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Nov
23

Soverign Defaults and Hansen's plea for Fee and Dividend

Post By gaia1 in Fee and Dividend

Sovereign Defaults and Hansen’s plea for Fee & Dividend

Tuesday, November 23, 2010

In today’s New York Times sovereign defaults are being discussed without trepidation given the weaker nations in the Euro zone. At the same time Hansen in an op-ed piece of the South China Morning Post of November 3 strongly argues that fossil-fuels have to be charged for their emissions in order not to have the world’s climate to go beyond 400 ppm. That would result in a sea-level rise of 26 meters, not at the end of the century, but by 2016. If the ppm would reach above 550, the sea level rise would  to 75 meters, making the planet desolate and ice-free. It would become EEarth in McKibben’s view.

Hansen shows how the Fee & Dividend is a realistic approach to face this grim future. To face this grim future from happening, nations have to start overhauling their monetary system and basing them on credit rather than debt as is now the case. Furthermore, by basing this credit international monetary system on a carbon standard, humanity would be set to face this grim reality pro-actively. If geo-engineers are developing enormously complicated physical projects, why should social scientists, including economists, not engage pro-actively in social systems that are able to deal with both the climate and the monetary crises of defaults caused by debt-based financial and economic systems?

 

Nov
16

GOLD or CARBON? A crucial question for the world's future

Post By gaia1 in TFD system

GOLD OR CARBON?

A crucial question for the world’s future

 

Frans C. Verhagen

An OPED article

Submitted to the New York Times

November 16, 2010

 

In last Sunday’s Week in Review James Grant, the editor of Grant’s Interest Rate Observer and author of “Money of the Mind” argues for the return to the gold standard. He concludes his OPED article entitled “In Go(l)d We Trust” with its subtitle “How to Make the Dollar Sound Again” that if the classical gold standard “cannot be teleported into the 21st century, there would be plenty of scope for adaptation and, perhaps, improvement.”

 

His brief for a gold standard did not come out of thin air. On November 3, World Bank’s president Robert Zoellick had launched his query in the Financial Times of how gold could be a referent for a future international monetary system. On November 10 National Public Radio featured a discussion about gold where, among others, republican strategist Jeffrey Bell, a Reagan Administration Treasury Administration official engaged in exploring the gold standard at that time, seems to confidentially briefing republican 2012 candidates on the introduction of the gold standard. There will have been other voices about the return of the gold standard during this month of heightened emphasis on an international monetary system that does not work.

 

This discussion of a monetary standard is very important, because its resolution will be a major determinant of the world’s future. This may not seem not to be the case in the minds of most people, including politicians and pundits. They do not seem to realize that this under-evaluated, under-researched and an often ignored international system, as a glue, binds together monetary, financial, economic and commercial systems. It is also,  like a lubricant. which makes those systems run smoothly. It is also like the foundation of a house—it may not be very visible, but it does make the house either stable or not. The international monetary system can be finally be considered a linchpin. Without its proper functioning the other global systems are not able to function properly.

 

Mr. Grant thinks of the return to gold as a way to make the dollar sound again. The dollar can be made sound again when it stops being the world’s major reserve currency and becomes a national currency which like other national currencies would be anchored in a proper monetary standard. As long  as it maintains its reserve function and is used as a de facto international currency, it will not be not healthy, either for the US—deficit spending and grave global financial imbalances are two of its consequences—and especially for the international monetary system as a whole. A way out of this predicament of the  Triffin dilemma—a national currency functioning as a world currency—is the transition of the US dollar (and the other reserve currencies) into the IMF’s Special Drawing Rights (SDRs) as a temporary step to a fully effective international monetary system, i.e. a carbon-based international monetary system.

 

The International Institute for Monetary Transformation believes that such effective international monetary system is to be carbon-based that is to be used to confront the 21st century’s greatest challenge. The system is to combat the impending catastrophe of climate change by advancing low carbon and climate-resilient development.  It is to be based upon a carbon standard that would be expressed in a specific amount of tonnes of CO2e per person, determined by the GHG emissions target set by the IPCC. The unit of account of the standard would be the Tierra, Spanish for Earth. This standard would determine the decarbonization level of an economy which in turn would determine the health of its economy and the strength of its currency.

 

The consequence of this carbon standard like a gold standard would make national currencies convertible and the value of their currencies would be determined by their relationship to the Tierra. The Tierra would become a means of international exchange and a bankable store of value if nations were decide to originate a world currency. In either case the introduction of the carbon-based monetary standard would remove the need for the global reserve system which now costs non-reserve currency countries billions of dollars in low-interest bonds that could be better invested in local economies. While a gold standard does not deal directly with the century’s largest challenge of climate change, the carbon standard pushes societies to very seriously deal with climate change because the value of their currencies depend upon it.

 

Two features of the carbon-based monetary architecture need special mention here. First, nations will have to start balancing their carbon/ecological imbalances via their balance of payments, because the carbon-based international monetary system is based upon the value of climate justice, which rests upon the historical fact of the cumulative emissions of industrialize nations. Thus, both the settling of financial and ecological imbalances become one of most challenging tasks of governments.

 

Secondly, there would be a global monetary authority or federal World Central Bank made up of representatives of the present and emerging regional monetary unions. This Bank would administer the Tierra system, monitor and regulate financial flows and create liquidity. The latter authority is most important in order to respond to the financing needs for climate and development programs and, more widely, for the sustainable consumption and production patterns that are emerging in opposition to the western model of consumption societies. It is to be noted that the sole authority to create money would be brought back to the public sector in the member states whose fiscal policies would be monitored. Privately-owned banking systems would become utilities.

 

The G20 Seoul Summit did not tackle the monetary standard question in its 40+ pages of its communiqué and its annexes, though one of its participants, World Bank president Zoellick, had brought it up about two weeks before. Instead, the Summit continued haggling about financial imbalances of surplus and deficit countries without, at least publicly, acknowledging the elephant in the room, i.e. the non-system of the international monetary relations which is called criminal by Nobel Prize winning economist Robert Mundell. It also did not see the baby elephant in the room of a US dollar that cannot continue to function as a de facto international currency. In the mean time global climate changes will be inundating coastal areas, where over half of humankind lives, at the end of century on account of the rise of the ocean waters by 3-6 feet if no radical measures are taken. The authors of Superfreakonomics described how engineers are engaged in humongous geo-engineering projects to be used in a climate emergency. Should humanity, particularly social scientists,  not use reason and vision to use a less costly, dangerous, undemocratic way? A carbon-based international monetary system is a far sounder approach than the geo-engineering one.  It would use James Hansen’s Fee & Dividend system and abandon the cap-and-trade carbon reduction method which is not fast, formidable and fair enough.

 

The Tierra Land 2025 scenario which is available as an appendix to an invited article at http://conference.unitar.org/yale/environment-sustainable-development presents a plausible social process by which this transformed, i.e. carbon-based international monetary system can emerge within the next 15 years. It considers the Rio 2012 Earth Summit to be the watershed event that would start this transformational process by placing premium importance on the role of a transformed international monetary system as part of its global governance and green economies themes. The present and future discussions about a gold and carbon monetary standard are also considered a precipitant for the consideration of this carbon-based system. Part of that discussion is the important voice of Maurice Strong, Secretary General of both the 1992 and 1972 UN Conferences on the Environment who believes that the Tierra Fee & Dividend system is an “innovative proposal for a new international monetary system based on carbon…. seems to be very promising particularly in light of the stalemate in post-Kyoto prospects.”

 

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Frans C. Verhagen, M.Div., M.I.A., Ph.D. is a sustainability sociologist with the International Institute for Monetary Transformation and author of the forthcoming book THE TIERRA FEE AND DIVIDEND SYSTEM: Using a transformed international monetary system to combat climate change and advance low carbon and climate resilient development.        

 

Nov
15

Sovereign defaults, money creation and the TFD

Post By gaia1 in TFD system

SOVEREIGN DEFAULTS, MONEY CREATION AND THE TFD

Monday, November 15, 2010

 

How many of the 192 nations and other governmental bodies have defaulted on their financial obligations in one period of their histories? How many are facing defaults now during these economically depressed times?

 

Personal and business bankruptcies during hard times are understandable and are caused by many factors beside the larger economic environment. But why should nations or sub-national governmental bodies go into bankruptcy or face defaults and become so-called “failed states”, given that they are sovereign? Should sovereign bodies ever face default, even in hard times?

 

Analyzing the article “Ireland Defiant as Europe Prepares Bailout” in the New York Times of November 15, 2010, the normal way for Ireland to avoid default without being helped from outside by accepting governmental funds, either from the EU or IMF, is to rely on investors. If they buy its bonds, the revenue is able to pay for its financial obligations. If they do not, notwithstanding great returns on account of the high risks involved and the introduction of austerity budgets, default or bailout are the only two options. Therefore note how attracting those investors who as a collective are called the market becomes the main preoccupation.

 

Markets have to “soothed”, they are to be “steadied”, they are to be “reassured”. In one word, markets are central. They provide the funds besides the local revenue from tax receipts and the reduction of services. Why should Ireland and other governmental bodies not create their own funds? Do they not have the sovereign right and even obligation to create money needed for carrying out their public services?

 

The New Economics Foundation in the UK and others such as Ellen Brown in the US think so. They have come to the conclusion that the public sector has to reclaim the money creation function from the privately-owned banking systems. They are to become regulated utilities that, like insurance and electricity companies, can compete with one another without having the ability to create money by way of a fractional reserve system. The many financial crises and particularly the one of fall 2008 have shown that financialization of societies has very adverse effects. As a matter of fact financialization caused past empires such as the Dutch and British to decline.

 

Money creation and money supply is part of a nation’s monetary structure and process. At the same time its monetary policy decisions are part of the larger international monetary system, be it a regional monetary and financing arrangement or the one managed by the IMF and other IFIs. The larger the economy of a nation, the larger the impact is of its monetary policy, as has become evident in the $600 billion infusion by the US Fed. Thus, good national monetary policy has always to include consideration of its international implications.

 

 

 

 

These considerations of money creation and policies are an important part of the TFD.  The third component of the tri-partite TFD which would make a carbon-based international monetary system possible is the reclamation of this money creation function by the public sector. In the TFD system the role of governments, therefore, is an active one by creating the proper national and international monetary, financial, economic and commercial systems after which private enterprise and markets  can play their role.

In such transformed monetary system nations like Ireland would have their monetary and fiscal policies monitored by the federal World Central Bank so that not only Irish citizens would profit, but the world as whole by not having to resort to austerity budgets to attract investors or to steady, soothe and reassure markets.

 

Nov
12

Global Liquidity and the Global Greatness Agenda

Post By gaia1 in TFD system

GLOBAL LIQUIDITY

Friday, November 12, 2010

 

“Regional and global liquidity arrangements” is a significant publication presenting a spectrum of ideas of where these monetary arrangements are headed and how they can be made more efficient.

 

However, a major question was not raised by the two editors—Ulrich Volz and Aldo Caliari— and their dozen contributors of whether we should have a new global system of dealing with liquidity, exchange rates and financial and trade imbalances. It is a again a question of asking whether the existing institutions are doing the right things or whether we have the right institutions.

 

Under the TFD system which would be federally administered by the UN World Central Bank predictable and ample liquidity would be made available for climate, development and MDG programs and for social programs in the global North and South rather than relying on austerity budgets that affect the poorest the most. Regional financing arrangements would be coordinated by the UN Bank which would sit at the apex of continental monetary authorities. Given its authority over fiscal policies of its member states the liquidity provision would be safeguarded against risky investments and uncontrollably complex financial instruments.

 

Given the poor results of the G20 Seoul Summit meeting where harmonious talk was replaced by confrontational talk and where the fragmented international monetary and financial system was on full display, time has come for the G20 and the UN and basically for every globally thinking person to start thinking about the parameters of a global greatness agenda and ways to accomplish them.

 

I asked the two editors for their comments about liquidity within the carbon-based monetary standard of the Tierra and asked for an appointment with two New York City based authors to discuss the strengths and weaknesses of the proposed TFD governance system as a post-Kyoto alternative and as an organizing vision for a global greatness agenda.

 

 

 

Nov
09

Exchange rates regimens and monetary standards

Post By gaia1 in Exchange rates

EXCHANGE RATES REGIMENS VERSUS MONETARY STANDARDS

Tuesday, November 09, 2010

 

An author who has greatly impressed me recently is the deputy chief of the IMF Policy Development and Review, Rex Ghosh. His captivating novel “Nineteenth Street NW. A tale of terror in the world of financial markets” written in 2010 led me to his sophisticated 2003 MIT publication entitled “Exchange Rates Regimen: Choices and Consequences” written with a colleague at the IMF and a professor at Georgetown University. It is an empirical study of the great variety of exchange rates regimens that some 150 countries used during some thirty years after the demise of the Bretton Woods agreement.

 

Do I have to assume that he and other colleagues at the IMF have a blind spot of not thinking about possible monetary standards that could bring some order and stability to the exchange rates and avoid large currency swings and serious currency disputes such as the present US-China currency dispute? Of course, IMF officials are daily dealing with exchange rates and engage in research how best to devise them for countries rather than thinking about a system with pegged exchange rates that is based upon a monetary standard. Perhaps in Rex’s case he may also be influenced by his position on the general serendipity of monetary changes with the exception of Bretton Woods where reason and vision prevailed according to his short history of international monetary relations in chapter 1 of his 2003 book.

 

In any event I believe given the monetary turmoil of the last 40 years with its large rate swings and the increasing currency manipulation tendencies that makes one think of the interwar period the need for basic rethinking of the international monetary system is necessary. Reason and vision are needed as much as in 1944, perhaps even more given that humankind is engaged in gargantuan experiment with life on the planet given its unwillingness to face the present climate crisis predicament.

 

Including the dangerous climate predicament in devising a new monetary standard seems a wise strategy. Thus, a carbon-based international monetary system would make sense as it aims to combat the climate crisis through advancing low carbon and climate-resilient development. At least, the G20 Summit in Seoul should decide to start the basic rethinking process by incorporating in its communiqué its decision to set up a UN Commission to that effect, a request that I made about a  week ago to the dozen U.S. government officials who are to take part in the Summit.

 

Nov
03

Remove the global reserve system!

Post By gaia1 in TFD system

REMOVE THE GLOBAL RESERVE SYSTEM

Wednesday, November 03, 2010

Removing the global reserve system would not only bring into balance the international monetary system and substantially reduce financial imbalances, but would create the opportunity for the global financial, economic and commercial systems to flourish. Removing the global reserve system and basing the presently malfunctioning international monetary system  on a monetary standard would make national currencies convertible and, if nations so decide, would create a seamless opportunity to introduce a world currency that is based upon that standard. A thusly rebalanced international monetary system would create the opportunity to design a financial system where a global monetary authority is able to monitor and regulate financial flows and steer investments into the real economy. Shadow banking which most often is casino banking would be an institution of the past. Once the financial sector is rebalanced by banking systems where only the public sector creates money both the global economy and international trade are in the position to develop within clearly defined, ecologically determined boundaries.

 

Removing the global reserve system is not a reformist policy. It is a transformational policy that overhauls the international monetary system that will have its ripple effects in the other global systems. It should have happened at the four past G20 Summits and should be seriously considered this month at Seoul Summit and, surely, at the 2011 Summit in Paris where president Sarkozy has asked for fundamental monetary reform.

 

The need for this transformational monetary policy is demonstrated by the main economic developments of the last couple of decades when the center of economic gravity has been shifting from West to East and particularly from the USA to China. Stephen Green, the chairman of HSBC and an ordained priest in the Church of England since 1988, compares in his 2010  Good Value the global political constellation with a rectangle where one side presents the workshop nations, another  the resource nations, a third the finance nations and a fourth the consumer nations. He shows how this economic constellation is shifting to the East, particularly China.

 

It is reported in the New York Times of November 2, 2010 that China is investing billions of dollars from its $2.3 Sovereign Wealth Fund in the economically weak nations of the EU. One of its major conditions for support is that they do not exert pressure on having China appreciate its currency. In other words, it is profiting from the malfunctioning international monetary system by insisting that the global reserve system of which it is a or perhaps the main beneficiary be kept in place. Of course, advocating as it does that the US dollar as reserve currency be replaced by a non-national reserve currency would keep the global reserve system in place, though in reformed version.

 

It is also to be noted that China engages in “creative accounting” according to Ellen Brown by investing in local banks made possible by its majority ownership in the Chinese banking system. http://seekingalpha.com/article/233665-china-s-creative-accounting-using-debt-as-a-tool-for-economic-development Its decision not to privatize its banking system and follow the accounting rules of the West makes its monetary, financial, economic and commercial positions so much stronger.  Why should Western governments be beholden to privately-owned banking systems? In a transformed international monetary system scenario governments would become the sole source in money creation within the parameters set by the global monetary authority, the political arm of the international monetary union. The latter union would emerge out of the various regional monetary unions that are presently increasing in quantity and quality.

 

The global reserve system can be replaced by a monetary standard which can be based upon anything that nations agree upon. The International Institute for Monetary Transformation has proposed to base it on a specific amount of tonnes of CO2e per person, so that the international monetary system is used to combat climate change through advancing low carbon and climate-resilient development. Its proposal of the Tierra Fee & Dividend was first presented at the Yale/UNITAR conference on Global Environmental Governance (September 17-9, 2010) and is available at http://conference.unitar.org/yale/environment-sustainable-development and in great detail at its website www.timun.net.

 

Charles Ferguson rendered a real public service through his film The Inside Job, which illuminates the world’s greatest financial fiasco. Though his website www.insidejobfilm.com presents additional information for reflection and action, it is necessary to have his mostly domestic focus directed towards the malfunctioning international monetary system with its global reserve system, so that real monetary, financial, economic and commercial transformation can take place which would prevent such financial disasters in the future.