Wednesday, January 26, 2011

On economic reform for sustainability. Banking and capitalism.


Continual growth in the use of resources is not possible. Society and the economy has to be structured to allow a steady state economy where resource use is within sustainable limits.

Our present monetary and economic system relies on growth to work.

Having a tangible product such as gold, power or boulders as a basis for a currency is not necessary to gain a steady state economy. All of these are just a means of ensuring faith and confidence in the value of a countries money.

The real basis of money is the amount of goods and services you can buy with it.  If there is more money than the goods and services available you will have inflation, eventually, whatever the basis of monetary value. And vis-versa of course with deflation. Borrowing is a charge on goods and services (work) to be done in future.

Those of us saving for retirement with monetary investments such as Kiwi-saver should consider,  unless we invest in future productivity and efficiency of production, including efficiency in energy and resource use,  we will simply cause inflation when we spend those savings  back into NZ. That is, if our savings  haven't disappeared into a US market failure.
 It will not be the big investors, insider traders, who will be left standing when the musical chairs stop.

Some commentators have mentioned the idea of a money hockey stick.
The growth of debt interest owed  is exponential and now far exceeds the ability of any possible future production of goods and services to service the debts.
US debt now is far in excess of any possibility of repayment with any estimation of the future earning power of the USA.  (China is already investing as much of their US dollars in tangible assets as possible before the inevitable inflation makes them  worthless). So much money has been paid into inflating financial instruments that have no relationship whatsoever to the productive economy. The finance industry is extracting a greater and greater share of the real economy, 90% of the price of all goods is now owed to financial firms. A Ponzi scheme, as some have mentioned.

A reasonable level of inflation under our present system is mostly beneficial. The owners of large amounts of financial capital would have us believe that it is always bad because it erodes their wealth.  The same people do not seem to have a problem with excessive inflation in the price of necessities and their own return on capital.
In fact  inflation benefits young working age borrowers, provided wages keep pace.  It is a natural regulating mechanism against owners of capital taking too large a share and the expansion of the money supply inherent in money as a commodity.

For us to exist without exponential growth in the use of resources we have to stop exponential growth as a requirement for a functioning financial system.

This means money must become a means of exchange only.
We must remove the time value of money. No interest, no financial derivatives and no charges for use of money.

Remove the means of using money to make money.  Accumulating more wealth can then only happen if you work or buy something which has value in the future. A productive business,  education, health, (Future labour force) land, energy or other resources. Not through owning money.

This is a big step and very hard to do politically and unilaterally.
The protests from banking interests and those who have managed to accumulate most of our wealth will make the last 30 years of  fight back from the financial burglars seem like a playfight.

We can take some steps towards a steady state more sustainable economy  on our own though….

Expanding Kiwibank to undercut private banks and start to take back control of our money supply  from private banking is a logical first step. Reducing the capital haemorrhage.

Support Government that has not been bought and paid for by international corporate interests.  From one that is only interested in extracting as much wealth as possible from us, before it is all gone, to one that has a vision for the future.

A financial transactions and/or capital flows tax to discourage money speculation and offshore currency speculation.

Capital gains taxes . Can be rebated for the family home  and for local productive investment. Make investing in NZ more attractive than overseas securities or local finance scams.. Prices of speculative investments will probably drop leaving some people with negative equity. Banks as one of the contributors who profited from the situation should be made to bear the change in equity along with other investors.

A genuine emissions tax which can be made economically neutral by spending on energy and resource efficiency in New Zealand, or  by giving it back as a general tax rebate.

Change the RBA away from the current single focus on inflation, allowing our dollar to drop to a natural level against overseas currencies, helping both exporters, job creation  and manufacturer's within NZ.  (Fighting inflation with interest rates is like fighting a fire with petrol. Works briefly and then there is an explosion.).

Increasing equality will make such solutions more politically acceptable as there will be less pain to the majority in the transition..

Refuse to enter trade agreements that constrain what NZ can do on its own.

An expanding population also requires growth. Increasing the standard of education of women and free contraception are both proven, ethical and non-coercive answers to increasing population.

Government can spend money into the economy for sustainable energy and efficient resource use. (Invest in the future of New Zealand) There is no reason why we cannot borrow against ourselves as an investment for our kids future, instead of paying interest to a private bank.  Such spending is no more  inflationary  than borrowing from an overseas bank. There is plenty of spare capacity in our economy at present.

1 comment:

  1. KJT you say :

    "We must remove the time value of money. No interest, no financial derivatives and no charges for use of money. Remove the means of using money to make money.Accumulating more wealth can then only happen if you work or buy something which has value in the future."

    KJT this radical solution undermines itself, because money itself is something you can buy and has obvious value in the future. It has risk in that if you don't make that money work you are in trouble but if you do well, then you have purchased a commodity which produces future wealth.

    Devaluation of the time value of money is a religious and socialist argument and is a lost cause.

    Your other argument about the RBA, financial transactions taxes, capital gains tax etc are valid, but we have soft Government, without courage.