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May
31

Choosing between the carbon and gold standards

Post By gaia1 in TFD system

 

The new carbon standard has several features in common with the historical gold standard. Both monetary systems have standards that fix exchange rates among nations based upon those standards. This leads to stability and predictability because the value of the unit of account stays the same and thus currency fluctuations need not to be taken into account when planning a business transaction or a leisure trip. Of course, prices for goods and services may go up or down based upon many economic and fiscal factors, but they are always expressed in the value of the currency that remains the same.

 

Both international monetary systems have convertible currencies because they are anchored in a standard that determines the value of the currencies. The gold standard was defined in a precise amount of gold for a precise amount of value in the unit of account (Sterling in the 19th century and Dollar in the 20th century). The carbon standard is defined in a precise amount of CO2 emissions per person for a precise amount of value in the unit of account of the Tierra. There are two ways that a carbon-based monetary standard is applied: national currencies become carbon-based or a carbon-based world currency is created. In both cases nations can trade with convertibility of national currencies or the single global currency.

 

Both systems have a more or less automatic mechanism of balancing their financial accounts. The balance of payments during the gold standard was accomplished by transferring gold from the debtor nation to the creditor nation. The balance of payments during the carbon standard will be accomplished when carbon-debtor nations transfer Tierras to carbon-creditor nations.

 

Both systems agree that the present monetary system with its heavily fluctuating exchange rates, rampant currency manipulation and speculation and costly global reserve system has to be removed. There is no standard in the non-system which Nobel laureate Robert Mundell has called a ‘criminal’ system because of its unpredictability.

 

Why should the carbon-based monetary standard be preferred over the gold standard? There are three main reasons: a philosophical, an ecological and a fiscal reason.

 

The philosophy of most gold standard proponents is libertarian: less government, freedom to individuals and markets. They are followers of the so-called Austrian school of economics of Friedrich von Hayek and Ludwig von Mises and its American adherents such as Milton Friedman, Murray Rothbard, Judy Shelton and others. Their main supporting organizations are the Von Mises Institute and the Cato Institute.  For them the return to the gold standard means that politicians whether central bankers or finance ministers are not able to subject their citizens to their manipulation of the money supply and price level. These monetarists would set a percentage of growth in the money supply and the system of efficient markets would adjust.

 

The role of government adhered to by economists of Keynesian approach is an active one. It is to regulate the financial sector and to direct the economy in a way that a level playing field is created, so that private enterprise can flourish within clearly determined and fair economic framework. In this conception of the role of government the question is not less or more government, but the right level of government. It is this role of government that underlies the Tierra Fee & Dividend system where the international monetary system is used to make the Fee & Dividend carbon reduction method more effective in reducing GHG emissions.

 

The ecological reason why the carbon-based international monetary system is to be preferred above the gold-based one is its ability to effectively deal with the climate crisis. By having nations anchor their currencies on the Tierra—its unit of account—they are forced to engage in decarbonizing their societies by reducing coal-fired power plants, investing in renewable energy technologies, increasing energy efficiency and conservation, etc. The strength of their economies is mainly determined by their energy infrastructure which in turn is reflected in the strength of their currencies as reflected in the amount of Tierras.

 

Finally, the ability of providing extra liquidity to global economic system makes the carbon-based Tierra Fee & Dividend system superior to a gold-based international monetary system that does not deal with the century’s most important ecological challenge and that is prevented from having governments take an active role in determining a pathway to an equitable, sustainable, and, therefore, stable international monetary system. Through its UN World Central Bank, an anathema for libertarians, governments are able to provide liquidity by issuing extra allocations of Tierras based upon a per capita system rather than the quota system through which the IMF allocates its synthetic currency of Special Drawing Rights (SDRs). There is no equivalent international monetary institution for libertarian economists because they have rejected the IMF as an intrusive international institution that is not needed in a gold standard. They do not have a lender of last resort that is able to circulate credit into a global economic system where millions of people are unemployed, where sovereign debt burdens are severe, where currencies sometimes fluctuate by 50% in a decade’s time and where hundreds of billions of dollars (Tierras) are needed to finance low carbon and climate-resilient development.

 

 

 

 

 

 

 

May
26

Fragile euro and the carbon-based Tierra

Post By gaia1 in European Union

One of the many reasons that the euro is fragile is the fragility of the international monetary system. The latter system has no standard and is subject to wide currency manipulation and speculation and widely fluctuating exchange rates to mention its most important shortcomings. This external monetary pressure on the euro is not often considered in analyzing its weaknesses.

            Other reasons for the fragility that are more locally caused are the great disparity in the economies of its 16 members. Its southern tier of countries, particularly Greece, Spain, Portugal and Italy, have for various reasons not kept their fiscal houses in order and have generated high sovereign debt loads. Thus, on May 25, 2010 the euro hit an 8 1/2-year low against the yen and neared a 4-year low versus the dollar. During the month of May alone the euro lost more than 7 percent versus the dollar, the biggest monthly fall since January 2009. The euro's downside targets stood at the recent low of $1.2143 and at $1.2133, a 50 percent retracement of a rally from its all-time low around $0.8225 in October 2000 to its record peak of $1.6040 touched in July 2008.

            Note the enormous fluctuations of the euro—100% from October 2000 to July 2008 and 50% from October 2000 in May 2010. Think of the havoc these fluctuations inflict on local residents and business and international trade. The euro system being one of the world’s major currency areas has become so unstable, that markets i.e. investors and gamblers are hesitant to invest in those countries’ economies. They pull backed from their riskier assets, followed by citizens of those southern countries who also pulled back their assets out of their own banks and deposited them in German banks or invested them in US Treasuries. States Kenneth Broux, senior market economist at Lloyds TSB: "Fears are growing that a collapse in confidence could undo the positive growth impulses that are still present, with tensions in money markets resulting in dollar liquidity drying up."[1]

            Under the TFD system the euro would be carbon based and convertible with the other carbon-based national currencies in its first phase. In its second phase the euro would be replaced by the Tierra, the carbon-based single global currency. The monetary architecture in both phases would consist of fixed exchange rates within a monetary governance structure of the UN World Central Bank which by exercising its four main functions would provide monetary stability for the benefit of all. This stability is made possible on account of the equity and sustainability of its Articles of Agreement. Given that there will always economic changes locally, regionally and internationally, the Tierra monetary architecture’s exchange rates will fluctuate, but these fluctuations are kept within a short band around its monetary standard. Unlike the ECB, the World Central Bank has the political power to keep its members’ monetary and fiscal policies in check after having achieved a monetary union under the auspices of the United Nations.



[1]http://www.reuters.com/article/idUSLDE64O0OC20100525?loomia_ow=t0:s0:a49:g43:r5:c0.039735:b34310808:z0

 

 

May
23

Leadership in precarious times

Post By gaia1 in Climate crisis

We live in not only unstable, but precarious times. One of the best articulations of that fact is the statement of veteran investor quoted by Thomas Friedman in his column on Sunday May 23, 2010. Mohamed El-Erian, who runs Pimco and has lived through many a financial crisis, recently described it like this: “The world is on a journey to an unstable destination, through unfamiliar territory, on an uneven road and, critically, having already used its spare tire.”

What is needed in such precarious times is leadership, not only of government and business, as Friedman believes, but also of civil society. Societies are to be guided by leaders who are able to articulate a clear vision of the future, based upon a coherent set of values and upon the political wisdom of building practical solutions. It is their intense desire to work together that such leadership can be effective.

A first requirement of such common leadership is the recognition of the need of agreement of the past and present social and ecological problems. Facts have to be established upon which to build a new edifice. These facts have to be established within as wide and diverse ways of participatory decision-making as possible.

A second requirement is boldness in choosing the proper policies and in carrying them out. International systems do not work and no national policies will work without functioning of international systems of which they are an integral part. Again these policies have to chosen within as wide and diverse ways of participatory decision-making as possible.

A third requirement for leadership in these precarious times is to deal with the most basic system in international relations, i.e. the monetary system. Its overhaul is to be wedded with the most pressing challenge of these precarious times, i.e. the climate crisis. Thus, a UN Commission on Monetary Transformation and the Climate Crisis seems to be a good start to restructure the international machinery, so that it serves humanity rather than humanity serving it. What humans make, human can unmake. The precarious times demand that a creative destruction of present systems take place.

 

 

 

May
11

$1trillion bazooka package

Post By gaia1 in European Union

This post is the Comment sent to the Economist blogger Charlemagne on  May 10th:

This $1 trillion bazooka measure shows the lack of an operating international monetary system that would prevent currency manipulation and speculation that makes fiscal irresponsibility worse.

There is an alternative international monetary system which would also remove the costly global reserve system that costs developing countries some $100 billion annually. It is called the Tierra Fee & Dividend system which would use a transformed international monetary system to combat the climate crisis within a political context where the public sector has reclaimed its role of regulator and driver. It is based upon a carbon-based monetary standard with the accounting unit of the Tierra. It would create carbon-based national currencies with fixed exchange rates anchored on the Tierra. At the appropriate time nations can decide to move to a carbon-based world currency. In both applications of the  carbon-based monetary standard the UN World Central Bank will administer, monitor, regulate and engage in money creation without going through the privately-owned banking systems because they will have become utilities without the privilege of fractional reserve banking. Details of this new transformational system can be found at www.timun.net and the forthcoming book THE TIERRA Fee & Dividend System: A Monetary Approach to Low Carbon and Climate-resilient Development.

 

May
01

The Tierra Alternative

Post By gaia1 in TFD system

THE MONETARY NON-SYSTEM MADE VISIBLE IN THE GREEK DEBT CRISIS

 

Almost all nations and almost all states in the USA are burdened by huge amounts of debts. These fiscal burdens have different social causes in different countries and regional monetary unions. Thus, the Greek debt crisis is mostly a matter of domestic political, cultural and economic causes and its resolution is mostly a matter of domestic and regional monetary policy by the European Central Bank (ECB).

 

The term mostly used twice in the above paragraph covers the reality of the international dimension and its monetary, financial, economic and commercial systems. All of these systems impact on the Greek debt crisis and on the solutions that the ECB is trying to find, because in this globalizing world these systems increase in importance.

 

One international system the effect of which on the Greek debt crisis and the debt situations in other countries is hugely underestimated is the international monetary system. It is this system that does not work properly and has been called by many observers a non-system. Nobel laureate Robert Mundell call this non-system a “criminal” system because its lack of acting like glue of the other systems deprives the world from the means to procure a decent quality of life, particularly for the most vulnerable groups of humans and other species.

 

I see two main reasons why the international monetary system or non-system is not working properly: the presence of nation-based global reserve system and a money creation function that is under the control of privately-owned banking systems.

 

The US dollar which amounts to over 60% of the reserves in the global reserve system is a and probably the main cause of the global financial imbalances where you have large surplus countries such as China and large deficit countries such as the USA. It was exactly the purpose of Keynes proposal of an International Clearing Union and its synthetic currency of the bancor that contained the right elements to keep that balance reflected in nations’ balance of payments. When the IMF was created by an overbearing role of US negotiators, its main function still was one of surveillance. Obviously, it failed miserably in this function given today’s global financial imbalances. Today, particularly proposals by the 2009 UN Stiglitz Commission for a non-national reserve currency and, less so, some technical reforms of the global reserve system by the UN Department of  Economic and Social Affairs (UNDESA) and the UN Conference on Trade and Development (UNCTAD) are good reformist proposals which are not able to do the required job. What is needed is a transformed international monetary system based upon a monetary standard that would remove the global reserve system and put into place an international monetary system where national currencies are pegged to that standard or where the international community decides to go for a common international currency.

 

The second reason for the global financial imbalances is the abdication of the public sector of being the sole creator of the money supply in their nations. Presently, over 90% of all the debt-created money is brought into the world economy by privately-owned banking systems which are competing with one another, often in very irresponsible ways as we have seen in the recent financial crisis. The time has come to subject this 400 year anachronism to profound scrutiny. One of British most accomplished monetary diplomats and cofounder of the New Economics Foundation, James Robertson, had suggested to Prime Minister Brown at the occasion of the London Summit on April 1, 2009 that Britain presents this reclaiming of the money creation function. We all know that that Summit and the ones following it together with the meetings of the  G7/8/20 finance ministers upon have opted for recovery rather than transformation. The once moribund IMF was raised like a phoenix out of the ashes by having received the billions of dollars in that recovery effort.

 

So what can be done to find solutions to the Greek debt crisis, the fragility of the euro, the incompatibility of having one nation’s currency become the world’s reserve currency, to reduce the global financial imbalances of a surplus China and deficit USA?

 

Thinking through the many alternatives that being offered in all these cases there is one  monetary alternative that, at the same time, addresses the even more challenging problem of a changing climate. I have called it the Tierra Alternative.

 

The alternative consists of a transformed international monetary system based upon de-carbonization monetary standard with its Tierra as unit of account together with a carbon reduction method of Fee & Dividend which is to replace the cap-and-trade. The latter is not fast, formidable and fair enough to do the job of reducing the GHG to non-dangerous levels in a timely, comprehensive and equitable fashion.

 

The Tierra Fee & Dividend system is predicated upon the notion that governments are to be regulators and drivers, particularly in these carbon-constrained times which, at the same time, are afflicted by monetary, financial, economic and commercial systems that enrich the few, impoverish the many and imperil the planet. One major plank of this role of governments is to reclaim the function of money creation from privately-owned banking systems, so that the Tierra Fee & Dividend system becomes possible. In that way  monetary, financial, economic and commercial systems can be developed for low carbon and climate-resilient development in the global North and South.

 

A next step towards the establishment of the Tierra Fee & Dividend system or a similar system is the need for the UN General Assembly to pass a resolution like the one in October 2008 when it established the UN Commission of Experts on the Monetary and Financial Crisis and its Impact on the Development. This time the new Commission of Experts on Monetary Transformation and the Climate Crisis would build upon the latter commission’s recommendations but would expand them for focusing on the international monetary system which California State University history Barry Eichengreen considers the glue of the other international systems.

 

I want to conclude with part of a US Congressional testimony that places the Tierra Alternative in the needed and possible monetary evolution that this economist presents and that asks the USA to develop its international monetary vision. That vision is still lacking, for many identifiable reasons, and which President Obama should include in its New Foundation philosophy as soon as possible.

“The continued expansion of free trade, the increased integration of financial markets and the advent of electronic commerce are all working to bring about the need for an international monetary standard---a global unit of account….An important question is whether this process of monetary evolution will be intelligently directed or whether it will simply be driven by events….In any event, it is imperative that the United States begin to develop and put forward its own global monetary vision for the future.

Economist Judy Shelton, US Congress, May 21, 1999