The Chatham Houset is probably one of the most comprehensive projects assessing the present international monetary system and ways to move forward. Its editors provided an informative table on page 8 synthesizing the findings of the 11 articles and the many meetings, workshops that preceded them.
The report reflects the thinking in the UK given the predominance of the British authors/academicians with some participants from Canada, US and China. There were no authors from the global South or from the UN system where monetary expertise exists specifically in its Department of Economic and Social Affairs and UNCTAD. Its focus reflects G20 and BWIs thinking. Most incisive dialogues took place on March 19 and 19 when ECOSOC conducted its meetings with the BWIs, WTO and UNCTAD about financing for development. A summary of which can be found at http://www.un.org/news/press/docs/2010/ecosoc6418.doc.html A Statement by the International Institute of Monetary Transformation about the need to integrate financing for development and climate justice can be found
I can agree with most of the recommendations as reform proposals. They can function was a way station to the real transformation that is needed to have the international monetary system deal with not only the financial and economic crises, but also the climate crisis. My main objection to the CH report is that it is not bold enough in looking at the international monetary system as a pivot to effect transformational change, particularly in respect to the climate crisis.
When Goldman-Sachs author O’Neill presents two scenarios for the future international monetary system I would like to add scenario 3 that is based upon a high level of international cooperation in forging an international monetary system that is based upon the Tierra de-carbonization monetary standard. It would depart from his scenario 2 where a flexible SDR is the basis.
It is time that academicians and banking researchers become emboldened to start thinking of reserve and vehicle currencies that are not only nationally or multicurrency based, but go beyond the currency, that look for the development of standards that are emissions based. China and the other BRIC countries may gain strength in their economies and their currencies, but if the world as a whole is unable to effectively deal with the climate crisis, their accomplishment is a Pyrrhic victory.
High street banks issue money in the form of loans. Could this be the root cause of the credit crunch?
James Robertson guardian.co.uk, Thursday 20 March 2008 17.00 GMT
Northern Rock has been nationalised. A report by the Commons treasury select committee on how various government institutions failed has meant little to anyone except insiders. The government is canvassing complicated proposals to increase banks' compensation to depositors whose money they lose in future. And a distinctive feature of the budget was its 23 motherhood-and-apple-pie references to "financial stability".
Meanwhile, the global credit crunch is spreading and deepening. Complicated calculations suggest that the billions of dollars, euros and pounds already "lost" by banks are turning into trillions, but even the banks themselves don't know how much it really is.
What we do know is that, once again, governments' failure to control the greed of bankers is creating financial disaster for many innocent people; and that, once again, officialdom has failed to ask the basic questions about why this has happened, and to give answers in words that normal citizens can understand.
At the heart of the matter is the fact that commercial banks are allowed to create almost all the money we use. They create it out of thin air and put it into circulation in the form of profit-making loans. They credit those to their customers' accounts by a simple accounting procedure, and their customers spend the money into circulation.
This bank-account money is the money that all of us, people and organisations alike, have in our bank accounts. It is held in electronic form in bank computers. It is far and away the largest part of the money supply. The rest, less than 5% in this country, is "cash". This is issued by agencies of the state in the form of paper banknotes by the Bank of England and metal coins by the Royal Mint.
The key question is this: did the banks' privilege of creating bank-account money to lend to one another play a significant part in fuelling the credit bonanza, subprime market and financial boom that bust, leaving such a tangle of international interbank indebtedness that central banks and other authorities like the Financial Services Agency could not assess the potential consequences if it unravelled?
The answer, of course, is yes. But supposedly democratic parliaments, governments and monetary and financial authorities avoid explaining points like that to citizens in understandable words. Secrecy and deception about how the money system works, why it works as it does, and whether there might be a clear and simple way in which its workings could be reformed in the public interest, undoubtedly contributes to disillusionment with democratic politics and government.
Monetary reform would not be complicated. At present the Bank can only try to influence how much new money the banks create, by regulating interest rates. Monetary reform would make the central bank responsible for creating required additions to the money supply. We would simply be following the example of our 19th century predecessors, who recognised that banknotes were no longer just the "credit" notes they had once been, but had become money accepted by everyone for making payments. So they transferred from other banks to the Bank of England the function of issuing them. Similarly, everyone knows today that bank-account money has become real money, and is no longer just something called "credit".
Transferring the function of issuing bank-account money to the central bank would deprive the commercial banks of a nice little earner, and reduce the power they exercise over the economy and society as a whole. They would fight against it - no holds barred. That is a scary prospect for most practising politicians, government officials, City lawyers, economic academics and commentators, as well as bankers themselves and others professionally connected with money and banking. Until they see the "risk-to-reward ratio" for career survival and success shifting in favour of taking monetary reform seriously, they will keep their heads below the parapet.
So the challenge is for independent citizens outside the mainstream political, economic, and financial complex to start shifting that ratio from outside. We should begin by pressing the chancellor and others responsible for managing our money system to tell us, in words we will understand:
• Where did the billions of money come from which fuelled the credit bonanza, subprime market and associated financial boom?
• Broadly what proportion of that money was created out of thin air by commercial banks as loans to one another to invest in risky packages of already existing debts?
• Did their ability to create it for that purpose make it more difficult for the authorities to assess the potential consequences of the tangle of international interbank indebtedness when it threatened to unravel?
• Who are the people who have actually suffered from the banks having "lost" billions of pounds and dollars?
• Where have those billions gone? Where are they now? Who got them, and what have they done with them? Have they "been laughing all the way to a bank" with them? Is their bank quietly laughing too?
• Or have the lost billions simply disappeared into the thin air from which bankers originally created them?
• If so, during their return journey from and then back into thin air, roughly what proportion of them will have enriched the bankers and other financial operators who handled them on the way?
Paul Krugman in today’s New York Times argues that the real story of the euromess lies “not the profligacy of politicians, but in the arrogance of elites” because these policy elites “pushed Europe into adopting a single currency well before the continent was ready for such an experiment.” Indeed, it was a bold experiment given that these policy elites were fully aware according to David Marsh in his 2009 The Euro. The Politics of the New Global Currency that they were choosing between a monetary union without a political union or the safer way of a monetary union as part of a political union. Like in all crises, weaknesses of systems are shown up and to be dealt with.
My focus here is to make a couple of observations about the euro experiment for the implementation of the Tierra Fee & Dividend system.
First, the Tierra Fee & Dividend system does not start out with a vehicle currency for a region, let alone the world. It starts out as an international reserve currency in its phase 1. Thus, nations can conduct their economic and fiscal policies without being LEGALLY constrained by the Tierra Treaty.
Second, by agreeing to the Tierra as a reserve currency nations learn to work together, so that greater political union will come possible in their efforts to have the Tierra become a vehicle currency. The 16 euro-zone nations will have profited in several ways by engaging in a monetary union without having a strong legally binding political union. They are now in a difficult patch, but their way out of this difficult patch is, as Krugman states, not a breakup which is “very nearly unthinkable, as a sheer matter of practicality.”
Thirdly, the euro-zone nations and their 11 non-euro-zone EU member states will engage in the next couple of years in muddling through their high unemployment, deflation and other monetary, financial, fiscal economic and commercial problems while at the same time dealing with the demands of the climate crisis. They will probably come to the realization that 1. they cannot solve their regional problems without solving them in their international context; 2. that the international monetary, financial, economic and commercial systems have to overhauled in fundamental ways to deal with both the economic and climate crises, to mention only the two most important and pressing ones.
Fourthly, once that realization sets in and is being taking seriously they and the rest of the international community will be ready to consider the Tierra Fee & Dividend system and agree to establish the UN Commission on Monetary Transformation and the Climate Crisis as a major channel of investigation and negotiation that also would include the results of thetwo ad hoc working groups (AWG-LCA and AWG-KP) of the UNFCCC and the main demands in the Copenhagen conference’s Klima-Forum’s People's Declaration.
In his meeting with Senate Democrats yesterday several questions dealt with China’s currency policies. These questions and Mr. Obama’s answers show that an important cause of these policies and of the currency dispute is not being recognized.
China’s currency, the RMB, may be undervalued between 25-40% and this may look as currency manipulation by the US. For China its currency serves to make its exports expand and provide income for its national coffers. This export driven development model will be adjusted in due time, placing more emphasis on local consumption. As part of that policy change, the global financial imbalances will also be reduced.
The reason that this adjustment has not yet happened and that the dispute will continue for an unforeseeable time is that its fundamental cause is not recognized. It is the international monetary non-system with its floating exchange rates and a global reserve system that is based upon a national currency. As long as the US dollar continues to function as the main reserve currency, the international monetary system will be not only unsustainable and inequitable, and, therefore, unstable. Progressing to a non-national reserve currency as proposed by the UN Stiglitz Commission in June 2009 would constitute the beginning of real negotiations between the US and China. One is not to forget that China herself a few days before the London Summit of the G20 proposed the need for a “supranational currency”.
Once both nations and the G20 recognize the need for reforming the international monetary system by working towards a new global reserve system, this new system will also contribute to reducing the global financial imbalances that cause so much volatility and increased transaction costs in international trade.
However, the International Institute of Monetary Transformation believes that these nations have to go one gigantic, i.e. transformational step further. If they base the new reformed global reserve system on a carbon monetary standard with its synthetic accounting unit of the Tierra the international community would integrate the enormous challenges of the climate crisis into the operation of its monetary, financial, economic and commercial systems. The acceptance of its Tierra Fee & Dividend system would institutionally deal the present ecological imbalances by having nations include in their balance of payments a carbon account that like their current and capital accounts have to be balanced. This modified balance of payments would become an institutional mechanism where the carbon debts in countries in the global North can be settled with the carbon credits of countries in the global South. Nobody can argue that there does not exist a global ecological imbalance, caused by the atmospheric occupation of the industrialized nations since the beginning of the industrial age. It is their recognition of this ecological indebtedness and the ensuing responsibility that is key to successful negotiations within the framework of the UN FCCC.
Returning to the currency dispute one can consider it to be a golden opportunity for the US and China to make progress in their pursuit of all the good intentions reflected in their joint statement of November 17, 2009. Once they, as a G2 partnership, manage to forge a programme of work for their part in reducing the global financial and ecological imbalances all the other international groups--G7, G8, G13, G20, G77 and finally G192—will be able to contribute according to their “respective capabilities” based upon their “common, differentiated responsibilities”.
Finally the Obama Administration is making clear where it stands in terms of financial reform by way of Paul Volcker’s OPED piece in Sunday’s New York Times. Hopefully, president Obama himself engage himself in this reform with far more gusto than the warmed-over reformist proposals from his Clinton and Bush holdovers. It was they—Summers, Geithner, Bernanke—who, in their deregulatory zeal, contributed to the near financial collapse in the US and abroad. It was they who, with diminished regulatory zeal but still sizable belief in market fundamentalism, engaged in bailout programs that, unfortunately, did not address the real causes of this major market failure.
There is, however, one important monetary issue that was not addressed in the Volcker article and that has hardly been featured in the Obama Administration’s post-crisis monetary/financial policies. The proper resolution of this monetary issue would resolve not only the vexing problem of global financial imbalances, but also free up hundreds of billions of financial resources, particularly in developing countries. In its transformational version, the resolution of the monetary issue of global reserves could become a most important element in coping with the climate crisis because it would create an institutional channel for funding climate mitigation and adaptation measures.
The reformist version of a new global reserve system is presented by Professor Joseph Stiglitz, who, as chair of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System, recommended part of such system in June 2009. For many years he has been writing and speaking on the need of a reserve system that is not based upon a national currency such as the US dollar or the euro. In his latest book, Freefall. America, Free Markets, and the Sinking of the World Economy (pp231-4) he points to the need for the Obama Administration to include in its financial reform proposals the monetary renewal of having a new global reserve currency that is not nation based. By being willing to replace the US dollar as the main international reserve currency the Obama Administration would not only cause many benefits to flow to the US economy and society, but also to global economic system. It would free up the hundreds of billions of dollars that are presently being held, particularly by developing countries, to be used for their local economies. They could even invest some of them at interest rates that would be about 6x times higher than the 0.5% of their presently held T-bills.
The transformational version of this new global reserve system has the same benefits as the reformist version: it resolves the global imbalances, boosts global aggregate demand by providing greater purchasing power to developing countries and would place the US monetary, financial, economic and commercial system on a sound footing, thus improving those systems globally. However, it would take one gigantic step forward by basing the non-national international reserve currency not on an outdated gold standard, but on 21st century a carbon standard. This de-carbonization monetary standard is based upon an integrated set of 15 energy items using information from the recent publications of climatologist James Hansen and journalist Al Gore.It is part of the Tierra Fee & Dividend (TFD) system that stands in opposition to the cap-and-trade systems that Europe and, probably the US, have, unfortunately, adopted. The unit of account of this de-carbonization monetary standard is called the Tierra, Spanish for Earth. Annually, these Tierras would be allocated to each adult (and adolescent?) and become part of a nation’s carbon account in its balance of payments. While the resolution of global financial imbalances is an urgent and complex challenge, the resolution of the global carbon or ecological imbalances is similarly urgent and complex. Working towards the establishment of a Tierra Fee & Dividend system would set the global monetary, financial, economic and commercial systems on the right track in the urgent resolution of both types of global imbalances.
Note that initially these Tierras would be functioning as a reserve currency, but nations that are signatories to the Tierra International Clearing Union Treaty, can decide to have those Tierras function as a vehicle currency. This phase 2 of the TFD system would result in having the Tierra become a world currency that has organically and democratically emerged by the political will of nations, business and civil society in a joint search for equitable, sustainable, and, therefore stable international systems in finance, business and commerce.
The annual allocations of the Tierras have some resemblance to the emissions of SDRs by the IMF that the G20 have been considering. Mr. Soros, at the recent Copenhagen conference, suggested an allocation of $100 billion of SDRs to be allocated via the IMF’s quota system. Such allocation, if not translated into grants to developing nations, does not contribute to the resolution of either the global financial and ecological imbalances. The Tierra allocations on the other hand take place within a transformed international monetary system that would contribute to both types of global imbalances. Are Mr. Volcker and the Obama Administration able to take this gigantic, i.e. transformational step forward? Are they, together with Mr. Bernanke of the Federal Reserve, willingto confront the bailed out financial system and their Congressional lobbyists and to educate the US public and Congress about the opportunity of using a re-configured dollar as the pivot for a transformed international economic order?
The formation of the environmental finance community can be considered to have started
at the end of the 1990s when the Environmental Finance magazine was born. Its editor,
Mark Nicholls, looked back at a "decade of progress and a few pitfalls on the way" in the
magazine's 10th anniversary issue of October 2009.
He summarized the 10 years as follows: "Indeed, we were often asked at that time
whether the title wasn't a contradiction in terms. Sustainable banking was a niche pursuit,
there was no market for carbon credits, and renewable energy uptake was a fraction of
what it is today. Ten years on, I think it's safe to say we now have proof of concept. The
enormous increase in concern about environmental issues, especially climate change,
made concrete by government regulation and changing consumer preferences, has
permeated into nearly every corner of the financial sector and the businesses it serves.
....the past 10 years have, as we expected in the late 1990s, seen a sea change in how the
environment is perceived by the business and financial communities. In carbon, an
"environmental good" now appears on the balance sheets of literally thousands of
companies. An entire market, worth tens of billions of dollars, has been created to
channel finance to projects that reduce greenhouse gases."
Pitfalls were phased by him in the following way. "But the past decade hasn't been
without its ups and downs. While the Kyoto Protocol had been created two years before
our launch, its entry into force was to take another five years, severely testing the
business plans and financial reserves of early movers in that market. To this day,
regulatory uncertainty and political vicissitudes bedevil the market for carbon credits
more than perhaps any other."
In the view of this opinion maker climate change is seen to have substantially entered the
business world which is served by his financial community. It has entered that world as a
carbon market where money can be made, particularly with the buying and selling of
carbon credits. It is significant that in the magazine's October issue a summary appeared
on its website---the hard copy monthly magazine costs about $600--entitled 'US carbon
market will be inefficient-- banker". It mentions that "a leading carbon banker has
warned of the risk of inefficiencies in the looming US cap-and-trade market." Note the
reason that he gives for this inefficient US carbon market. "Proposed reforms to
derivatives trading in the US, including restricting derivatives to exchanges, would make
an emissions trading market inefficient and will raise transaction costs, said Abyd
Karmali, a managing director at Bank of America Merrill Lynch in London, at the
Carbon Finance 2009 conference on 20 October."
Given this mindset of a carbon market that is not to be regulated, but at the same time
wants is to be stable for investors to invest their funds, the introduction of the tri-partite
Tierra Fee & Dividend system faces at least three major challenges in respect to the
environmental financing community.
First, the environmental finance community is to be willing to abandon cap-and-trade
carbon reduction methodology for the Fee & Dividend carbon reduction methodology
and willing to focus on the other areas of environmental finance that are part of its
financing programs. This challenge is probably less arduous than the other two
challenges, because the tides may be shifting from cap-and-trade to a Fee & Dividend
system anyway.
Second, the environmental finance community may object to the increased governmental
role in the international monetary and financial system as proposed in the Tierra
International Clearing Union, and in phase 2 of the Tierra Fee & Dividend system, in the
Tierra International Monetary Union (TIMU), both of which would be part of the UN
system. Being located in the London financial center, the magazine seems to express its
agreement with a recent court rule in the following summary in its November issue,
entitled "UK Treasury wins first round of RBS environment case". The summary reports:
"A High Court judge has quashed an attempt by three NGOs to force the UK government
to apply stricter environmental and social criteria to investments made by RBS, one of
the banks nationalised during the credit crunch. However, the NGOs have vowed to
appeal the ruling. Legal action launched in July by the World Development Movement,
Platform and People & Planet has suffered an early setback, after an oral hearing failed to
secure the court’s permission for a judicial review.”
Third, the environmental finance community would presumably most strongly object to
making the reduction of carbon the basis of a new monetary standard for a transformed
international monetary system. This re-carboniazation monetary standard together with
its accounting unit of the Tierra, in either its reserve or vehicle phase, and the other
components of the Tierra Fee & Dividend system’s monetary architecture would turn
their views on carbon upside down. Instead of making money on carbon, they are to view
carbon reduction and the other greenhouse gas emissions as main ingredients for
successful businesses that they want to finance, but outside a carbon market. They also
are to place great emphasis on the Carbon Disclosure Program so that companies can be
evaluated on their environmental, particularly carbon, impacts. It is also this demand for
carbon disclosure that the three main institutional investor networks, i.e. IGCC, Investor
Network on Climate Risk, Investor Group on Climate Change and the UNEP Finance
Initiative emphasized in their “2010 Investor Statement on Catalyzing Investment in
Low-Carbon Economy” issued at the UN Headquarters on January 14, 2010. It is
significant that the statement of this community of fiduciary investors who control a pool
of over $13 trillion had as its subtitle “Investors Urge Policy Makers to Act Swiftly”,
indicating their view of the important role of governments in creating the right financial
conditions that can lead to fast, formidable and fair approaches to greenhouse gas
emissions.
Cap-and-dividend and the TMA have in common, together with six other "Whole World" view approaches to climate crisis negotiations, that they provide alternative approaches to cap-and-trade and carbon taxes as carbon reduction methodologies.
While the EU and the USA have legislated cap-and-trade—the former’s stage 3 ends in 2015—of the 8 "Whole World" view approaches only cap-and-dividend has been translated into a short bill in the U.S. House of Representatives on April 1, 2009. Maryland Congressman Van Hollen found 4 co-sponsors for his legislation that is submitted to two House committees.
Cap-and-dividend is a carbon reduction methodology that pays eligible adults with a social security number an equal amount of dividend generated by the quarterly carbon auctions. It is directed towards the US situation, though its principles can used by other nations.
Its main connection with the world outside the USA is the carbon equivalency fee which can be” a tax, or other regulatory requirement that imposes a cost, on manufacturers of carbon-intensive goods located outside the United States, by reason of greenhouse gas emissions in the production of such goods by such manufacturers, approximately equal to the cost imposed by this subtitle on manufacturers of comparable carbon-intensive goods located in the United States.” Like the complicated ACES (American Clean Energy and Security Act) which is based upon cap-and-trade methodology it engages in legislating safeguards for maintaining competitiveness, which some consider protectionism and in violation of WTO rules.
The carbon reduction methodology of TMA takes a global and "Whole World" view approach. A nation’s allocation of carbon emissions permits is determined by a Cap & Share approach in which each eligible individual receives an equal share, leading to ecological creditor and debtor nations. Ecological debtor nations in the global North are to settle their debts with the ecological creditor nations in the global South by means of their carbon accounts in their balance of payments. Their trade balances are based on the carbon-based international reserve currency of the Tierra, the value of which is determined by the carbon standard.
Though this global monetary approach to carbon reduction is very different from the US cap-and-dividend approach, various elements in its legislation can be adopted in the administration of the US Tierra Administrative Board as, for example, its Healthy Climate Trust Fund. Also the many ways of increasing clean energy and energy efficiency as spelled out in ACES can be used by a US Tierra Climate Trust Fund which would also include private citizens in its membership.
The year 2009 in respect to international reserve currency issues was characterized by increased questioning of the US dollar both as a reserve and vehicle currency. In March the UN Stiglitz Commission reported the need for transiting from a national currency like the US dollar or a regional currency like the euro to a non-national reserve currency without going into detail. China as leader of the BRIC countries in various ways made known its position for a “supra-sovereign currency” and, adding deed to intent, by starting to buy SDRs as reserves. The Obama Administration played mute to these concerns.
It was Fred Bergsten, the director of Peterson Institute of International Economics, who suggested that the US form a G2 partnership with China to come to a negotiated agreement about the untenable situation of a deficit and surplus country that made the monetary, financial, economic systems unstable. Both the USA and China are to stop their roles being an addict and a dealer feeding the addict with low interest financing for its over-consumption. Thus, it would make sense for both countries to transition to a negotiated phase where dollars can be exchanged for SDRs rather than to be subjected to abrupt changes in the international reserve structure which would cause serious disruption in both countries on many levels.
While supporting this position as a starting point, I would propose to expand the focus of the G2 partnership to the challenge of the climate crisis. It would pursue an integrated solution to both the economic and climate crises and the associated financial and ecological indebtedness of nations by simultaneously planning for their solutions rather than dealing with them singly and sequentially. The issue of a non-national or supra-sovereign reserve currency would lend itself well for such purpose.
By basing that international reserve currency on a carbon standard and making carbon accounts part of a nation’s balance of payments not only the international monetary system would be transformed, but also the international financial, economic and commercial systems. It is its role as glue of those systems that makes the international monetary system such pivotal system. A small, but profound change as proposed in the Tierra Monetary Paradigm would restructure those present systems which still enrich the few, impoverish the many and imperil the planet.
How realistic is the emergence of such G2 Integrated Partnership? Can it become an essential component of the New Foundation philosophy that the Obama Administration is projecting? Can China accept its expanded international role to make such partnership happen? That latter question is partly answered by the IMF executive director for Japan, Daisuki Kotegawa. After noting that China’s increase in voting rights in a restructured IMF would result in their taking Japan’s second place and that the eventual outcome still depends on negotiations among member nations, he stated that “it's not clear whether the Chinese government is willing to shoulder the rising responsibility accompanying a greater say." Is China following the advice on leadership that Deng
Xiaoping gave in the late 1970s when he said: “Observe calmly; secure our position; cope with affairs calmly; hide our capacities and bide our time; be good at maintaining a low profile; and never claim leadership.”
Though the gold standard is not used presently anymore, the gold standard mentality seems to be alive and well. Paul Krugman calls that phenomenon “misguided monetary mentalities” in his October 12 column in the New York Times. He quotes economic historian Peter Temin who has argued that that mentality is a key cause of the Great Depression. According to Temin this mentality is not just a belief “in the sacred importance of maintaining the gold value of one’s currency, but a set of associated attitudes: obsessive fear of inflation even in the face of deflation; opposition to easy credit, even when the economy desperately needs it, on the grounds that it would be somehow corrupting; assertions that even if the government can create jobs it shouldn’t, because this would only be an”artificial” recovery.”
Gold is being considered becoming part for about 50% of the value of the new SDR, the rest of which would be constituted by a basket of some two dozen currencies unlike the few currencies that currently make up the SDR.
In Tierra system gold would be liberated from its monetary role: it would not be a monetary mantle anymore that would cover a nation’s currency. Large amounts of gold would become available for the many other uses of gold: jewelry, space, industry, medallions, trophies, etc. Its commodity price would come back to normal levels, rather than the present $1060 level which is even predicted by some to go up to the $1500 and even the $2500.
So, taking the “misguided monetary mentalities” of a past gold standard into a 21st century that is plagued by the climate crisis could mean to transition into a carbon standard that would present a monetary pathway to solving the climate crisis.
At first glance this movie might not have a strong relationship with the Tierra Monetary Paradigm. However, by looking at its underlying economic analysis and its proposals to deal with the economic crisis this relationship becomes clear and places the Tierra paradigm in its American political context, an important dimension for the acceptance of the Tierra both in the US and abroad.
In last instance, the present economic crisis can be considered a crisis of the prevailing economic system of capitalism, which still enriches the few, impoverishes the many and imperils the planet. As such the movie addresses the fundamental cause of the many heart-renting instances of the social impact of the economic crisis. It is also points to the more immediate cause of the crisis by showing up the failures of the banking system which is portrayed by greedy bankers without, however, going into detail of the systemic failures such as the ever declining financial regulatory regimen.
His solution to this capitalist and economic crisis is to demand, in his own unique way, transparency from banks and corporations and a return of their ill-begotten billions of US tax dollars. By driving an armored money truck to Wall Street banks and demanding the return of the stolen billions, he used his bullhorn and his canvas bag with the dollar sign, at the same time proclaiming that he was to make a citizen arrest of the Board of Directors of those banks. Besides making playfully those points, he soberly interviewed people who were greatly impacted, such as the widow whose dead husband’s insurance of about $1.5 million was paid to his company. It, unbeknownst to her and like other major corporations, had taking out a life insurance on him, the so called “dead peasants” insurance that makes their employees more valuable dead than alive.
He also interviewed the workers of the Republic Windows and Doors factory in Chicago who were owed their wages and severance pay by their employer which was taken over by Bank of America after closing it down. They fought for nine months showing what people power can do. The same can be said about the home owners in a Florida town who banded together in LIFFT and managed to have one of their members stay in their foreclosed home. He also showed the decrease in wages by showing compensation of airlines pilots. He let President Roosevelt make his point of the need for an economic bill of rights by showing a Saturday radio address—rights that US assistance after WWII helped to implement in the constitutions of Germany and Japan.
His discussion with Congresswoman Marcia (Marcy) Kaptur of Ohio led to the conclusion that a financial coup had taken place after the vote of the House of Representatives which was nullified by a backroom deal with its leadership with Secretary Paulson, Chairman Bernanke, NY Federal Reserve Bank president Geithner and Speaker Pelosi. This courageous member of Congress and former urban planner is one of the few who is able and dares to ask the hard questions to policy makers such as Fed chairman Bernanke. This episode shows the power of the financial elites both within and without the government, where the line between the two becomes ever closer. It is correct to call Goldman Sachs Government Sachs, given that most of the top officials in the US Treasury department have been recruited from that investment firm that, in order to receive the protection of the Federal Deposit Insurance Corporation changed its legal status to one of a holding company.
Without making his movie into a doctoral dissertation, I would have liked him to have included a few visuals of the impact of the US caused economic crisis on the world, particularly on developing countries, and flash some UN footage on the screen, showing how it stands up to G20 with its “unholy trinity” of the IMF/WB/WTO. With his quick mind and overabundant imagination, he could even have made some outstanding visual references to the climate crisis that is impacting and being impacted by the capitalist and economic crisis.
All in all, the movie shows many impacts sides of the economic crisis and ways to people are fighting back—issues that are not often covered in the main electronic and print media.
It is my intention to send this post to his website and recommend that he does his next movie about the international connections of his earlier three movements, including a discussion about transforming the international monetary, financial, economic systems by way of the introduction of a carbon-based international reserve currency such as the Tierra.
The US dollar is under pressure. The Guardian 6 October report that various nations in the East are discussing to denominate oil prices away from the dollar may not be fully accurate, but as John Browne of Euro Financial Capital pointed out in his Currency Cabal post it is only a question of when not of if the dollar is dethroned from its privileged position. Iran has announced that it is not going to sell its oil using the dollar; an intention that also seems to have been part of Iraq’s plan in the past. Given that China and, to a lesser extent, other BRIC Countries are advocating moving away from a nationally-based reserve currency and given that the UN Stiglitz commission in June has also advocated a supranational reserve currency, it has become time for the Obama Administration to present a plan rather than to let the dollar and the international monetary system that is still upon it and the US Federal Reserve System slide.
It has become time for the Obama Administration to apply its New Foundation theme (philosophy?) to the domestic and international monetary scene. It is time for the US Congress to reclaim its constitutional right and obligation to control the nation’s purse, which includes control of its money creation and supply. It is the Congress’ right and obligation to start a national debate about the role of the Federal Reserve System and whether the US banking system is to be relieved from its money creation function in its use of fractional reserve banking. It is even time for the US Supreme Court to weigh in about the constitutionality of the powers of the Federal Reserve System that have greatly increased during the present economic crisis.
One of most astute observers of the monetary situation in the US, both in terms of its population, Congress, Supreme Court, Federal Reserve System and past administration is Ron Paul. His effort to end the Fed or at least to have a Transparency Act is legendary. His national (international?) petition on the Campaign for Liberty website has almost 85,000 signatures. Personally, I believe that his economic theory based upon 1974 Nobel Prize Winner Friedrich von Hayek and his followers in the Ludwig von Mises Institute is not up to the demands of the 21st century and that monetary theorists like Robert Mundell and Joseph Stiglitz,, Nobel Prize winners in 1999 and 2004 have stronger scientific relevance. It is their interpretation of Keynes together with the ones of Sidelsky and Miskin that I consider the best interpretations for monetary policy makers.
Another member of Congress—they are very few and far between—who is familiar with monetary matters is Dennis Kucinich who, with the assistance of the American Monetary Institute, is going to introduce shortly the American Monetary and Financial Security Act. Though I agree with their main purpose to reclaim the money creation function from the privately-owned banking system in the US I think that its adoption of a certain supranational reserve currency does not go far enough. It is here that I want to see the Obama Administration come forward to presents its Monetary New Foundation Approach or MNFA.
This MNFA would integrate not only the currency, financial and economic crisis with the century long challenge of the climate crisis. Rather than basing its new supranational currency on the SDR with some or no gold content, the MNFA would take a transformational step by basing the new reserve currency on a carbon standard. It is a commodity standard unlike the synthetic SDR because CO2 is a gas, a commodity in gaseous form. It is the avoidance of CO2 that forms the basis of this standard, expressed in a carbon value of the billions of carbon emissions permits that would be equally allocated to adolescents and adults in the world. The carbon-based international reserve currency of this MNFA that has been introduced as the Tierra by me this year would be used to balance the carbon accounts in a nation’s balance of payments.
There are ethical, monetary, financial, economic, commercial and global governance reasons why that the Tierra and its transformative paradigm in monetary economics which, in turn, is part of sustainability economics, should become the cornerstone of the MNFA of the Obama Administration.
Before this monetary policy is pursued for both domestic and international purposes it is incumbent on the Obama Administration not to have the dollar slide and not to have it sailed into a perfect storm of monetary chaos, both domestically and internationally. Thus, as a transitional measure, the Obama Administration is to cooperate with its newly made international friends to carefully plan the transition of the dollar into a SDR regime, fully aware that this is a temporary condition. Pursuing such monetary cooperation and establishing a planned transition into the SDR regimen would be one of the possible accomplishments that could make the award of the Nobel peace not only deserved, but earned.
The post of October 10 entitled the CASE FOR THE TIERRA presents the ethical, monetary, financial, economic, commercial and global governance reasons why all these reasons together can make a solid case for the Tierra to become the cornerstone of the MNFA of the Obama Administration.
In summary, the Tierra system which reflects a paradigm shift in monetary economics presents a pathway, not a blueprint, to solving the present economic and climate crises, or, in longer time frame perspective, to solving the financial and ecological indebtedness among nations in the global North and South. Its Keynesian orientation presents the role of government as leading and enabling in contradistinction to Hayekian orientation that considers government to play a minor role in subservience to the free market system. While the cap-and-share approach and its equitable allocation of carbon emissions permits is the primary pillar of the Tierra Monetary Paradigm, a secondary pillar is its emphasis of having the money creation function removed from a privately owned banking system and their central banks to the public sector. This means that rather than pursuing their regulation they would become utilities without the exorbitant privilege of a fractional reserve system. The latter would spend money into circulation for real economic activities without creating debt and even charging interest. In a transitional phase these public banks such as they are in operation in North Dakota and Alberta Canada would operate in a diversified financial services structure where they cooperate rather than compete with their privately owned counterparts and other community-controlled financial institutions.
All through history one of the main determinants of a society’s economic and social system is the shape of its energy structure. Over 95% of human history muscle power by humans and animals determine that structure.
The industrial revolution was made possible by the introduction of coal. The use of oil and natural gas starting at the end of the 19th century propelled societies in the global North towards ever greater industrialization and increase in the standard of living which is not to be equated with quality of life. This carbon period of human history is coming to an end, starting a significant decline in some ten years, which is estimated to be around 8%.More reserves may be found and oil from tar sands and natural gas from shale formations, but the fact is that since May 2005 the world’s supply of oil has been on a plateau.
Though taking into account the emergence of renewable energy sources, we all, particularly governments, have to start planning for a shrinking economy. This is the more so, given the climate constraints that are placed on the remaining fossil fuel supply. Humanity has to reduce its GHG emissions at least 80% by 2050, while cuts of 95% would be more prudent.
The world’s monetary, financial, economic systems are still geared towards growth for many reasons. A turnaround because of energetic and climatic requirements is to be made to a steady-state economy where social, economic and ecological sustainability are the operating principles. Not planning for such shrinking economy leads to chaos in the monetary, financial, economic systems with disastrous social consequences.
How can these systems be made to work? By basing them not on the principle of quantitative growth and competition—GDP is a poor indicator of social performance—but on qualitative growth and cooperation.
Given that the monetary system is the glue that binds the financial and economic systems together, let’s look at the outlines of a transformed—not a reformed—monetary system that would address the challenges of both the present economic and climate crises.
All persons of 15 years and older are given an equal amount of carbon emissions permits, resulting in carbon credits for nations in the global South and carbon debits in the nations in the global North. Nations in the South become carbon creditors while being financial debtors, while nations in the North become carbon debtors and remain financial creditors. By turning these carbon emissions permits into an equivalent amount of the proposed carbon-based international reserve currency of the Tierra nations can now settle their international transactions by using a non-national reserve currency, thus not being forced to buy other reserve currencies anymore.
Using this cap-and-share approach of dealing with the climate crisis nations and the declining fossil fuel supplies and using a carbon-based international reserve currency exchange rates will be fixed on the carbon standard, thus preventing currency speculation. Capital flows will be actively managed, so that investment flows can be promoted. Notice how these monetary changes starting with a carbon-based international reserve currency are going to determine the financial architecture where public authorities reclaim their sovereign right of money creation and setting of interest rates and where banks becomes utilities that can compete with another and other industry—on a level playing field without the exorbitant privilege of creating money. Notice also how the economic system is being transformed by having the direction set by elected and accountable representatives who create a level playing field where private enterprise and innovation can flourish.
In his 2007 article in Foreign Affairs Benn Steil, Senior Fellow and Director of International Economics of the politically powerful Council of Foreign Relations, raises the question whether nations should have their own currencies. He argues that the time of monetary nationalism is past in these times of globalization and that nations should adopt the dollar, the euro or an Asian common counterpart. That would be the best way to withstand currency crises which are caused by capital flows. They “have become globalization’s Achilles’ heel. Over the last 25 years, devastating currency crises have hit countries” in many parts of the world. He quotes Frederic Mishkin who acknowledged that “opening up the financial system to foreign capital flows has led to some disastrous financial crises causing great pain, suffering, and even violence.” His solution: “Governments must let go of the fatal notion that nationhood requires them to make and control the money used in their territory. National currencies and global markets simply do not mix; together they make a deadly brew of currency crises and geopolitical tension and create ready pretexts for damaging protectionism.” Under the heading “Common Currencies” he concludes: “Since economic development outside the process of globalization is no longer possible, countries should abandon monetary nationalism…” They should collaborate to “produce new multinational currency over a comparably large and economically diversified area.”
Apart from the fact that US dollar is a national currency besides being an international reserve and vehicle currency, his policy description can be considered to be part of the financial crisis the world is in today. The neo-conservative ideology of opening up national financial systems under the umbrella of free trade and free capital flows has led not only the currency crises at the end of 1990s, but contributed to the deepening of the global financial crisis. Rather than leaving this neo-liberalist world view in place with its concomitant policy of removing or reducing monetary nationalism, political leaders in the global North and South are to consider a reconfigured monetary nationalism. It would consist of a pro-active capital management policy in each nation under an umbrella of an internationally agreed financial framework that would prevent such crises. This was and is the main message of the UNCTAD Trade and Development Report 09 report, one of the more incisive analyses in both the economics and climate areas. His notion of development is one that binds nations in the South or the majority world to the rules of the game that are still set by the G7 or the minority world, of which his organization together with the Trilateral Commission and the Bilderbergers is one of the pillars. Imagine a world that would develop an international monetary system that would bring both worlds together in their pursuit of balancing their financial and ecological indebtedness by the adoption of a transformative monetary system such as proposed in the Tierra Monetary Paradigm!
The three day conference that ended yesterday seems to have been a success. An outcome document was produced that was accepted by consensus and the General Assembly, the assembly of 192 nations or the G192, seem to have become the world’s central place to deal with the economic crisis and not the various traveling assemblies of the G8/20. Part of that success which may not have been fully realized by the majority of governmental and non-governmental participants was the vision that was presented by the General Assembly President Father Miguel D'Escoto Brockman. At the opening he presented the vision of the Earth Charter without going into details of how it came about, but emphasizing its integration of social and ecological values. At the closing he referred to Jesuit Teilhard de Jardin’s notions of the noosphere and evolution. Studying his two speeches more than the press conferences he conducted will give the reader better insight of the significance of this conference and the difference one person can make, particularly if placed at a high position.
In various ways the conference inspired me to struggle along with the development of the Tierra Monetary Paradigm notwithstanding the enormity of its challenges on my side, the listener’s side and on the side of organizations to start engaging in a monetary transformation. Many speakers, both governmental and non-governmental, spoke about the need for fundamental reform which is, basically, transformation. Outstanding in this regard was the President Rafael Correa Delgado of Ecuador, a former economics professor. His speech at the General Assembly and his presentation at the side event on Thursday were most inspiring and informing. Some also pointed to the need of including the climate crisis into the challenge. Both developments augur well for the Tierra Monetary Paradigm which I was able to present publicly in the four side-events that I attended, either as a comment or as a question. I almost got two dozen business cards of speakers and participants who are interested in this paradigmatic shift in monetary thinking as proposed in the Tierra Monetary Paradigm.
Today, the day after the conference, I have started a six part educational series to lift the veil of this arcane area of reserve and vehicle currencies, exchange rates, balance of payments, central banks and its relationship to the domestic and, especially, international financial and economic systems. Everyone is invited to visit the Discussion Forum on this website and be a ground floor participant in bringing about this transformational monetary system, which, given that the international monetary system is the glue than binds the international monetary, financial, economic systems together, is able to transform the way how humanity inhabits this Earth. It is an essential part of humanity’s third revolution--after the agricultural and industrial revolutions—which is the sustainability revolution guided by the Earth Charter’s vision of the common integrated social and ecological values for which thousands of organizations and millions of people on all continents and in all kind of formats have been engaged in for the last ten years.
Having returned yesterday from a very fruitful day at the UN Conference on the World Financial and Economic Crises and its Impact on Development It is becoming clear that the present inefficient, unstable, inequitable and unstable monetary system is bursting at its seams. The Asian continent is working on its Chang Mai Initiative to have the Chinese Renminbi become a regional reserve and transaction currency. The same is being attempted by Russia with its ruble for its former Soviet republics. Even more strikingly and stridently Latin America is forging forward with a monetary architecture, consisting of the Bank of the South, own reserve currency and trading currency.Africa seems to be lagging behind, though recently its finance ministers met to discuss prospects.
This new development in Latin America was eloquently presented by Ecuador’s President Rafael Correa Delgado, both in his address to the General Assembly and at a side event, called People’s Rights Not Corporate Profits: Close ICSID, Challenge Free Trade, and Build Just Economic Governance. Being a former economics professor he was able to challenge the autonomy of central banks, the WTO’s Financial Services Agreement and the World Bank’s InternationalCenter for the Settlement of International Disputes which is one step center to have TNC have their ways against governments.
These and other developments show that the IMF with its conditionalities that work for the international banking system, but not for developing countries’ wellbeing is loosing its standing as premier international monetary institution. As a matter of fact it has been failing for decades to stabilize the exchange rates for hard-currency countries by allowing the excessive imbalance in deficits and surpluses. Its days for uneven dealing with rich and poor countries seem to be over notwithstanding the strong support of the G8/20. I, for one, have decided that it cannot transform itself to be the new international monetary institution that could manage a carbon account in the nations’ balance of payments as proposed in the Tierra Solution.
The main consequence of all this for the US dollar is that the Obama Administration is to prepare itself for an orderly transition out of the dollar to SDRs and, hopefully, from SDRs to Tierras or a similar currency that is based upon carbon-emissions, so that the resolution of the climate crisis is built into the international monetary, financial, economic systems. The Administration should not let the dollar float on the open ocean without directing it with a steady hand at the helm.
subscribe