Transcript Money 15x - University of Vermont

Goals for Ecofinance
 Compatible with steady state economy (no growth in
throughput)
 Cannot require continuous exponential growth or liquidation of
NK
 Must finance most important investments
 Green technology
 Ecological restoration
 Public goods
 Eliminate speculation
 Seigniorage for public sector, not banks
 Countercyclical, stabilizing
 Cannot promote short term thinking
Current System
Vertical money
• Gov’t forces us to pay
taxes; we must accept
money or go to jail
• Our economic production
backs money supply
• Gov’t spending limited
only by biophysical
constraints
Horizontal Money & Industrial
Capitalism
 If central bank (CB) targets interest rate, no limit to
lending; If CB enforces fractional reserve, firms use
commercial paper (higher interest)
 Where do i (interest) and p (profit) come from?
 More loans or more vertical money required.
ECONOMIC GROWTH
 What if p<i? Must liquidate assets, including NK
 Procyclical system
What do people invest in
(USA)?
 ~$14 trillion in mortgages
 Economist: The repurchase revolution
 “Companies have been gobbling up their own shares at an exceptional
rate.”
 “Since interest paid on debt is tax-deductible, whereas interest earned
on cash is taxable, by increasing its net debt to finance buy-backs or
dividends, a firm cuts its tax bill.”
 Major buybacks in NYT THIS WEEK: Google, Whole Foods, Visa,
Alston, KKR, CVS, Samsung, IBM
 NYT: Record margin debt poses risk for bull market
 “The amount of money investors borrowed from Wall Street brokers to
buy stocks rose for a seventh straight month in January to a record
$451.3 billion”
 Most money is borrowed to buy existing assets, not to create new
wealth
Actual system: Financial Capitalism
and Asset Inflation
 NYT: Despite Drop in
Commodity Prices, Farmland Values
Rise
 Inflating asset prices outcompete
returns on real investment
 Credit availability determines asset
prices
 Financial sector captures all rent
Interest Bearing Debt in US
updated
Growth and Inequality or
Collapse
 Debt is 360% of GDP and growing faster than GDP
 5% interest? 18% of GDP?
Credit market debt,
net of gov’t
Current System: Financial Capitalism &
Asset Inflation
 Bubble busts, asset sales make prices
plunge; banks capture assets, stop
issuing new money
 Industrial economy (Hedge investors)
must also collapse
Re-inflating Bubbles:
interest rates and QE
Desired System
Ecofinance: Vertical money
finances needed
investments; tax pollution,
extraction, rent
100% fractional reserve
100% Reserve
 Demand deposits
 Money belongs to investor, not bank
 Can’t be loaned
 Investor pays bank
 Investment accounts
 Time deposits
 Loaned at interest: Bank is intermediary between borrowers
and lenders
 At risk: no insurance
 Banks accounts
 Banks own money
 Loaned at interest
Transition
 Gov’t time deposits (huge creation of vertical
money) to back current loans
 Interest payments to gov’t and withdrawals reduce
money supply for private sector, free up biophysical
space for gov’t spending
 i.e. reallocate between investments in private and
public goods
 Requires controls on shadow banking, commercial
paper
Advantages
 Countercyclical
 Restores gov’t control over interest rates