Sepp Hasslberger: Economy Archives

Davos and the Importance of Social Media

The World Economic Forum is being held in Davos, Switzerland. Until Sunday, 31 January, the economic powers-that-be are meeting in the secluded ski resort town.

The Growing Influence of Social Networks is one of the themes to be discussed in Davos this year. Public input was invited, but the request was somewhat hidden in a brand new Ning group with little more than a hundred members, and it reads as follows:

Given the topic of the workshop it was natural to open it to input from the different social networks. We want to hear from you:
1. "How are social networks changing society?"

2. "What are the most important implications and risks for society?"

3. "What should individuals and institutions do to leverage the power of social networks and improve society?"

Are social media going to change the world?

A big question to be hidden away in a group with very few members. Still, some great comments and suggestions were made. To get the whole conversation, see the posting

The Growing Influence of Social Networks

And indeed, how do social media influence and change society? I tried to answer those questions, and was surprised at my answers. Social media are more important than we might believe. We are having conversations, mostly for fun, and sometimes with the intention of changing things we perceive to be going in the wrong direction. Yet, the implications of what we are doing are profound, indeed world changing....

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Posted by Sepp at 5:17 PM | Permalink | Comments (1)

BIBO - A Standard for Stable Currencies

BIBO - Bounded-Input-Bounded-Output is an engineering term. It comes from Control Systems Theory and signifies that any system, to be stable, must respond to a bounded input with an equally bounded output.

Our system of bank currency - the money we are using every day - has a fatal design flaw - it violates the BIBO principle. Economic instability is built in to our money right from the start. This leads to the imperative that the economy must keep expanding endlessly. We are unable to achieve sustainable economic activity, to preserve our planet's finite resources, lest we face financial collapse.

This, in short, is the situation as argued by Marc Gauvin and Sergio Dominguez of bibocurrency.org

A formal stability analysis from the standpoint of control systems theory has shown that the mechanism of interest inherent in money creation and in everyday lending practices must lead to monetary instability (inflation) and eventually to the collapse of economic activity. Adding interest to the principal of any loan to be repaid creates an excess debt that, within the confines of the economic system, can never be fully paid off, resulting in an inherently unstable economic situation.

Financial System walkthrough

1. Wealth is generated by ingenuity, human effort and resources made available through past investment of units of currency.

2. Through the process of asset evaluation, a fixed amount of existing wealth is attributed a fixed collateral value in the form of a sum of units of currency.

3. The fixed collateral sum is used as the basis for the creation of new currency in the form of a second fixed value i.e. the principal sum of loans issued into circulation through current account entries. Since both the collateral and principal loan sums are fixed, they maintain a constant ratio to the wealth pledged.

4. Current account units are distributed back to wealth producers through purchasing transactions or may be saved or stored (at a compounding interest rate) or used to cancel debt thus reducing the total amount of money in circulation.

5. Total debt due is the principal sum entered as a negative number in a loan account to which interest is added such that the debt grows as a function of time.

6. Because the total debt created always exceeds the amount of money available to satisfy it, the system produces a minimum residual debt that must be refinanced in subsequent cycles thus compounding it.

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Posted by Sepp at 7:03 PM | Permalink | Comments (6)

The End of Money and the Future of Civilization

Large parts of the economy appear set to go to hell in a handbasket. The banking system, which should be of service to production and the economy, is itself on the verge of collapse. Yet the speculators who brought down those banks are being lavishly rewarded - bailed out with huge gifts of our hard-earned money.

Unless we want to spend the rest of our lives working to pay off those huge debts, we must understand what exactly has been happening and why - where things went wrong. And we must figure out how money and banking can be re-configured to support, rather than ruin our economic efforts.

We can't leave this to corrupt politicians. In our search for answers we can't even rely on the economists. They did nothing to warn us of impending disaster. The only way out of this mess: we must understand for ourselves. Thomas Greco's new work The End of Money and the Future of Civilization is an encouraging book in this respect. Amongst all the confusion, it provides a stable foothold, a starting point for our quest to understand.

Greco reduces a complicated subject down to the very essentials and, after providing an overview of historical developments and an indication of the reasons for our current trouble, the book points to a future where our currency will be at the service of individuals' economic activities rather than being a source of easy profit for bankers and speculators, who have been gambling with what wasn't theirs.

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Posted by Sepp at 1:19 PM | Permalink | Comments (0)

SCEC - Solidarity and Local Complementary Currency in Italy

SCEC stands for Solidarietà che Cammina - Solidarity that walks. It is a complementary currency that is designed to start its life circulating in common with the official currency, the Euro.

It is adapted to the Italian situation, where alternative currencies are looked upon as competition to the official one. So SCEC defines itself as a complementary currency. It circulates together with the official currency.

SCEC is in the form of a discount chit denominated in Euro equivalents (in denominations of 0.50 Euro, 1, 2, 5, 10 and 50 Euro). It is distributed for free and acquires value only when used. Businesses and professionals agree to give a discount to buyers who pay (in part) with SCEC, usually around 20 %, but ranging mostly between 10 and 30 %.

A full description of the project in English - a bit lengthy but certainly of interest - is available here:

http://www.arcipelagoscec.org/doc/ArchipelagoSCECproject1.pdf

SCEC is putting first emphasis on actually supporting local production and commerce over imports from far away and world wide commerce by multinationals. The currency makes local exchanges more convenient for people who use the system, as they get a break by virtue of getting substantial discounts on the normal price.

The SCEC, once issued, stay in circulation and can be spent at any business or professional that adheres to the program and states how much discount they are willing to give. In this way, SCEC is tax neutral - no tax is to be paid on it as it is merely a discount.

Users of course, who are not subject to value added tax (VAT) when buying/selling second hand goods or exchanging favors and transactions in the social area can use SCEC to replace the official Euro currency in these direct exchanges.

SCEC is a discount as far as the government is concerned, but it is a fledgling alternative currency as far as the users are concerned.

It favors local commerce and as it gets more and more accepted, future uses might even include the payment of rates or (local) taxes.

An electronic system to run side by side with the currently available paper currency is in the planning stage. This would work like any bank account. You can make transfers to other users of the system, and you can convert paper into electronic or electronic into paper, if so desired.

Organizationally, SCEC is organized as a non profit "archipelago of several islands" which are the regional associations that are independent of each other, but agree to use the same kind of currency and to exchange information on who are the member businesses and professionals who accept SCEC as part payment for their goods or services.

SCEC are issued periodically and equally to all participants in the system, in exchange for a voluntary contribution intended to defray the costs of printing and administration.

Loans in SCEC to participating businesses are possible. They are given as an advance on future distribution of the currency. Once someone has received a loan they will not receive any future SCEC distributed to others, until they are "caught up" and are once again eligible to receive the normal distributions. Anyone entering the system gets 100 SCEC to start trading. To get more, they have to either wait for another periodic distribution or have to start giving some kind of service for which they accept SCEC in payment.

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Posted by Sepp at 12:06 PM | Permalink | Comments (0)

Seigniorage Reform: How to make a new monetary system

The monetary system we know has run into serious trouble and it is very unlikely that more of the same policies that got us into the current bind will be sufficient to get us out of it again. Alternatives to the debt based system of bank-created-money have been discussed for decades, but reforms were put off because for certain people at the top of the pyramid, the system is extremely profitable. With the collapse of major banks and the need for taxpayers to step in to save the day, the calls for reform are getting louder and more articulated.

Umair Haque, in a recent article titled "Four Ways to Build a Better Economy" alludes to monetary reform as one of the changes we need to make to overcome the current crisis:

The Currency Fix. "The invisible hand doesn't mean that profiteers get to reach into your pocket with every trade. Yet, that's the economy we've built: one where you bear a collective responsibility for the decisions of bankers, beancounters, and other borrowers. Why? Because you have to invest, consume, and earn in a national currency, which can whipsaw up, down, or sideways, leaving you and your savings at the mercy of the state and the crony capitalists that control it.
It's time for this con game to end. Tomorrow's radical innovators will reconceive currency itself: they will design next-generation currencies that are globally accessible, ubiquitously liquid, and that are inherently, permanently hedged and insured -- so instead of getting inflated, deflated, disinflated, and eviscerated, currencies can do what, well, they were meant to do: serve as a durable store of authentic value."

I would add that an even more important function of currency than "durable store of authentic value" is to be an "abundantly available means of exchange and investment". Those two functions, mediating the exchange of goods and permitting investment for productive activities are perhaps the most immediately important functions of any monetary system and they should be programmed into a new currency right from the start.

A report by Joseph Huber and James Robertson of the New Economics Foundation lays out and discusses a direction of currency reform, to bring our monetary system into alignment with today's new realities:

The rules of the money system have shifted. The majority of money that now changes hands does so electronically. As a result, far more than ever before, new money is not issued by the state but by banks. Ninety seven pounds in every one hundred circulating in the economy will now have been issued by banks (in the form of sight deposits, printed into customers' accounts as interest-bearing debts). Only three pounds are cash, issued by the state (in the form of banknotes and coins, issued at no interest). The cost to the state of issuing new money is only the cost of producing banknotes and coins. The cost to the banks of issuing new money is virtually zero. The state receives public revenues from issuing cash, but banks make private profits. The benefits of the money system are therefore being captured by the financial services industry rather than shared democratically.