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Economics 3.0 25 07_12


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Presentation at UMKC Kansas City 25th July 2012

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Economics 3.0 25 07_12

  1. 1. Economy 3.0 Ethical is Optimal Chris Cook UMKC 25th July 2012
  2. 2. “21st Century problems cannot be solved with 20th Century solutions”
  3. 3. Economy 3.0 Economy 1.0 – decentralised but disconnected; physical market presence; Money 1.0 a physical object Economy 2.0 – centralised but connected; market presence by middlemen; Money 2.0 is a credit object Economy 3.0 - decentralised but connected; network market presence; Money 3.0 is a relationship
  4. 4. October 2008 - R.I.P. Market 2.0 Peak Credit Collapse of Lehman Brothers QE necessary to prevent debt deflation Systemic and persistent solvency problem Systemic imbalance in purchasing power Credit intermediary banks systemically short of capital
  5. 5. Adjacent Possible Exchange Traded Funds and Index Funds 'Creditary' ownership claim not debt claim Passive 'inflation hedger' risk averse investors aim to avoid loss rather than make transaction profit Market risk is dis-intermediated – 'capital lite' Intermediaries retain credit risk Profit from service provision eg HFT, asymmetric info
  6. 6. Financialisation QE and 0% $ interest rates – 'buy anything but dollars' Correlated bubbles caused by 'inflation hedgers' Price curves cease to reflect market price expectations and reflect $ price expectations ie $ yield curve Commodity prices lose touch with production, consumption & inventories Equity prices lose touch with underlying flows of dividends and retained profits Market 'cardiac arrest'
  7. 7. Correlated Commodity Bubbles
  8. 8. Market Cardiac Arrest
  9. 9. Absolute Property Rights Maths - Plus One; Minus One; Zero Physics - Positive; Negative; Neutral Economics? Conflicting absolute property rights Equity vs Debt; Freehold vs Leasehold Public=State vs Private No Zero
  10. 10. The US has as many sumo wrestlers as Japan has attorneys” 20th century agreements: Law/Statute and Equity One way imposed agreements - “Rule of Law” 21st century agreements neutral; interactive and consensual Scotland: Guilty; Not Guilty; Not Proven East of Suez - consensus is normal, trust is assumed Consensual agreements are an order of magnitude simpler than adversarial agreements
  11. 11. “Law is Code” - Lessig Direct connection - 'Peer to Peer' and 'Peer to Asset' New instruments are needed for people-based (P2P) credit and asset-based (P2A) credit New generation of consensual agreements are needed as a trust framework for such direct credit creation
  12. 12. Nondominium A smart US lawyer wrote a new co-ownership agreement and called it a 'Condominium' The 'Condo' went viral in the US Debt funded Condo's are now a US standard, codified with state by state quality control Classic reality-based, bottom up policy – 'what works' (except for the debt funding!) A Nondominium agreement is a Condo with financing and funding credit on the inside
  13. 13. Nondominium Nondominium simply integrates two agreements A Joint/Collective agreement between the stakeholders collectively – Clearing Union An Individual/Several agreement between the stakeholders individually – Capital Partnership
  14. 14. Nondominium - Outcomes Neutral – removes ego and politics Collaborative - stakeholder interests aligned – no principal/agent problem Social – shared surplus/ 'not for loss' - relationship- based not transaction-based Sustainable - everyone has an interest in minimising cost of use over time
  15. 15. Clearing Union Mutual guarantee of Peer to Peer credit between buyer and seller Buyers and sellers cover system costs and make provisions into a pool in common ownership Credit allocation and management by a service- provider-formerly-known-as-a-bank
  16. 16. Clearing Union Seller Buyer IOU Value Pool GuaranteeGuarantee Fee Fee Service Provider FeeService
  17. 17. Outcomes Community owned credit clearing system 'Not for Loss' operation with no payments to rent- seeking shareholders or fat-cat managers Value stays within the community
  18. 18. Capital Partnership CustodianCustodian Investors Payment Stock % Use Managers Users
  19. 19. Outcomes Collaborative – all stakeholder interests aligned Co-operative Advantage – absence of economic rent & compound interest out-competes conventional model Reality-based – may be introduced by consensual agreement with no change in any law Complementary – no new organisations: agreements between existing organisations Neutral – agnostic as to legal forms
  20. 20. Stock 1.0
  21. 21. Stock 1.0 – Sovereign Credit Stock – part of a tally stick, used either as a receipt (memorandum tally) or as an IOU/ credit token Issued by the Exchequer to creditors at an agreed price in exchange for value received by the sovereign Returnable in payment of taxes By 1694 some £17m of tally stock was in issue when cost of government was £2m to £3m a year In 1694 the (private) Bank of England started to create credit – partly backed by gold - and buy stock The rest is history: the public credit has been privatised.
  22. 22. Stock 2.0 – Asset-based Credit Stock - undated credit returnable in payment for use value of productive asset Sold at a discount – eg £1.00 of Rental Stock sold for 80p gives an absolute return of 25% Rate of Return is literally the rate at which Stock may be returned to the issuer Rate is not fixed, but depends on the quality and quantity of the flow of value
  23. 23. Stock 2.0 – Enron & Prepay Prepay - Enron opaquely sold commodities at a discount for dollars now and delivery later Enron creditors and investors were unaware of these 'commodity loans' by banks eg J P Morgan Similar Prepay deals have been used since at least 2005 to manipulate oil markets in particular If producers can support prices they will From late 2008 onwards Saudi Arabia's prepay deals with J P Morgan have been funded by muppets Prepay is almost identical to stock
  24. 24. Asset-based credit - Land Financing – Sustainable Development – energy efficiency and good quality are in everyone's interests Funding – Resolution of unsustainable housing debt – Release of a pool of development credit – Affordable Housing – absence of debt
  25. 25. Asset-based credit - Energy Renewables - MegaWatts – Energy loans – funding through selling future energy production Energy Savings – NegaWatts and NegaBarrels – Energy loans repaid from energy savings – A Green Deal that will actually work !
  26. 26. Asset-based credit - Intellect Intellect – objective data patterns and representations – Software, video, music art, books, knowledge, design etc etc
  27. 27. People-based credit Energy – Manpower/Unqualified Labour Intellect - subjective – Knowhow – Knowledge – Experience – Common sense – Intuition etc etc
  28. 28. Value Basis Location – immaterial 3D space Energy – material and immaterial embedded in or passing through location Intellect – data patterns and representations in material and immaterial form Each has a use value over time Credits returnable in payment for use value of each is valuable in exchange and is acceptable as currency
  29. 29. Value Exchange Value 'money's worth' such as currency is exchanged on credit terms – time to pay Credit backed by capacity to provide goods and services Value exchange by reference to a unit of account The only absolute is a unit of energy Units of different types of currency exchanged for value by reference to a standard energy unit of account There can be no scarcity of units of measure Energy Standard > Energy Economics
  30. 30. Ethical is Optimal Clearing Union and Capital Partnership share risk and reward equitably Both are immediately recognised by Muslims as Sharia'h compliant Perhaps Ethical is in fact Optimal?