Barter 3.021st Century Credit Clearing & Beyond                Chris Cook         IRTA Convention     Ocho Rios           ...
“21st Century problems cannot be solved with         20th Century solutions”.
Market 1.0 – decentralised & disconnected
Market 1.0 – physical market presence
Market 2.0 - centralised & connected
Market 2.0 - presence via intermediaries
Market 3.0 - decentralised & connected
Market 3.0 - network presence
Market 2.0 reached Twin Peaks
Peak Credit - financial demand on people
Peak Resources - demand on finite resources
Peak Credit – intermediary Banks createcredit pyramids on their bases of Capital               Credit              Capital
Banks outsourced credit risk
Freeing Capital to support more credit creation
Totally – securitisation and sale of debt to         shadow bank investors
Temporarily – Credit Derivatives(CDS - a time-limited guarantee)
Partially – using credit insurance from          insurers such as AIG
Radioactive cocktails of all three, like CDOs, structured finance and so on
The Result was a bigger Credit Pyramid   than Banks alone could sustain…              Credit               Investor       ...
…and an opaque shadow banking system of  Investors holding sliced and diced risk                Credit                 Inv...
This pyramid of Credit funded the Mother of    all Bubbles in US property prices….
…and servicing this credit finally exceededthe financial capacity of the US population
Maybe the end of cheap oil spiked the bubble?
Peak Credit – was the point when the  Property Bubble began to deflate
But by now no-one knew where the Risk was                 Credit                  Investor                   Capital      ...
Banks started to think, “if this is what  our balance sheet looks like…..”
“…what does everyone else’s look like?”
The problem is not shortage of money -               liquidity
It is shortage of Capital - solvency
Solvency of Banks is one aspect            Credit             Capital
The other aspect is the solvency of populations
And a secular decline of purchasing power
Loans which cannot be paid, will not be paid
Non-performing loans drain money out of the                 system...
...threatening a deflationary spiral...
....which requires periodic transfusions
...to avoid Depression
Quantitative Easing – increases quantity of      money and prevents deflation
This dilutes the value of money, and causes      inflation of financial asset prices
Money will only inflate retail prices if lent or           spent into circulation
But at the Zero Bound of 0% dollar interest        rates strange things happen
Investors buy anything but dollars whether it           carries a return or not
Investors buy Structured Products from Banks    and Units in Exchange Traded Funds
The motive is Fear: investors aim to avoid loss,  not to make speculative transaction profit
Financial demand – not consumption – has  caused correlated commodity bubbles
Markets have suffered a cardiac arrest
So Investors have actually created the very       inflation they seek to avoid
Financing - short term investment in creation              of new assets......
....and trade credit necessary for the   circulation of goods and services
Funding – long term investment in        productive assets
“21st Century problems cannot be solved with         20th Century solutions”.
In fact, the answers lie prior to the 18 th              Century.........
…..and in a Flight to Simplicity
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IRTA Conference - Barter 3.0 Intro

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IRTA Conference - Barter 3.0 Intro

  1. 1. Barter 3.021st Century Credit Clearing & Beyond Chris Cook IRTA Convention Ocho Rios 14 September 2012
  2. 2. “21st Century problems cannot be solved with 20th Century solutions”.
  3. 3. Market 1.0 – decentralised & disconnected
  4. 4. Market 1.0 – physical market presence
  5. 5. Market 2.0 - centralised & connected
  6. 6. Market 2.0 - presence via intermediaries
  7. 7. Market 3.0 - decentralised & connected
  8. 8. Market 3.0 - network presence
  9. 9. Market 2.0 reached Twin Peaks
  10. 10. Peak Credit - financial demand on people
  11. 11. Peak Resources - demand on finite resources
  12. 12. Peak Credit – intermediary Banks createcredit pyramids on their bases of Capital Credit Capital
  13. 13. Banks outsourced credit risk
  14. 14. Freeing Capital to support more credit creation
  15. 15. Totally – securitisation and sale of debt to shadow bank investors
  16. 16. Temporarily – Credit Derivatives(CDS - a time-limited guarantee)
  17. 17. Partially – using credit insurance from insurers such as AIG
  18. 18. Radioactive cocktails of all three, like CDOs, structured finance and so on
  19. 19. The Result was a bigger Credit Pyramid than Banks alone could sustain… Credit Investor Capital Bank Capital
  20. 20. …and an opaque shadow banking system of Investors holding sliced and diced risk Credit Investor Capital Bank Capital
  21. 21. This pyramid of Credit funded the Mother of all Bubbles in US property prices….
  22. 22. …and servicing this credit finally exceededthe financial capacity of the US population
  23. 23. Maybe the end of cheap oil spiked the bubble?
  24. 24. Peak Credit – was the point when the Property Bubble began to deflate
  25. 25. But by now no-one knew where the Risk was Credit Investor Capital Bank Capital
  26. 26. Banks started to think, “if this is what our balance sheet looks like…..”
  27. 27. “…what does everyone else’s look like?”
  28. 28. The problem is not shortage of money - liquidity
  29. 29. It is shortage of Capital - solvency
  30. 30. Solvency of Banks is one aspect Credit Capital
  31. 31. The other aspect is the solvency of populations
  32. 32. And a secular decline of purchasing power
  33. 33. Loans which cannot be paid, will not be paid
  34. 34. Non-performing loans drain money out of the system...
  35. 35. ...threatening a deflationary spiral...
  36. 36. ....which requires periodic transfusions
  37. 37. ...to avoid Depression
  38. 38. Quantitative Easing – increases quantity of money and prevents deflation
  39. 39. This dilutes the value of money, and causes inflation of financial asset prices
  40. 40. Money will only inflate retail prices if lent or spent into circulation
  41. 41. But at the Zero Bound of 0% dollar interest rates strange things happen
  42. 42. Investors buy anything but dollars whether it carries a return or not
  43. 43. Investors buy Structured Products from Banks and Units in Exchange Traded Funds
  44. 44. The motive is Fear: investors aim to avoid loss, not to make speculative transaction profit
  45. 45. Financial demand – not consumption – has caused correlated commodity bubbles
  46. 46. Markets have suffered a cardiac arrest
  47. 47. So Investors have actually created the very inflation they seek to avoid
  48. 48. Financing - short term investment in creation of new assets......
  49. 49. ....and trade credit necessary for the circulation of goods and services
  50. 50. Funding – long term investment in productive assets
  51. 51. “21st Century problems cannot be solved with 20th Century solutions”.
  52. 52. In fact, the answers lie prior to the 18 th Century.........
  53. 53. …..and in a Flight to Simplicity
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