Money doesn’t grow on trees or so they say

They also say that money makes the world go round…well metaphorically it does. It oils the wheels of commerce and enables us to transact with each other and exchange our goods and services.

But how does money actually grow? There always seems to be more of it around. Who creates it?

You probably assume your local central bank does because only they can print notes and coins. That much is true but that’s only a bit of the story. Currently only 2-3% of the total money supply is created in the form of notes and coins that we keep in our wallets and purses.

The rest? Well as JK Galbriath noted the way in which most money is created is “so simple that the mind is repelled”. The private banking system simply create the balance of new money by issuing new loans.

That’s it. For those of you who thought banks lent out money you have deposited with them i’m sorry to inform you that this is not the case.

If you deposit $1000 in the bank, they now have the ability to lend out (and in the process create new money) up to $10000. Of course they charge interest on that loan which is where they make their huge profits from.

I’ll give you an example:

In New Zealand the money supply has increased 101% in the last 8 years. So the total money stock has more than doubled in 8 years!! In that time house prices have risen 143%.

But the official measure of inflation has only risen 20%. Hello…..what is going on here? Yes it is a complete mess.

It is not the central bank or government printing money and causing huge (but unmeasured inflation). It’s the private banks who are doing it! The ones who scream and shout if governments ever think about reclaiming their right to issue money interest free on behalf of their citizens.

It is one of the greatest swindles of in history.

It requires that people sit up, take notice and look hard at what is happening around them. In the US especially the system is starting to creak…..look at the housing market and the lenders that operate in it.

Please see the following sites for more information. Once you learn about this life will never be the same

US: www.monetary.org

UK: www.monetaryreformparty.org.uk

Can: www.comer.org

Aus: www.peoplesbankparty.org

As my old history teacher said read, learn and inwardly digest.

Climate Change 3.0 - Time to Move On

We’ve had Web 3.0 so why not Climate Change 3.0? I believe it’s time to move forward on this issue and start thinking smarter.

Let’s start with the basic problem. Governments are controlling the issue and yet governments do not create greenhouse gases. Who does? People and organisations do (ok and so do some animals) and they need to deal with it. Then we need to ask who provides the polluting items? Fossil fuel companies in the main (ok farmers and cement manufacturers as well) are the providers of the feedstock.

Added to that we have the other side of the equation which is the sequestration system, our rainforests, soils, other vegetation, oceans and whatever else sucks up greenhouse gases.

So we have a certain volume of fossil fuel feedstock coming into the system to be combusted in various forms to provide energy in the main (as well as a multitude of petrochemical based products) and we know where the major changes in land use occur so we know the net volume of greenhouse gases added in any given period.

What we don’t know is the tolerable limit of greenhouse gases in the atmosphere. It could be 400ppm, 500 or 600 (using carbon dioxide equivalents). No one knows and quite frankly the models we have are really best guesses. We do know that there is likely to be a tipping point over which we will have some severe and irreversible impacts. Hopefully our science will get better and allow us to forecast accurately but we are still learning about our systems and as yet cannot be certain as to where this level is.

So at some point we have to pick a number. Let’s say 500ppm. We are now at 380ppm so we can plot out a course for getting there. We must have a global cap on emissions or we are wasting our time. Forget about national limits..they are a complete red herring and unworkable unless governments want to control the sale and use of all fossil fuels within their own region. Given global trade that is simply not possible.

Once we have a global cap we can work out an annual quota for fossil fuel production. Then the fossil fuel companies can compete for the right to produce. One suggestion is that rights are grandfathered in but a better one is that the rights are auctioned off annually and the receipts put into a global environmental contingency fund. This has been suggested by Oliver Tickell through his proposal Kyoto2. You can read about that here www.kyoto2.org.

Once annual quotas are put into place the market will adjust prices to meet demand at the appropriate supply level. I have proposed a complete reorganisation of the global energy market to increase efficiencies and therefore lower prices.

Then we can forget about all the attempts to somehow finesse this problem. We just have to work out how much we can use and then carry on as normal. If prices go up then renewable and alternative energy will be sought out. Either way we need to adjust our behaviour.

This is the most likely way of achieving that. Governments can help negotiate the process like they did with Montreal but ultimately this problem can be solved easily by the fossil fuel companies taking charge like the CFC producers did before them.

Give people the freedom and the incentive to change and they will.

Parliamentary Officers - Keeping the Long View

A few weeks ago in New Zealand we celebrated the 20th Anniversary of our Parliamentary Commissioner of the Environment. This is an office of Parliament and therefore independent of the government of the day. The Commissioner reports to the Speaker of The House and the officers of the Parliament Committee.

This is an incredibly important position. Government is hamstrung at the best of times by short term considerations such as re-election and the constant sniping from the lobby brigade. The Commissioner on the other hand can afford to take a long term view and can criticise the government freely and ultimately acts as a guardian for the environment.

The only other country to have such a position is not a country but a province of Canada. Ontario passed an Environmental Bill of Rights back in 1994 which was a very forward thinking piece of legislation and this is monitored by the Environmental Commissioner of the Environment.

Canadians and New Zealanders both live in spaces of outstanding natural beauty and wonder. And yes we rely on the land for our food, energy and shelter but we are also aware that it cannot be pillaged without due thought for the consequences.

These officers provide a balance to the me-now culture that dominates courtesy of a society drunk on credit and the growth imperative that follows. Whilst i am not a great fan of bureaucrats Parliament (or similar legislature) is the representation of the people and the common good and more countries could use this type of model.

In Europe there are several Sustainable Development Commissions. Their job is to be an independent voice also and often are appointed by the Prime Minister with a mandate to be objective and critical. Of course their powers are limited to an advisory role whereas an officer of Parliament carries more weight.

Democracy is in a fragile state these days. We don’t respect our politicians, the election process is more and more about money and people feel disenfranchised. Officers of Parliament can bring more respect as they work on behalf of the people and the institution that represents them.

It’s time to rescue our political institutions before they become completely corporatised. Let them take the long view without interference and let’s leave short term-ism to the business sector.

How to curb excessive house price rises

Today Michael Cullen revelaed an audacious plan to apply a mortgage levy to fixed rate mortgages. This predicatably went down like a lead balloon. It’s just another tax on property owners and likely to be very regressive in nature.

House prices are expensive especially when related back to wages and rents. The question to ask is why prices have risen so much in the last 5 years. One simple explanation is increased migration. This creates demand for new housing for the new population but it is also the nature of the new arrivals that is important. Many immigrants are skilled and wealth with 60% approved last year under the business or skilled categories. Added to this was a general weakness in the NZ$ back in 2001/2002 which made NZ property look very cheap. This in turn allowed higher prices to be paid for property mainly through the auction process here which created a general revaluation of property across the board.

That revaluation in 2002/2003 lifted prices and generated a whole new group of property investors and developers. Property was suddenly on the move and a great investment. With immigration picking up again it is hard to see how prices can fall from current levels.

By imposing a mortgage levy all the government would achieve is to make people less well off leading to higher wage demands. As the imposition of stamp duty in the UK showed it is hard to restrain a property market when demand is strong.

With so much overseas capital arriving, even with the NZ% so strong (though it should be noted not so strong against A$, Eur or Stg) it is very difficult to control the property market.

One alternative is to look at the actual supply of money otherwise known as credit. There has been mention of LoanToValue ratios and attempting to control them. It may be easier to actually limit or reduce the amount of credit banks can grant, in essence saying “hey there just isn’t any more money out there”.

I will explore the issue of changing the reserve asset ratio another time but it is clear that the mortgage levy is not the answer.

Do incentives work?

Research from the UK into people’s “green” behaviour demonstrates that people respond poorly to price signals and very rarely make the changes required without strong arm tactics. Recent fuel surcharges on air travel have made little difference to people’s travel plans. As our recent experiences with credit show us, people are always happy to go into debt to have what they want right now. Ecological credit is no different.

We must stop offering unlimited ecological credit if we really want to cap greenhouse gas emissions at any chosen level. Like our money supply it is currently in an acceleration phase upwards with little or no control.

Time to Limit Fossil Fuel Production

Climate Control: Managing Global Greenhouse Gas Emissions

It’s time to face the fact that climate change can only be dealt with at the global level in a similar manner to ozone depletion.

I issued the following press release today. Read the full paper at the above link.

Should we limit fossil fuel production
Monday, 5 February 2007, 11:56 am

Press Release: Sustento Should We Limit Fossil Fuel Production?NZ economist proposes global fossil fuel production quotas to stem greenhouse gas emissions.

Christchurch-based policy institute Sustento says governments must set up a global quota system urgently to control fossil fuel production.

Institute director, Raf Manji says the Sustento Framework is based on the reality that climate change is a global problem and needs to be dealt with at the global level.

“Currently efforts to reduce greenhouse gas emissions have been devolved to the national level where policy has been limited to improving energy efficiency and switching to renewable energy. This approach has not yielded major results and other policy proposals such as carbon based taxes have not found favour with either politicians or their voters.

“As the latest Intergovernmental Panel on Climate Change (IPCC) report demonstrates this policy impasse needs immediate attention,” he urges.

The Sustento Framework calls for action at the production rather than consumption level. The Framework combines a global carbon inventory with an agreed limit to global greenhouse gas emissions, and from that produces an annual production quota for fossil fuels.

“This guarantees that agreed targets will be met - unlike current consumption reduction approaches which simply hope that this will happen,” he says.

Mr Manji is aware that critics of this approach argue that producers will not like the idea of quotas but, he counters, this approach was very successful in dealing with ozone depletion via the Montreal Protocol where producers rather than consumers were targeted.

Quotas also currently operate within OPEC and informally within the IEA, which represents non-OPEC producers. In July 2006 the G8+5 met for the first time to consider climate change issues. This group alone controls 76% of global coal production, 57% of natural gas and 38% of crude oil production. G20, which is an enlarged version of the G8+5, controls 94% of coal, 73% of gas and 59% of crude oil.

“If the problem of climate change is to be taken seriously by the major nations of the world then it is likely that forums such as the G8+5 will be the place where concrete action will be possible,” he says.

In 1977 the Brandt Commission proposed an international strategy on energy.

“If we are to limit growth in greenhouse gas emissions now is the time to implement such a proposal,” concludes Mr Manji .

ENDS