offer this series (of which this is the first part) for your consideration:
(Here is the link so you can read the comments section, which on the Oil Drum is always interesting http://www.theoildrum.com/node/2977#more, with an editorial apology: I ususally try to go through the links to make sure they work and that they open in separate windows, but I am having “issues” with my satellite internet link so I dare not take the chance and am leaving well enough alone)

Economic Impact of Peak Oil Part 1: A Flashback

Posted by Gail the Actuary on September 19, 2007 - 3:00pm
Topic: Economics
Tags: debt, industrial revolution, Robert Ayres, Robert Solow

This is the first part of a three-part series providing my ideas on the economic impact of peak oil.

What happens when peak oil collides with our economic system? It seems to me that there is a high probability of a major discontinuity of some type. What exactly happens after the discontinuity is likely to vary from country to country. It seems to me that the United States is especially vulnerable to a drastic drop in the amount of oil available for import because of the large amount of oil we import and the relatively small amount of goods we export.

Many people when analyzing the world oil situation focus on the relatively small drop in overall world supply in the first few years. From this, they conclude that peak oil will primarily raise the price of oil and some related goods, but not have a huge effect otherwise. If the decrease in oil products is severe, some rationing may be required. I think this analysis misses the big part of the problem – the impact of peak oil on the overall economic system, particularly in the United States.

The world is very different now than it was before the industrial revolution, which began about 1800 when fossil fuels were first used extensively. It seems to me that there is a significant chance that over the long term there will be just as big a change as we leave the age of fossil fuels. To start the discussion, let's start with where we are, and then take a look back.

1. What is our current economic system like?

We all recognize our current economic system. Goods are made in factories around the world. Food is grown on large farms, then processed and packaged before we buy it in grocery stores or restaurants. There is a huge amount of international and local trade that brings all of our goods and services to us.

Most of us have jobs and work for money to purchase the things we need or want. We expect to buy various types of insurance, such as life insurance, auto insurance, and long term care insurance. After we have worked for a number of years, we expect to retire and collect funds from various sources - social security, a pension, or perhaps a 401(k).

To finance all of this, there is a huge financial industry. This industry includes many players:

• Banks and savings and loans
• Insurance companies
• Hedge funds
• Markets that sell stocks, bonds, and a wide variety of derivatives and repackaged debt
• Large numbers of accountants, actuaries, economists, financial advisors, financial planners, quantitative analysts, and others associated with the financial services industry.

We know that this system includes a very large amount of debt. Almost any new factory is “financed”. Businesses use debt to buy other business. Individuals use debt to finance college educations and to purchase homes or cars. In recent years it has become fashionable to refinance home loans as soon as some equity has built up, and use the funds withdrawn to pay down credit card debt.

Governments use debt to just as great an extent as individuals. State and local governments issue bonds to finance a wide range of projects. The federal government has both the debt that it reports, and unfunded programs such as Social Security and Medicare. USA Today reports that when corporate style accounting is used, federal liabilities amount to $59.1 trillion, or $516,348 for each US household. This compares to an average of $112,043 per household in personal debt such as mortgage loans, auto loans, and credit cards.

2. Have economies always been similar to ours today?

We all know that the answer is “No”. Prior to the industrial revolution, most people were farmers, and businesses tended to be quite small. Governments funded big undertakings like roads or water systems (or pyramids). Farmers grew or made most of what they needed. What was left over was sold and traded for other goods. Cities tended to be quite small, because the amount farmers produced over and above what they needed for themselves was not sufficient to support very many additional people. While there was international trade, the volume was much smaller than today.

In businesses and governments, debt seems to have played a lesser role than today. When Lloyd’s of London was formed in 1688 to pool insurance risk, it was formed by a group of wealthy individuals, each pledging a share of their personal wealth as backing for the venture. Thus, the emphasis was on assets rather than debt. The US government did not have significant debt until the Civil War. Its next increase in debt came with World War I.

The use of debt, particularly by individuals, seems to have been viewed quite negatively. The Catholic Church forbad debt until 1822, and Islam to this day forbids paying interest on debt. The Jewish Torah says debts should be erased every seven years and every 50 years. Those who could not repay loans were sometimes sent to debtors’ prisons or became indentured servants or slaves.

Homes and barns were quite simple, and were often built with the help of friends or neighbors, so little debt was needed. Farms and other property tended to stay in families, and were transferred through inheritance. Many of the skills needed to run a farm or small business were learned through apprenticeship, often with the boy’s own father. Retirement was unknown. People would work as long as their heath permitted, and lived with their children when they got older.

Since retirement was unknown, when people saved for the future, it was primarily savings for a “rainy day”-–crop failure or ill health or burial. The stock market and even banks were viewed as risky. Panics, crashes and bubbles happened frequently, making it difficult to predict how markets would behave in the future.

3. How did this huge change in the economic system take place?

One of the big factors in the change was the greater use of fossil fuels, starting about 1800, when coal began to be used to power factories and the steam engine. This allowed for the production of many more goods, and resulted in greatly expanded trade.

Petroleum came into widespread use in the late 19th and early 20th century. Farmers were able to farm larger tracts of land with the use of tractors and other equipment. The green revolution between 1940 and 1960 further increased farm productivity through the greater use of fertilizers (natural gas), pesticides (oil), and pumped irrigation (oil).

4. Wasn't technology important in the change in the economy?

Energy and technology go hand-in-hand. Without energy, it is hard to have much technology improvement. Energy also goes hand in hand with productivity growth, since energy is what permits a machine to do the work a person previously would have done.

5. Have economists studied the relationship between energy and economic growth?

The standard model by which economists explain growth is the Solow-Swan neoclassical growth model, which is described in Robert Solow's 1956 paper A Contribution to the Theory of Economic Growth. This paper looks at the contribution of labor and capital to the growth of the US economy, using a model that assumes that the contributions of labor and capital are proportional to their respective costs. The paper finds that labor and capital in fact explain less than 25% of the actual growth of the US economy. The assumption is then made that “technology” must explain the huge residual.

With a model that explains so little (less than 25% of actual growth), it is not clear that the model is very helpful. The residual comprising over 75% of growth could just as well be energy as technology.

One economic growth model that explains growth quite well is Accounting for Growth, the Role of Physical Work by Robert U. Ayres and Benjamin Warr, Structural Change and Economic Dynamics, February, 2004). This model looks at the amount of work (in a physics sense) that is done by energy. Thus, it considers both the amount of energy used and how productive that energy is. For example, power stations in 1900 converted only 4% of the potential energy in coal to electricity, but by 2000, the conversion efficiency was raised to 35%. This model explains the vast majority of US real economic growth between 1900 and 2000, except for a residual of about 12% after 1975.

Figure 1: Results of model by Ayres and Warr. The selected model is the dotted red line, which includes biomass and animal labor, as well as other types of fuels (fossil and nuclear).

A closely related result from the Ayres and Warr paper is that declining real cost of energy, particularly electricity, and the rising use of the much cheaper electricity, fed economic growth in the 1900 to 1998 period.

Figure 2: Electricity prices and electrical demand, USA 1900 - 1998

6. Has the real price of electricity and other energy products continued to drop in recent years?

Any of us, looking at our electric bills, our natural gas bills, and the cost of fuel for our cars know the answer to this one. Rather than talking about peak oil, perhaps we should be talking about passing the “trough in energy prices”.

The Department of Labor shows this graph of changes in the Consumer Price Index for Energy.

Figure 3: Changes in Consumer Price Index for Energy, from the US Department of Labor

The cost of electricity has also been rising since 1999.

Productivity is growing, but not nearly as rapidly as energy costs. The International Energy Association says that energy efficiency is growing at less than 1% per year in its 26 member countries. The US Energy Information Administration forecasts energy efficiency gains ranging from 2.2% to 2.4% per year between 2004 and 2030 in its various forecast scenarios.

One way of confirming the higher real cost of energy is to look at the trend in energy costs as a percentage of GDP. According to the U. S. Energy Information Agency, energy costs rose from 6.0% to 7.4% of US GDP between 1999 and 2004. We all know that since 2004, energy costs have likely risen further.

7. Were there any other factors besides the increased use of fossil fuels that caused a change in the economic system between early days and now?

Yes, there certainly have been many.

One that is important for our analysis is the fact that there was a real change in the way the markets and financing were viewed. Debt was viewed more positively. The stock market came to be viewed as a safe investment. The whole system came to be viewed as sufficiently stable that quantitative analysts could develop sophisticated models of the system and use these to price financial products.

We will look at how this change came about in Part 2. In Part 2, we will also look a little more at where the economy is now.

Re: Unconditional subsistence income--AKA Citizens' Income

http://goodworld.gaia.com — Sat, 22 Sep 2007 13:38:36 GMT

Thank you for commenting here.

You are right in saying that Basic Income is not enough. We only need to insist that it is necessary in the modern world. Other things need to change as well for complete transformation.

I suggest that your comment "...rising debt burden on those who cannot meet it, and increasing accumulation of wealth in few hands..." refers to the need to socialise the benefits of the two fundamental monopolies. These benefits are, at the moment, captured by private sectional interests.

Allowing this to continue amounts to governments' gross neglect of their "fiduciary duties" and needs to be made actionable at the bar of a well informed public opinion. We need a team of public spirited lawyers to discuss this basic failure of governmental responsibility.

The two fundamental monopolies are, of course, private control of the value of natural resources (including urban and agricultural land) and the private monopoly of creating a nation's money supply as a private enterprise instead of as an administrative, fee earning service to society.

Re: Attention as a currency

http://seek2know.gaia.com — Thu, 20 Sep 2007 00:11:32 GMT

Isn't that the reason for all our media, marketing and ads are continuously clamoring for our precious little attention so we are programmed subconsciously to think and behave in certain ways and never venture out of the box named 'free market'.

Now where should we put our attention matters enormously...i say we need to put our attention on the very dysfunctional and fraudulant way money or currency system operates right now.

This is why e the citizens need to think about where the system is failing and why and how we can create a sane and sustainable system that works for all.

cheers
mita
http://www.seek2know.net/money2.html

also check out this shocking side of FREE market

Re: Unconditional subsistence income--AKA Citizens' Income

http://seek2know.gaia.com — Wed, 19 Sep 2007 23:19:59 GMT

Thanks Janos for posting about basic income or citizens basic income, which is a necessity to address mass povert in developing countries and increasingly here.

The BIEN european network was pretty much a closed organization, as I did not get response from them 2-3 years ago, now they are coming to south Africa which is home of biggest banks.

Citizens income do not change the status quo of rising debt burden on those who cannot meet it, and increasing accumulation of wealth in few hands. So citizens need to be aware of that.

Bishop Tutu's speech worth watching
http://www.youtube.com/watch?v=gf3n-L5FDy0

Peace
Mita
Deep Conscious Capitalism

Re: Debt-free sustainable currency for the people by the people

http://goodworld.gaia.com — Wed, 05 Sep 2007 21:02:45 GMT

Since the invention of money credit and debt have occurred... market forces stabilize these differences...

You seem to have studied economics, Wiseman. You have summed up the prevailing academic opinion on the nature of economics admirably. Two streams of thought are highlighted: one about money the other the self regulating nature of an economy via the market mechanism.

The essence of this belief about economics is that it is the best possible system (barring, perhaps some periodic adjustments as societies develop).

Taking the money stream, distinguishing between money and credit/debt is wise. But it is essential to bring out details about the nature of modern money.

Money is not what it used to be: metal coins with intrinsic value (gold, silver, copper) or other valuable things. In fact, there have been times, according to my reading, when the copper in coins was worth more than the face value. Then in the last four hundred years money went from paper receipts for metal coins (specie), to paper (fiat) money, to receipts for paper money (cheques), to today's entries in electronic accounts.

The details surrounding money can (but need not) be mind numbingly mystifying. The simplest but still accurate view of money is as a rationing or ticket system:

Compare available and potential wealth (goods and services) as a theatre with a certain seating capacity. If performances regularly took place in front of audiences half filling the theatre, while a queue of patrons were turned away regularly because there were not enough tickets, you could be fully justified in suspecting that the management is incompetent. Yet this is what actually happens when we are told that there is no money to finance this or that necessary or desirable development. And here is a tie-in with the other stream, the market.

It can be hard to believe that there is a strong consensus among many economists that "markets do not fail" in spite overwhelming evidence to the contrary (see some of the discussions on wikipedia).

The truth is that every recession is really a market failure. You have workers unemployed and without income and you have producers unable to clear the stock of good on hand (because the workers don't have enough "tickets" to buy what they and need and want) so they cut back on production and increase the number of unemployed further reducing purchasing power (money/effective demand) in the market by laying off staff. True, recessions do come to an end in due course (the economy adjusts eventually in spite of grossly imperfect competition in the market) but there is no need at all to put up with the booms and busts of the so called "business cycle".

Now, the thing about modern money is that it has virtually no cost of production. So you could actually print more money "tickets" or create credit money and grant it to the unemployed. They would spend it on things they want which now becomes "affordable"; producers would start producing more and take on more people, and so on. Of course, unemployed people do get paid a pittance but even that comes via the banking system as interest bearing debt to the government. If it is argued that the government should create the needed (credit)money itself, it is dismissed as inflationary. So we have an insane system where creating new money as a social function is deemed bad but if it is created by the banks as a debt (with interest) to the people it is OK.

So can you see, Wiseman, that the idealized self adjusting model of how an economy should function does not actually conform to reality. Of course, what I said above is not a definitive critique of the orthodox economic view and bears more discussion. What I am convinced about is that the theories of how the economy functions are quite far from fitting a real economy. (See, among many other works, The Origin of Economic Ideas by Guy Routh)

Re: Debt-free sustainable currency for the people by the people

http://goodworld.gaia.com — Wed, 05 Sep 2007 10:08:59 GMT

"...I'm just too oppressed by my financial situation to spend much time on [on this important thing]."

Permission speak frankly?

I think we have an issue of awareness here that often afflicts the relatively well off; an awareness that life is a lot harder than need be for a large majority of people, and awareness that this is entirely to do with economic issues. (I don't mean to imply that all hardship is due to bad economics.)

Economies have three basic parts: production, distribution, finance. Susmita is making her contributions centered on finance (money).
In a modern world nothing happens without finance. And if the finance element is "screwed" up the whole economy is crippled: the one active human factor (labour) cannot function optimally. This means that transformation of natural resources into useful commodities is hampered, and investment in efficient capital equipment (tools of production) and infrastructure is depressed.

If I may I repeat for emphasis, in the modern world it is the economy that feeds us or starves us.

Re: Debt-free sustainable currency for the people by the people

http://seek2know.gaia.com — Wed, 05 Sep 2007 04:59:00 GMT

Sorry folks i had to be out of town for ten days, so couldn't respond as janos asked me to.

No I am not just talking about the US quagmire...the debt-based, usury-based and fractional reserve based monetary system has its origin in Bank of England and bank of Rome.

We the people have essentially inherited a colonnial money paradigm, so capitalism or globalization looks very similar in effect like the exploitation of developing countries and their resources by the developed countries through creation of dominant international currency of trade (first British pound and in this century US dollar and lately Euro).

Fractional reserve system and modern banking (issueing more money 90-95% in excess of reserve 5-10% in deposit) is a leftover of goldsmiths who functioned as private bankers/gold reserve holders for merchants. This is how industrial revolution and colonnial wars could be financed in 18th-19th century.

Money itself was never clearly defined and economics books still mistakenly define one of money's function as storage of value. Modern fiat money or legal currency is no longer backed by gold (there is not enough gold in US and elsewhere to meet the demand for currency). So I am asking to change the very perception and definition of money as it exists in reality now. Money is actually a pure medium of exchange and not a commodity itself.
I also talk about real and unreal economy. Usury or compounding of interest exponentially is mathematically unsustainable in the long run. Our US governmnent is actually run by the corporate banking cabals led by fed and those who hold enormous wealth. Money has become such a corrupting influence, because it is an insane system the more you think about it. I will tell you it is not easy to make all the connections...but slowly some lights goes on and that is why I want to enagage as many as are interested in this issue. So thanks keith, wiseman, gnc, andrew, appolia and others.

Please read a few paragraphs of my article here in my website (thanks Appolia, i do have two webpages including one on very insightful quotes on money). Actually with a public treasury and central bank, governments do not have to levy tax, since governments can both spend and lend money, but bankers can only lend only a tiny fraction of the total money. Debt-free money can only be issued by government at the national level or as private community currency at the local level.

It is perhaps easier for me to answer specific one two line clear questions, time permitting.
I have added some other links in my blog

cheers
mita