Lets play a little imaginary economic game to figure out why prices really go up and down and what we could do to stabise them. We will ignore some of the current accepted explanations, Supply and Demand, monetarism, money printing, in order to see through the mist of memes to find a little truth.
Scenario 1
We’ll start with 4 players all selling different products that they all need. They agree to use a simple means of exchange called a dollar, they will exchange their goods for dollars and they all agree to accept dollars for their goods. We’ll call them:
Java who sells coffee
Melbourne who sells toast
Brisbane who sells Avocados
Wellington who sells milk
A unit of each product costs $1 so Java sells the other three a coffee and gets $3 enough to buy one toast, avocado and milk. Likewise they can all do the same and have a nice breakfast.
One day Melbourne gets a bit greedy and decides to charge $2 for coffee, this way they can collect $6, still get a full breakfast and save the other $3.
The other three think this is extremely unfair and not in the spirit of the agreed exchange system, so they double their prices to, and all goes back to normal. Each gets enough to afford a full breakfast and no-one saves or goes without. Melbourne tries again, and again they all raise their prices.
Technically this is inflation but it does no harm, it actually keeps greed in check. If Mebourne kept trying to rip the others off they would need to come to a new agreement – a new currency or cease trading.
Let’s make it a bit more real life.
Scenario 2
We will add:
Cayman who can create money and lend it at interest. – a bank
Bangladesh who sells their labour
To start the game Caymen lends everybody $10 but they want $20 (interest) back after breakfast which will make it $50, enough to also buy breakfast
Java sells the coffee for $10
Brisbane the avocado for $10
Melbourne the toast for $10
Wellington the milk for $10
Bangladesh makes and serves it for $10
They each collect $50 and spend $50 and everyone’s happy.
Again Melbourne doubles their price and Brisbane, Java and Wellington follow but instead of doubling their price Bangladesh worries that the others will serve their own breakfast (Bangladesh was serving the breakfasts) so keeps it at $10. Cayman offers to lend Bangladesh the extra $40 if they still need the whole breakfast, but they will need to pay back $10 + the interest of $10 + $40 plus interest of $40 a total of $100.
Java, Brisbane, Wellington and Mebourne all have an extra $10 which Cayman says they will borrow from them and give them $5 interest. This is so Cayman can balance their books.
The only way for Bangladesh to pay back the money is to borrow more. This increases money supply. So the cause of inflation and increased money supply is not a hyperactive economy or a mismatch of production and wages (efficiency) but rather greed and fear.
In this scenario a central bank would raise interest rates to decrease money. This puts Bangladesh in further debt and forcing them to borrow more to get what they need. It would give more money to those putting up prices, rewarding their behaviour. Greed is not punished but rewarded.
We could tax those with savings and give the money to those without but that would be difficult. The best way would be to introduce a new agreement on exchange and not allow the bank to create more money at interest.
Scenario 3
Let’s make it a bit more like our current situation, and add some choice.
Dubai sells energy and all the others must have energy to supply their product or service. However people only need one type of food and they can make it themselves.
Dubai doubles its price from $5 to $10 so in order to cover the extra cost everyone puts up their prices by $5 and Cayman raises the interest rates by $5 in order to still afford breakfast, but that means each player now needs to pay back more interest, including Dubai, so they raise prices again and we are in an interest rate – inflation spiral until everyone loses faith in the currency.
Bizarrely our solution to this is to encourage interest rate rises essentially until the economy collapses.
The other option is people start making choices, they decide to live on self made toast so Bangladesh, Wellington and Java all starve while Melbourne, Dubai and Cayman get rich.
Deflation
Deflation is supposed to be really bad as well. That is why our central banks aim for 1-5% inflation. I’ll have to Google why:
Most of the time, deflation is unambiguously a positive trend for the economy, but it can also under certain conditions occur along with a contraction in the economy.
In an economy dominated by debt-fueled asset price bubbles, deflation can lead to a temporary financial crisis and a period of liquidation of speculative investment known as debt deflation.
So Google says… no.
It is only when people stop spending and investing because their money will be worth more tomorrow and the economy essentially stops functioning. Let’s face it people will still grow food and eat because we need to.
Central banks probably keep inflation running at 1-5% to ensure people with assets make profit and people who work for a living need to keep striving and begging to maintain spendability on their wages.
S&D
So why do we always hear about supply and demand when prices go up and down? That’s because people believe in a theory that supply and demand should affect prices and some sellers use this belief as an excuse to raise or lower prices. There is little reason to change your price depending on the amount you have of something or the amount of people wanting to buy it. With some perishables you could argue if you can’t store them you should lower the price to sell them instead of letting them waste but that isn’t very common.
Also if their is a crowd trying to buy your scones you could chare more and make more money per scone, be greedy, or you could just serve the queue and those that miss out, missout.
The argument for S&D is that those that want it most, or need it most will go without other things to get the item in short supply, thus S&D supplies the most needy and encourages more sellers into the market to seek these premium gains.
I remember hearing from a green grocer on TV talking about lettuce prices in 2022 after supply dried up due to floods (pun intended ;-)). A lettuce cost $10 or more and the interviewer asked if he was selling them, and he said no. Essentially they ended up being thrown out. Makes no sense. The price was jacked up because supply was low and in theory it means those that want it the most get it because they are willing to pay the higher price – this is nonsense in an unequal world though – but if no-ones buying them why not just sell to those who come first at a low price. It’s the belief in S&D that actually causes a lot of price movements when it really has no effect in the real world.
What have we learnt?
Banks creating money and charging interest is not a way to create a stable currency.
Raising interest rates can encourage inflation by rewarding greed, protecting savings, and causing cost increase price spirals.
Taxes and payments could be used but politicians hate annoying rich people.
Most of our tools only work by hurting non-rich people and breaking the economy.
I’ve written a book and some articles on real solutions. Yay
The decentralised/blockchain community holds independence, freedom and a lack of hierarchy as a core ideal, however they are using a flawed method from game theory that will do the opposite of their intentions.
Staking
Staking is everywhere in the new decentralised economy. Whether it be Proof-of-Stake to determine who gets to verify a transaction – and get the rewards, to putting up a stake before you can be a juror on Kleros’ arbitration network, or just proving your identity to join a UBI system. Everyone in the community believes that skin in the game will make you do the right thing.
The right thing being don’t break the system. Go with the majority, don’t be a bad actor..
Staking means putting up some money – usually some crypto with real value – and if you do the wrong thing your stake can be lost. By staking you will get power, access and rewards.
Staking is no different to how our current top down system works.
If you have wealth in our current system you have access to land, markets, political power and the ability to make the rules. You also get to collect interest, rent, and profits from your capital. However those with wealth don’t seem to be anymore trustworthy than those without, maybe much less so. A look at the Australian Royal Commission into the banking sector exposed a greedy culture that was happy to lie to make more money.
There are three major problems with staking:
We do not live in an equal world.
Encouraging people to act in a certain way can make them act in the opposite way. We aren’t very rational.
Encouraging people to behave in any way is a form of centralized control. Incentivisation is a form of soft dictatorship.
Staking, is the antipathis of free decentralisation.
Inequality
We live in a deeply unequal world. The top .001% could stake $10 million and lose it having no effect on them whatsoever and 90% of the population would struggle to muster $1000 let alone $1million to join the game. Staking does not affect all people equally!!
Therefore it fails. The poor will do anything to save their stake, or hate the system so much to destroy it. The rich can just profit or decide which system fails and which succeeds on a whim.
The only reason many systems are currently working is the small pool of ideologically likeminded validators and relative equality amongst the Devs and coders who are the majority of the community.
Giving the rich the ability to undermine a system that was intended to dilute their power is crazy.
We are currently seeing the centralisation of the mining of Bitcoin, and Ethereum, the whales flipping DAO votes, and Elon Musk pump-and-dumping. Stake would exacerbate this trend toward centralisation rather than fixing it.
Non rational behavior due to incentives
One of my least favourite words is incentivisation. It’s veiled totalitarianism.
In a so-called liberal, democratic, free market world incentivisation has become the favoured tool to control people. How has this seeped into the supposedly anarchic, freedom loving, decentralised world?
Game theory.
Everyone in the DLT (Decentralised Ledger Technology), blockchain environment talks of the trustless system. You don’t need to trust a central authority instead the algorithm will ensure accuracy, access and transparency. That’s the objective. Note there are systems that don’t use incentives such a DAG.
The devs haven’t trusted but instead embedded the algorithm with game theory based incentives to force you, the rational actor to be trustworthy.
In my 2017 book Fluidity – the way to true DemoKratia I gave multiple examples of monetary incentives doing the opposite of their intention. From paid Israeli charity collectors collecting less than their unpaid counterparts to a survey of Swiss villages who would rather have a nuclear waste dump near their village if they weren’t paid to do so. The researchers in the latter experiment deduced that monetary incentive can crowd out intrinsic motivation to do the right thing for the community.
When we think about using stakes to encourage keeping a decentralised system functioning the Swiss experiment is scary. It may encourage selfish actions rather than trust.
Incentives as a form of control
Everyone in any position of power is trying to get people to do what they want. People as a whole have stopped following those in power because they don’t trust them to do what is best for them or society as a whole. And they notice the manipulation.
So the use of advertising, nudges, incentives, penalties, influencers and big data are being used to move mass action. Yes I know nothing big can be achieved without many people being involved but people should be able to choose freely. They should get the chance to Trust.
The attempt by any person or algorithm to encourage (force) you to behave in a certain way is a form of dictatorial control. Yes sometimes this is the best thing for you and the group (think lockdown during Covid), but we are now so aware of being coerced that the attempt itself can be seen by many as malicious.
Most importantly incentivisation goes against the idea of freedom and a decentralised trustless system.
Seeing people as voting, buying, node controlling objects that can be nudged in a direction is fundamentally wrong. We are not objects. We do care about systems that benefit us, and we will look after them. Bad actors will always exist, so a good DLT system will allow Trust and ensure bad actors are drowned out of the majority.
Otherwise the selfish wealthy will maintain control, and trust disappears.
So we need to find better solutions to validating DLT than Proof-of-Work and Proof-of-Stake and luckily there are other options such as the DAG (Directed Acyclic Graph), Proof Of-Quorum and others.
The solution as always is equality and randomness.
There is no reason to have a lender when you borrow money, you can just borrow from yourself at zero interest.
How is this possible?
Our view of money and debt has changed significantly in the last 12 years since the GFC. We used to think banks took our deposits of government printed cash and lent them out to borrowers. Charging interest to compensate for risk and the time value of money (inflation). The banks would give the depositor some interest and take a slice for themselves. It then appeared that this had never really been the case.
When you borrow money the bank creates that money electronically from nothing. Then all they need to do is balance their books by getting a deposit or borrowing money from another bank – which is also made from nothing. Charging interest in this economy seems a bit weird as it seems to require ever increasing borrowing (money creation) to pay the interest.
Here’s a good TED talk on this topic:
Now we have a plethora of cryptocurrencies making money from nothing. However they all have trouble holding value, but we’ll tackle that problem a bit later.
So if we can just electronically create money why do we need the depositor, or the bank – the lender.
The argument for banks is they are needed to decide who to lend to, to credit assess people and organisations to ensure most of the money is paid back (actually destroyed ensuring there isn’t an oversupply of money). The past has shown that they aren’t particularly good at this and essentially they just follow a set of rules which could be easily embedded in an algorithm. They look at previous borrowing and repayment history, income, security, other assets. It would actually be easier for an algorithm to do this as we wouldn’t have to worry about privacy issues involved in sharing our private finance information with the bank. Also credit ratings agencies which many banks use have incomplete and often inaccurate data because we don’t share with them directly. They can also be bought as happened during the GFC.
How we could do it
Create a cryptocurrency with embedded proof of identity (secret of course) and maybe give all new people some currency to start with. Each person has two wallets, one with a positive balance and one with a negative balance. An algorithm decides how much you can borrow to start with. It will be a small amount say 100, if that 100 is paid back then you can borrow 200 next time etc etc. If you want to borrow more and have money coming in from another system or person you can allow the algorithm to see your positive account balance and transactions. It can then use this to calculate the amount you can borrow. Very similar to what a bank currently does but you don’t need to share your private information with a bunch of bank clerks.
Security (assets to support you borrowing) could also be provided to borrow more money and the algorithm automatically sells the asset if repayments aren’t made.
Each individual doesn’t need to balance their account daily like a bank does now because the whole system is in balance.
If a person does not pay back the loan they can’t borrow for a while or they revert to the start or maybe never. ( The criteria for the algorithm can be set from the start or could be altered if all people in the system vote to do so.)
This undestroyed money from default loans will increase overall money supply so will need to be destroyed, this can be done with a system of demurrage (destroying a small portion of existing money in positive accounts – a bit like inflation) or a transaction tax. Another algorithm can track the system as a whole to calculate the amount that must be destroyed. The percentages will be very low 1-2%
Why would anyone pay back the money?
People will pay it back to preserve their future ability to borrow, the same as today. Also they know that the whole system suffers if they don’t, not some rich banker, but everyone’s saving will slightly decrease if there are defaults. Community encourages honesty.
If anything people will be more likely to repay the loans, and this system is more stable than our current system so the risk of the whole thing collapsing and the government bailing it out is mitigated. Remember post GFC we all paid to bail out the banks.
Benefits
No interest – why would you charge yourself interest.
There is no lender to suffer if the money isn’t paid back, the only one to really suffer is you, the person who borrowed from themselves as you may not be able to borrow again.
No banks
A democratic, decentralised system creates money. Unlike today.
The whole process is very fast and transparent, you’d always know how much you can borrow.
No secretive credit agencies.
A self regulating finance and monetary system. No more central banks playing with interest rates, no more hyper inflation. No more needless complexity.
Currency stability
We do this by pegging a universal income to an index of external (fiat) currencies and further demurrage. Everyone receives some money periodically, and everyone has some of the money in their positive account destroyed periodically. The amounts are small 1.5-2% destroyed and 3000 per annum payment. However the payment is raised and lowered depending upon the cryptocurrencies value against the index of other currencies. If the value decreases the payment decreases restricting money supply which should force the value back up again. Arbiters who buy and sell currencies know this so any drop would be met with many new purchase orders and vice versa until the currency stabilizes around a 1 to 1 with the index. See http://arimaa.com/money/GETCoin.pdf for more info in this pegging system.
So in stabilising the currency against other currencies we have gained another benefit. A Universal Income for everyone. Highly beneficial in times of pandemic.
You may also notice that if you wanted to buy a house with US dollars you could borrow enough of this new cryptocurrency from yourself and exchange it for USD and it would remain stable so you can make the repayments interest free.
Fluid Democratia is a fully integrated decentralised socio/economic system based on a decentralised ledger. It incorporates a new currency, universal income, P2P lending, currency exchange, Land registry, and liquid democratic resources and infrastructure management. The purpose is to create a parallel system to the current hierarchical organisational structure. The aim is true freedom with sustainable prosperity.
Unlike other distributed platforms all users will be identified to ensure only one universal payment per person. This identification information is encrypted therefore anonymity is maintained while eliminating multiple free payments to the same person. To be a node members of the node must be identified which makes the system a universal permissioned system.
Scalability is achieved by identification, random selection of an ever changing (dynamic) shard and BFT (Byzantine fault Tolerant) consensus.
The aim is to enable all the things business, individuals and governments currently do in a centralised top down manner to be done in a peer to peer, decentralised, non-bureaucratic way. Each financial action will support a universal income fueling the system.
The platform will encompass many interlinked ledgers; the identification ledger, the transaction system, smart contract, exchange (on off ramp), land ownership, resource management and others.
Overview:
Real people input requests and verify actual events and situations in the real world (users and oracles).
They input this information into a GUI (Graphical User Interface) which sends messages to various decentralised nodes (splits one instruction into many messages (ledgers/blockchains/DAG’s/Databases)
The non grouped nodes (different ledgers) communicate with each other through a shared Interledger protocol (language) which each node can translate to and from. A signature in the shared protocol is recognised by all, so each message from a nested node (node with the Interledger protocol) is known to be verified.
The universal interledger protocol with the signature allows cross ledger communication and the GUI enables anyone to be an oracle to verify data against the real world.
Ledger framework
The system will start with three ledgers (or decentralised data storage and verification systems) the identity ledger, liquid democracy ledger and the transaction ledger. The nodes for each ledger can communicate through a shared Interledger protocol which all new ledgers will also use.
After that we will add the Land registry ledger, smart contracts ledger, markets ledger, exchange ledger (coins and currencies), and natural resources. Others can be added at a later date and existing platforms (such as Ethereum, Eos, IOTA etc) may also be connected using the interledger protocol.
The ledgers get information and instruction from the real world via a GUI (Graphical User Interface) which also enables any citizen to become an Oracle – someone who verifies a real world condition as true or false. Such as is Sebastian still alive? or did Trump win the election?
Consensus
The ledgers are essentially permissioned because each node must have a private and public key (be a citizen) and therefore be identified, then a randomly selected group of available nodes (shard) will reach consensus using a Byzantine Fault Tolerant (BFT) algorithm.
The identity leger can use the same method as it grows from the developers. The first nodes will be run by the builders and they will identify new people/nodes and therefore the identity ledger is the first to run and does the base security for the other ledgers.
A shard of 50 nodes is used for verification and consensus. New nodes are swapped in and out of the shard updating their ledger when they are selected. The same randomising method based upon the private key is used to select the swaps.
Because there is no PoW the amount of computing power required is low so most people who have a verified account (citizen) could run a node at some time.
Coins
Four coins:
FDC (Fluid Democratia Coin) which is used for everyday transactions, fully exchangeable.
FDS (Fluid Democratia Sump) which is a temporary coin for the running of the sump (real time money supply regulator) and regulating the payment. This is non transferable and non tradeable.
FBC (Fluid Build Coin) A coin created on an existing platform (most likely Ethereum ERC20) paid to the builders of the platform and 1 for 1 exchangeable for FDI coins.
FDI (Fluid Demo Invest) Which is the investment vehicle. Receives income from newly created FDC for a limited period of time – 10 years post 1 million members.
Interledger (Interoperability) Protocol
Each node will have a translator which converts messages from their ledger into a shared language. Part of the library for this language will be prefixes for each ledger in the “nest” so they know where to send the message. Therefore each message will contain this prefix or address. A set of standard operations will also need to be included in this language the storage of which can also be done on a nested ledger to ensure security.
Nothing like this currently exists so it will need to be created.
GUI
The user interface must be integrated from the start and run on current phones and computers, preferably a simple text version should also be available so people with old phones can at least make transactions and receive the universal income.
The GUI splits messages so that one simple command can send instructions to many ledgers, it also adds the prefixes for each ledger.
An active GUI can also receive instructions from ledgers and act on them independently as an Oracle pulling information from other sources and sending confirmations (or not) back to the ledger network.
Some of the interoperability of the network is actually achieved through the GUI via real people.
Flow Siphon Flat Payment (Universal Income and money supply control) (Transactions ledger – Fluid)
Starting money = 75,000FDC
Maximum FP (Universal income) 50,000FDC per annum
Money burnt = 10% of each transaction – excluding lending and forex (foreign exchange) which has a fee of 1% burnt.
Each person is given 75,000 FDC when their identification is verified. Ten percent (10%) of each transaction in FDC is destroyed and the equivalent created in FDS and accounted for within the ledger. This tracks the amount destroyed. Each day the total FDS is divided by total confirmed users and an FP (Flat Payment or Universal Income) is made to each user for the equivalent in newly created FDC, the FDS is destroyed. The maximum daily payment is 136.89FDC (50,000/365.25). If no transactions are made, no FDC destroyed, no payment is made unless there is a surplus in the sump. If more than enough transactions are made to make the maximum payment the FDS increases and can be used to make the full payment at future days when not enough transactions are made. This acts as a real-time money supply regulator controlling inflation and deflation.
Market Place (Market Ledger)
This receives messages of all buy and sell requests from the “Contracts Ledger” and the GUI (people) that require acceptance (a buyer) before they can be fulfilled.
It lists offers, and then delists them when the transaction has settled. Everything from house sales to loan offers and coins/currency offers can be listed here. Both buy and sell.
Having it on a verifiable ledger ensures only legitimate (existing) items, people, contracts are for sale, and that they have a contract and associated real world verification Oracle and arbitration mechanism in place before being listed.
Note: the oracle and arbitration system replaces civil courts and regulations.
Many different GUI’s may access the market data and repackage as need be.
Lending (smart contracts ledger)
An embedded Dapp will enable any person to create debt vehicles (attached to tokens) which can be bought and sold on the Markets ledger and Forex ledger. Multiple trades will be cheaper through the Forex ledger as they will only attract the 1% siphon.
The Dapp will help create a simple loan contract, setting interest, repayment period and actions on default, including the nomination of an arbiter to resolve disputes.
This does not restrict others from creating their own Dapps.
The transfer of FDC for a financial instrument (within the Dapp contract) will only attract a 1% destruction of coin. If financial instrument tokens are swapped or transferred for each other (or becoming a pseudo currency*) they will need to provide 1% of the FDC equivalent (at current market rates) to be destroyed.
*Debt instruments as pseudo currency: if debt coins are exchanged for real goods or services a fee of 10% of the equivalent FDC must be provided within the contract to be destroyed. To police this a smart contract cannot be executed without message to the transaction ledger as one side of the transaction. If not a third parallel transaction must be created.
Exchange (Forex ledger)
The purpose of the exchange is to allow instant or near instant transfer from FDC to fiat currencies to allow people to use the FP universal payment with the current tap-and-go payment network. This will encourage quick adoption.
Cloning an existing open source currency exchange such as Stellar or XRP with a modification to allow any organisation to be a counterparty and hold funds.
As stated before a 1% fee in FDC will be burnt for each exchange which will create a demand for FDC. The counterparties may have their own fee on top.
As well as this fast but not trustless system of exchange we will also have a truly P2P system.
Bisque is a peer-to-peer exchange network which is open source, although created for Bitcoin we can adapt this software and make it available to the users of the Fluid Democratia. Bisque software sits on the users device not the ledger.
Liquid Democracy (voting ledger)
Liquid democracy gives all people a vote which they can proxy to trusted others. A liquid democracy is required to make decisions on the maintenance of the system, and decisions on payment of those maintaining it. This includes some support services.
It will also be used to select mangers of natural resources. It can be included in smart contracts to democratise infrastructure management.
Identity (ID Ledger)
Each real person must only receive one universal payment (FP) and each node must be identified therefore we must ensure there is only one private key per person. This identified and verified person we will call a citizen.
This does not preclude the creation of non-citizen private keys to allow discrete transactions however to prevent a denial of service attack a fee of 100FDC must be paid before messages can be sent from non-citizen keys.
To identify people we will email one of three parts of the private key to the users email address, text one of three to the users phone number and post one of three parts by normal mail to a real residential address – no post office boxes. The residential address will be confirmed by using the location services in the users phone. When you have all three parts you will create the account from your home with location settings on. If the location does not match the address part three was sent to the account is invalid.
Question: “Are you at home” = yes <location checked against residential address given>
All three parts together will make the complete key.
A difficulty arises if more than one person lives at an address, which is usual. When the first account from an address is activated a photo, and fingerprint are also captured. The subsequent accounts at that address cannot match those biometrics.
Then a password is created for access and the usual using reCAPTCHA or similar to prove you are a real person.
For those without a residential address a web of trust will be used to prove their identity. Trusted notaries could be another option.
Contracts (Smart Contracts Ledger)
The smart contract ledger sends automated messages to other ledgers and contracts to enact complex transactions. Everything from loan agreements, buying a house or the use of public infrastructure. It is the major user of the interledger protocol.
Using contracts we’ll pull together many people to pool money to build infrastructure. A liquid democracy is used to vote for a management/negotiation team.
Oracles (GUI)
Parties to a contract must put up a stake, if they don’t agree (on the outcome of external condition ie: car keys being delivered) it will be referred to their agreed Oracle, three must be selected in order in case the first is not available, if they still don’t agree it goes to random oracles. The oracles get the stake. Five random oracles must agree and they split the stake. They are rated on ability to give correct – agree with others – answers. This rating will help people choose preferred Oracle/s.
If still there is disagreement the dispute is referred to arbiter who should provide their services on a voluntary basis. There is room within the Fluid Democratia to pay arbiters if the liquid democracy decides such.
Death and cessation of accounts.
All accounts will need to select what will happen to their money/debts/assets/land at death and or the cessation of their account, and how this will be determined. An external oracle will need to be set up to determine death. This is essentially writing a will on creation of the account. If the oracle disappears before the user does a backup system will be in place to decide death and or cessation. This will be determined by liquid democratic vote to decide a worthy oracle and supported by funds from the sump.
People must use third party oracle not one they are a part of. Or they can put a time limit on their account so it will close within say 100 years.
Land (Land Ledger)
Another ledger will be used to store land ownership and category ( what the land can be used for; residential, industrial, parks, wild etc)
There is a land rent tax on the land, not the infrastructure which is burnt and the sump increased. The tax is paid periodically pro rata: land value divided by the lease period.
The ledger will need to store the following:
3+ point longitude/latitude reference point for land area.
Proprietor
Encumbrances
Lease period
Land category
Valuation (split between land and building)
Price
It will need to:
Prove original title from existing land registries. An oracle to check ownership is the simplest method.
Confirm dimensions. Hopefully we can do this with GPS, but it may not be accurate enough, surveyors and an Oracle may be necessary.
Transfer ownership
Register charge/mortgage
Change dimension, subdivide/consolidate.
Land tax siphon
Catagorise land type, cultural, mining, farming, residential, mixed, uncat, wild, common etc. – Random committee to review applications for recategorising. How applications are sent, criteria, and review of criteria, liquid democracy. And review of lease period.
Valuation system for land improvements split. Calculation and prompt for the land tax. Similar to the forex siphon.
Roads, pipes, wires easements etc.
Natural Resources (NR Ledger)
We can only control the price and output of those resources owned or voluntarily put under the control of the demokratia.
We can tabulate how much of each resource there is on the ledger and allocate it to extractors (miners, farmers and fishers) manufacturers and distributors (many will be collective infrastructure contracts). The management teams for these resources will select the extractors and distributors and will be elected by liquid democracy. The price will also be set by liquid democracy and this wholesale price burnt. Wages for the management team will be set by liquid democracy and paid from newly created coin.
The wholesale price can be used to control the supply of rare or dangerous resources.
There are some areas which are very difficult to manage under this system such as the common oceans and rivers etc.
We can have a framework in place so people can choose to abide with the demokratia pricing and limits and an opt in checking/regulatory system which may include payments/subsidies for abiding with the regulations.
Example: A fisher catches tuna from the ocean and ensures they only take 50 per year and they are all mature males (assuming this is the current agreed regulation). An independant oracle confirms the validity of this and the fisher receives an extra payment for complying with the regulations. They can also state on the sale of the tuna that they have complied and therefore hope for a higher price on sale.
An elected committee will come up with the regulations and put it to the liquid democracy for approval. Any interested party can propose amendments.
Residential land lease owners can use the resources from their land down to a level of 10 metres (excluding mining) but including rainfall, soil nutrients and trees. Other land use types may have different restrictions.
Build and Maintenance – DAO
A Decentralised Autonomous Organisation (DAO) will build and maintain the system. A Build coin (FBC) will be created on Ethereum (ERC20) and issued to those that contribute to the build. This can be coordinated through Github and some new user interfaces being created by Aragon and Autark https://blog.autark.xyz/. Two hundred million construction coins will be created and stored in a wallet controlled by a liquid democracy of builders. All builders can vote on the fee for each task and the completion and then payment of each task. Members will be identified by the Github handle, and Ethereum wallet provided to the group.
A core group of 10 – 20 developers will also receive a monthly payment to ensure there is some people pushing the project along.
Construction coins can be sold for other currencies which is a way for investors to get access to the system. On completion of the Fluid Lender and exchange the Constructions coins are transferable for the investment Coin 1 for 1. As you can see investors are paying the builders directly. Some construction coin could also be sold for hardware if required.
Maintenance will be paid for in newly created FDC and decided upon by the liquid democracy.
Note: Only citizens or associations with at least one citizen can own land, receive the Flat Payment, be a node, be an Oracle, be an arbiter, and be a notary. Non citizens can borrow and lend money if someone will accept it.
Investors
Ten percent of the burnt FDC will be paid to the investors pro rata per coin for a limited period of 10 years after the 1 millionth citizen is created. So essentially for this period 9% of the siphon is paid as a universal income and 1% is paid to investors, on top of the universal payment. The FDI attracts newly created FDC.
Future
This should enable full P2P (per to peer) sales with all segments of the chain being micro-paid at the time of final sale. Diminishing the need for long term trade credit. When you buy the electric bike the seller is paid 10% of the price the aluminum smelter 15% the miner 10% the designer 15% the wheel maker 5% the delivery person 10% etc etc…
This also means there is a trail of funding post effort which means we may have more income in our old age when less able as we accumulate effort into the economy.
David J Campbell 25 Aug 2019
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Fluidity-the way to true demokratia, David J Campbell
I ask this question in part because of my recent experience with crowd funding, the idea behind crowd funding is to support some ones idea, project, or invention by giving them some money. They may promise to give a gift in return but there is no contractual agreement to provide a product or service in return for the financial contribution. The giver gives because they want the project to come about, and the projector gives a gift in thanks for the support, but only if they can.
However is this better – morally, than contracting an exchange where both parties no the limits and responsibilities of the exchange?
I noticed with my own crowd funding project that even though I felt good about my project and thought others should love it as much as I, in order to get funding I had to convince people to part with cash. In other words I had to sell the idea to them, to manipulate them into coughing up the doola. But then once that had occurred the freedom to run my own project seemed to whither away. I felt obligated to those that had contributed, obligated to produce that which I had suggested even if the full funds weren’t raised. I felt employed rather than in charge. The whole thing felt a bit grubby.
Don’t get me wrong I love the idea of crowd funding but my nobler side saw it as just throwing an idea out there and then these philanthropists would selflessly support my project. No selling required, and no sense of obligation. Just freedom and altruism. It didn’t feel like that though and philosophers from our past may have realised why.
Giving has been analysed much in the past, and it was generally seen as immoral. The reason for this is that even if there is no expectation from the giver and they are truly altruistic there is an intrinsic obligation felt by the receiver. Any decent person having been given a gift feels obligated to the giver to return it in some way. Of course a psychopath or an immoral greedy person would not have such feelings. It is morally wrong to in-debt anyone to you. But philosophers actually thought that giving the money back was also morally wrong as that insults the giver. It insults them by turning their altruism into a transaction. So the moral philosopher is left with exchange being a more morally decent act than giving.
[GARD]
How could trade and commerce be more decent than giving?
Well they assume that both parties in the transaction have relatively equal means – or at least status, most philosophers were from the ruling class – and deal honestly and with full knowledge thus coming to a bargain both are happy with. It is a classic win/win. Of course modern trade rarely has these aspects, the seller usually manipulates the buyer and has more economic clout making the exchange closer to exploitation than mutual benefit.
Some like Nassim Taleb advocate a haggling trade as seen in the souks of the middle east being more decent than modern commerce. The buyer and seller haggle to a mutually fair price for both parties means and needs. I agree that this is a far fairer system than modern commerce particularly when there are many buyers and sellers in the market.
So where does this leave crowd-funding? Well one of the main reasons crowd-funding platforms do not utilise exchange is because of the laws controlling it. If the projector promises a return on the investment they are regulated by corporations law which is expensive and cumbersome to comply with. If they sell a product they are regulated by contract law and consumer protection laws which are also expensive and cumbersome to comply with. We have regulated away decency. It seems to me we need a new code for global crowd funding that allows an arms length exchange without regulatory compliance. All crowd-funding sites rely upon trust, and regulations are there to step in when trust has vanished. We need a new set of simple rules for how to gift and promise return in an environment that allows many projects to fail without tainting those game enough to pitch an idea. And perhaps we can bring haggling back to modern western markets.
Luck determines the winners and losers of society, not merit or hard work. Those that start out with more get more, and those that start with little often fall through the gaps.
Inequality is not only caused by the human inventions of rent, profit and interest but also by a quirk of the economic system which means that if left to its own devices a few people will end up with the majority of the wealth. They will not get this wealth through merit or hard work, but just because in a game of risk some will win, and those that start out winning have the edge over those who start losing. The inequality is quickly exacerbated until a few people rule the rest.
Italian engineer-turned-economist Vilfredo Pareto noticed in the 19th century that quite a lot of Italy’s wealth seemed to be concentrated in the hands a few wealthy people. He did a few numbers on this observation and found that approximately 20% of the population held 80% of the wealth, and he found that it was the same in other countries. It didn’t depend on the social, political, or economic system; this Pareto Ratio was evident everywhere.
So what causes it? Well, imagine you are investing in business projects, or anything that can return an income or future benefit (houses, employing people, storing food for winter). Some will succeed and others will fail, but your chance of hitting a winner increases if you can make more investments (spread the risk) and you can do this if you are wealthy. Essentially, poor people can’t afford to invest in a failure, and rich people can get it wrong over and over and still come out on top.
To put it in simple terms, imagine a game of heads or tails. Twelve players have $100 each – perfect equality – and each must invest the $100 on the flip of the coin. If they lose all their money then they are out of the game and the winner is the last one who is left. After the first flip six people are out (there must be someone on the other side of the bet), and after the second three people have $300 and three have $100. The three people with $300 have a far greater chance of winning the game than the three on $100. They can get their investment wrong in the next two turns and survive, but the other three only need to get one wrong and they are out. Notice this situation has developed not by guessing right, but just through random chance.
French physicists Bouchard and Mezard tested whether the “luck of the wealthy” could be undone by wealth dispersion from trade. They created an extremely simplistic model of a “wealth distribution network”, i.e.¸ an economy that took into account only three basic distribution factors. The first might be thought of as the “dispersal factor”, and it is the primary means by which wealth spreads itself throughout society. Essentially, this factor consists of nothing more than trade (in both labour and goods). Every time someone purchases a product or a service they transfer money from their own pocket into those of others, and those others then use some of that money to purchase goods and services from others in turn, who then do the same (and so on, and so on).
[GARD]
The second factor might be thought of as the “concentration factor”, and it is the primary means by which wealth accumulates in one place. Essentially, this factor consists of nothing more than investment of money over time. Every time someone purchases a capital good that may accumulate value, or that same person invests money in a profit making venture, that person is sinking wealth into an operation that might draw even more wealth toward it.
Buochard and Mezard then added the risk element; some money is invested and never makes a return, while other investments do well. The concentration factor isn’t risk free. You might think that this would cause a certain social mobility, some people would be rich for a while until Fortuna deals them a bad hand, and their investments go bad and they slip down the ladder. But no! They found that a small percentage of the people always ended up with most of the wealth, and this followed the Pareto Ratio.
This may be because of another factor, which Thomas Pickety says is one of the main drivers of inequality; inherited wealth. If you can hold your advantage in the game of risk by passing it to your children you never fall to the bottom of the ladder because, as stated before, those with more money can afford to lose more often.
The solution is redistribution. Bouchard and Mezard state, “If a fraction of the income tax …are evenly redistributed to all [this] tend(s) to reduce the inequalities of wealth”, whereas if the taxes are not redistributed it can actually increase inequality.
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There’s been a lot of chatter in the media recently about AI (Artificial Intelligence), mechanisation, and driverless cars taking all our jobs. I’ve heard this before in the 80’s but it didn’t happen. Why?
There is new evidence everyday that human labour is just not necessary anymore. Adidas has created its first fully mechanised shoe factory in Germany. Driverless cars are being trialed in Adelaide. The port of Brisbane is fully mechanised and mines in the Pilbara are partly mechanised. Advances in AI suggest that many management decisions can be better done by a computer that learns as we do; by observation and trial and error. Already supply chains are getting shorter with manufacturers selling directly to individuals. As 3d printers get better and cheaper the supply chain can be shortened to resource extractor to final user. The extraction and delivery can all be done without (or very little) human thought or labour.
.
That is the current narrative, but this is very similar to what I heard when computers and the internet first hit the workplace but all the jobs didn’t disappear. Yes unemployment in all modern countries is at 5% plus which used to be considered a disaster but is now the new normal. However those in work are working longer hours and the workforce has actually increased – many women now working. So what happened?
[GARD]
This made me think of Bertrand Russell’s beautiful essay “In praise of idleness” in which he saw two types of work. One is moving or changing stuff of the earth. Making real things. The other is telling those people making real stuff how they should go about it. The first is finite and is better done by machines. The second is infinite but pointless and unfulfilling. We can have an endless chain of Chinese whisperers discussing what and how a hole should be dug. They can all compete and argue over how deep it should be, whether the digger should wear a cap, or a helmet, Groups can do studies and make presentations of the depth of the hole, how long the digger should work before a break, whether the digger should be a man or a woman or young or old, or a machine operated by a man or woman, or an autonomous machine, and what the success criteria for the hole, and who will fund it. Applications can be made to private and state investors and a tender submission guideline drafted and reviewed. But what should the review process look like? Should it be a panel of experts or interested parties. Many people all being employed and much money spent and not a hole dug. Sound familiar?
This is completely unfulfilling and inefficient but we make “new jobs”.
There are many ways to garner income and keep our system going without creating much pointless work. We can create a guaranteed income for all, we can better use profits, interest and rents to spread income wider. We may also need to consider ownership, as much concentration of wealth comes from restricted access to resources through ownership. We can create a leisurely and easy world if we want but some fundamental social and economic changes will need to be made first.
Elected governments really don’t have much power any more because they have ceded most of it to corporations which we believe we control through share ownership but we are hopelessly wrong.
Corporations are some of the few organisations that have true global influence so if we were to have a global democracy we would want them in our power but as you will see they concentrate power. During the past 30 years of economic rationalism (neo-liberal economics) governments across the globe have sold off huge amounts of their power to private corporations, and deregulated markets allowing these corporations to have a lot more power and influence than ever before. In England, Australia, the USA and Canada the provision of human necessities that were formerly owned and run by the state have been sold. Far worse scenarios have played out in South america, South Est asia and Africa where the IMF and World Bank trapped governments in debt and forced them to sell basic resources to global corporations. Water supply, electricity, public transport, telecommunications, banks, airports, even emergency services were outsourced into private hands. Private schools have been encouraged as well as private health care. The argument for this is that private companies improve customer service and are more efficient, and of course there would be more choice and competition and therefore prices should come down. What we got instead was train break downs and cancellations (Connex in Melbourne), a great stink flowing over Adelaide (Effluent treatment in Adelaide), oligopolies with little competition (TRU and Origen energy), price hikes and lack of water supply in Bolivia, lower wages and more job insecurity in south East Asia and generally a concentration of wealth and power in corporate hands. We lost the power to control these organisations and hold them to account the way we could a government run entity.
These companies are mainly publicly listed companies be they Serco, MacQuarie, BHP or EDS, meaning anyone can buy shares in them and have a vote on who’s on the board of directors and therefore it’s like a small democracy, it’s a shareholder democracy.
Shareholder democracy
So you might say if you have enough money you can still democratise corporations and these are actually better democracies as they truly cross borders. Is this true? Australians are the largest share owners in the world with about 35% of people owning some shares in their own name and everyone who ever worked having some interest in shares via their superannuation fund. (Employer superannuation contributions are compulsory in Australia). So we should see a lot of influence coming from a broad range of people over our major corporations, they should be doing what is best for us because we own them! Right? No.
Let’s take two examples; BHP Billiton the biggest mining company in the world which controls more natural resources than any other public organisation, and ANZ Banking Group one of the big 4 banks in Australia. The top 20 share holders of each of these two companies are all nominee or trust (investment) companies with one exception the Australian Foundation Investment Corporation which is a private investment company based in Melbourne. (see table 1 insert table of share holders). And these top 20 shareholders own between 50% and 60% of all the shares. The majority! In ANZ’s case the top 1% of shareholders owns 90% of the shares the other 99% of shareholders 10%. this is where the OWS movement got its “we are the 99% from because it is the same in every major company.
The spin doctors at ANZ and every other major corporation claim to be owned by the people because they have over 100 000’s of shareholders therefore they are democratic. But they are not because the top 20 have all the power, even if all the other shareholders voted in unison it would have no influence at all on the election of the board of directors or resolutions passed. Or dividends paid!
So what are these nominee and trust companies? And can we influence them and therefore the corporations they own? I might add that most public companies have a similar share ownership to ANZ and BHP Billiton the majority of shares are held by a few global nominee and trust companies. A nominee company is a private company; therefore it does not need to produce publicly available annual reports showing their ownership or dealings, they are usually owned wholly by a bank, trading house or investment company. They are essentially a holding company for others, they have ownership rights to the shares and the person/s or companies that use them have beneficial rights to the capital gains and dividends the shares produce. The voting rights are owned by the nominee company but it is “usual” for the nominee company to vote under instruction from the beneficial owner. Each nominee company has its own way in which they do this and some don’t act in this way at all. Some have the beneficial owners register their desire to influence votes, the beneficial owner may not choose to use this power as one of the reasons nominee companies are used is to cut down on the paper work and obligations of share ownership. If they choose to register the nominee company collates these suggestions in private and then votes. It is not mandatory for a nominee company to consult its beneficiaries on how they use their voting rights. Of course a large beneficiary owner may direct the nominee company to use all its votes in a certain manner while hiding their own influence.
Because of this some corporations actually have limits on the amount of votes a nominee company can exercise. UBS one of the biggest banks in the world (the GFC has had some effect on its current size) limits an individual nominee company to 5% of the total votes. As you can see the desires of the beneficiaries is quite opaque, it’s not absolute that they will have influence over the way the nominee company votes, and if they do it’s not necessary for the nominee company to make public what each beneficiary has instructed.
So why do these nominee companies own so many shares? They essentially own most of the capital in the world and therefore most of the power (votes). There are two main reasons firstly the bank owning the nominee company has lent the beneficiary money to buy the shares in the first place. This is generally called margin lending where a bank will lend 80% of the purchase of price (depending upon the borrower this can be higher or lower) of the shares and the beneficiary puts up the other 20%, and if the share price falls below a point where the loan becomes greater than the value of the shares at current market price they will make a margin call, the borrower has to put more money with the bank to reduce the bank’s exposure to loss. Margin lending is mainly used by traders who are interested in making money through price movements and dividends; they are not interested in controlling the company. As far as I can tell someone in a margin loan through ANZ has no, or at least is not made aware they have voting rights through the shares they are the beneficiary of. This actually makes sense for both parties. Traders turnover a lot of shares and it is hard to track exactly who owns what at the time a resolution needs to be voted on, also traders see the necessity to vote as an added burden, it’s not their core business and are quite happy to pay another company to take care of this for them. The UK has encouraged the use of nominee companies through its stamp duty on share trading. If one uses a nominee company to trade their shares they can reduce or eliminate the stamp duty because the nominee company will make the trades internally therefore not using the public stock exchange and hiding the trade from the tax collectors.
The other major reason is anonymity. You may not want the world to know you have a large stake in a major company. Why wouldn’t you? Well governments may think you have too much influence and are decreasing competition, you may be trying to avoid tax, you may be a board member of a competing company or supplier. You may be incredibly powerful and don’t want the masses to know your influence.
There is also another simply practical reason to use a nominee company, superfund managers often use them because they will take care of the paper work involved with buying and selling large quantities of shares, and the pesky task of voting.
I mentioned earlier that all Australians that have worked have an interest in the shares of companies through their superfund but we don’t get the voting rights, the fund does, and they will often pass this on to a nominee company. The voting rights of nominee companies is at least very opaque, possibly collusive, and most definitely it concentrates power into the hands of a few rather than the many.
Trusts are slightly different to nominee companies, and their purpose varies. Many are family or corporate trusts that are mainly set up for tax purposes to spread income and or franking credits to companies and individuals thus minimising the groups tax burden. Or they are collective trusts such as my employee share trust. The ANZ gives its non-management employees in Australia $1000 dollars worth of shares every year but holds the shares in trust for a minimum of 3 years, and as far as I am aware they hold the voting rights on these shares not us. Again though it concentrates power rather than dissipates it, shareholder democracy is a Furphy.
Governments in the wake of the GFC have called for a cap on the golden parachutes for leaving CEO’s and on short term bonuses for executives particularly in the banking sector, as they see these huge payments as one of the motivations for greedy reckless decision making which lead the world into crisis. Australia’s government has passed responsibility to the shareholders of these companies saying it is they who should take control of their companies and look after their interests by capping CEO remuniration. As you can see this is ridiculous because the shareholders are members of the same club as the board and the CEO. The shareholders are the CEO’s of the past and present. When the largest shareholder of ANZ bank is HSBC nominees it’s the CEO of HSBC and its board which selects the remuneration package for ANZ’s CEO. Note Mike Smith the current CEO of ANZ was ex-HSBC.
The CEO’s then move from the chief executive role to board member and then board manipulator as Don Argus has done moving from CEO of National Australia Bank (nab) in the nineties to chairman of the board of BHP Billiton in the 2000’s and now director of the Australian Foundation Investment Company the biggest independent owner of shares in Australia. It is in their collective best interest to move money away from the community into their own hands. They are the club so they are always going to pay high (relative to what most readers earn) amounts to their CEO’s for doing what they are told.
It’s interesting that one of the few major company’s shareholders that actually gives its CEO flack and can get them to change their policy on corporate decisions is Telstra (formerly Telecom Australia). In 2010 they backed down on charging a fee for non electronic payment of bills because their shareholders complained at the AGM (Annual General Meeting) this is because of the way Telstra was sold. It was a state owned Telco the only Telco in the country when it was privatised and the corporate ownership was limited to 20% and the rest sold to a broad range of “mum and dad” investors including me and my sister. I knew that as soon as the first issue was floated the corporates would want to get their hands on more and therefore push the price up, I sold in the first two months and doubled my money, but most held on and paid all the further instalments. This meant Telstra unlike most other major companies had a broad individual human ownership and that is why they actually must try to become more human themselves.
Telstra’s plummeting share price may be a sign that the corporate club doesn’t like having things out of its control and in the hands of the populous for they seem to put things like fees on them at a higher priority than profits and CEO bonuses.
You will notice in this that the power ratio of a publicly listed company is very similar to the way wealth is divided in the world, 80/20 or 90/10 where 80-90% of the wealth or control is held by 20-10% of the people. That’s not democratic! It’s closer to the one party system of communist China or the feudal hereditary monarchies of the middle ages.
So we can see that we are now ruled by corporations that are controlled by a few that prefer to remain anonymous, and by politicians that are controlled by narrow minded self appointed elite lobbyists, who are most likely to be the same as those that control the corporations.
Just before we leave the fable of corporate democracy I’d like to point out that the two rising superpowers of the world China and India still have most of their basic services like energy, water, telecommunications, and transport in state, or central control. Not in corporate hands. Why do I mention this? Well because they are succeeding, they have money and power on the rise and we have none, perhaps we can take a little bit of that and mix it with a lot of us.
[cs_section id=”” class=” ” style=”margin: 0px; padding: 45px 0px; ” visibility=”” parallax=”false”][cs_row id=”” class=” ” style=”margin: 0px auto; padding: 0px; ” visibility=”” inner_container=”true” marginless_columns=”false” bg_color=””][cs_column id=”” class=”” style=”padding: 0px; ” bg_color=”” fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″][x_custom_headline level=”h2″ looks_like=”h3″ accent=”false”]Banks do create credit from nothing but they need to get the money back again to balance their books.[/x_custom_headline][/cs_column][/cs_row][/cs_section][cs_section id=”” class=” ” style=”margin: 0px; padding: 45px 0px; ” visibility=”” parallax=”false”][cs_row id=”” class=” ” style=”margin: 0px auto; padding: 0px; ” visibility=”” inner_container=”true” marginless_columns=”false” bg_color=””][cs_column id=”” class=”” style=”padding: 0px; ” bg_color=”” fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″][x_columnize]I’ve had to have a bit of a rethink on the debate about banks creating money from thin air. The Bank of England has published a report suggesting such.
First I want to back track a bit. Many of those spruiking that banks were creating money from thin air suggested that only one side of their balance sheet received an entry. Their argument is the when a bank lends you money they create an asset – a loan to you. This money enters the system and as you pay down the debt the money created disappears. This is just not standard (double entry) accounting practice.
Banks do balance off their accounts with a deposit to your account or borrowing more money from other banks, or people. They must attract a deposit to balance off their books or they must use their reserves. However the other bank can create a loan – an asset to the other bank – to the bank that has lent you the money. They essentially swap IOU’s and this does increase the base money supply and is essentially creating money from nothing.
The velocity of money and the blurring effect it can have on calculating base money is a factor. In the increase in base money over the past 10 years But there can also be brief periods where lending massively outstrips loan repayments and deposits and this would increase the money supply. Although this effect should unravel.
The affect of default – which decrease that money created – and debt repayments from savings decrease money creation. The velocity of money can compensate for this but generally during conservative times people pay down debt while decreasing economic activity – spending. So both the money expansion ceases and the velocity slows.
[/x_columnize][/cs_column][/cs_row][/cs_section][cs_section id=”” class=” ” style=”margin: 0px; padding: 45px 0px; ” visibility=”” parallax=”false”][cs_row id=”” class=” ” style=”margin: 0px auto; padding: 0px; ” visibility=”” inner_container=”true” marginless_columns=”false” bg_color=””][cs_column id=”” class=”” style=”padding: 0px; ” bg_color=”” fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″][x_raw_content][GARD][/x_raw_content][/cs_column][/cs_row][/cs_section][cs_section id=”” class=” ” style=”margin: 0px; padding: 45px 0px; ” visibility=”” parallax=”false”][cs_row id=”” class=” ” style=”margin: 0px auto; padding: 0px; ” visibility=”” inner_container=”true” marginless_columns=”false” bg_color=””][cs_column id=”” class=”” style=”padding: 0px; ” bg_color=”” fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″][cs_text id=”” class=”” style=”” text_align=””]The amount of money gambled in financial capital, forex and derivative markets in Australia. ($1,000AUD)[/cs_text][x_image type=”none” src=”http://www.jesaurai.net/wp-content/uploads/2016/03/Financial-trade-in-Australia-AFMA.jpg” alt=”” link=”false” href=”#” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””][/cs_column][/cs_row][/cs_section][cs_section id=”” class=” ” style=”margin: 0px; padding: 45px 0px; ” visibility=”” parallax=”false”][cs_row id=”” class=” ” style=”margin: 0px auto; padding: 0px; ” visibility=”” inner_container=”true” marginless_columns=”false” bg_color=””][cs_column id=”” class=”” style=”padding: 0px; ” bg_color=”” fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″][x_columnize]So why did Lehman Brothers go broke. In theory no bank should ever go. There should always be a corresponding deposit a lending bank can get its hands on from a new loan or a willing bank to lend it money in the interim. Basically it was fear of us. If we use all our borrowings to pay down debt we can decrease the money supply leaving one bank short, or in a high risk position. The other banks cut off the supply of loans to them and they fail. The debt system unravels backwards and those who lent the most die. Cash can also cause problems because as people hold cash they decrease the banking supply of money. By the same token a decrease in money velocity can have a similar effect, if the money created ceases to flow between banks because we slow spending this can leave a bank very unbalanced and nipping into its reserves or worse depleting them altogether. This scares the whole system and banks cease to lend to each other.
Of course if they just continued to give each other credit in theory the system couldn’t crash.
Again “in theory” this should create inflation and higher interest rates thus correcting the boom. But this only occurs if the increase in money supply actually filters through to the real economy. Much of it stays in the capital and derivative markets.
David J Campbell
[/x_columnize][/cs_column][/cs_row][/cs_section][cs_section id=”” class=” ” style=”margin: 0px; padding: 45px 0px; ” visibility=”” parallax=”false”][cs_row id=”” class=” ” style=”margin: 0px auto; padding: 0px; ” visibility=”” inner_container=”true” marginless_columns=”false” bg_color=””][cs_column id=”” class=”” style=”padding: 0px; ” bg_color=”” fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″][x_share title=”Share this Post” share_title=”” facebook=”false” twitter=”false” google_plus=”false” linkedin=”false” pinterest=”false” reddit=”false” email=”false” email_subject=”Hey, thought you might enjoy this! Check it out when you have a chance:”][/cs_column][/cs_row][/cs_section]
