ENERGY FINANCE


ENERGY AS QE


As the increasing volume of sovereign debts will vacuum clean the capital markets, capital will become scarce. This is a huge problem that must be solved, otherwise the energy transition will not be realized and the economies of the world will collapse. The fact that almost all companies must refresh their finance contracts will deliver huge capital 'trade' issues, but will have a neutral effect on capital availability (as capital will be released and demanded in the same quantity). Quantitative Easing (QE) is about artificial enlarging the quantity of money in circulation. QE is not without price: it waters down the existing value of money: think just in the tea bag example: more water on the same amount of tea delivers less strong tea and if it goes to far: just coloured water without any taste, that nobody wants. QE is gambling with the future value of a currency. QE is creating inflation (money gets less value). QE is about risking savings and pensions of persons, households, companies and governments. The in currency debt burden (with no background assets, likes consumer credit burdened and sovereign debt burdened) likes QE very much (as it inflates them for free out of debt), the currency asset owners doesn't like QE (as it lowers the real value of their currency based assets). Inflation is often called the invisible tax. Inflation makes debts wise and savings/pensions stupid: encouraging en rewarding irresponsible financial behaviour. Therefore we must QE only if it needed and (even important) only to steer structural changes to better futures. Than the damage of QE will be compensated by it positive effects. If QE only and fully should be used for energy transition investments it would make the future perspectives of that currency (and all the currency based assets that are nominated in it) stronger instead of weaker. Why? It would give the banks income, income they need to adjust to the new low (back to back-to-back, one to one) leverage realities of high prices energy/resources delivered growthless economies without collapsing. By this it will prevent future bail-outs of the banks . Bail-outs that have been done and will be done both by governments (a la TARP) or the more invisible by central banks (a la Raptor -the debt dump in the Enron bail-out, the guy who came up with this name could sure make another fortune as stand-up comedian- and Maiden Lane I till V regarding the last 'sell bad stuff for good prices' action-), both types of bail-outs endangers both the governmental funding as the currency value (and by this could lead to economic/financial/governmental collapse). It would give the states income, income they need to adjust to the new lower income realities delivered by the high prices energy/resources caused growthless economies (as governments basically float/grow on the outcome of the market driven economy). It also prevents economic collapse due to high energy prices and thereby once again prevents further bank bailouts (if regulation are tightened, control/auditing get independent and misbehaviour will be sanctioned) and further governmental defaults (as governments basically float/grow on the outcome of the market driven economy). People and governments that thinks that QE can be used to replace the market, quite don't understand the collapse of communism very well. People and governments that are infected with Reaganitis and use QE to bail-out irresponsible behaviour of corporations/financials/governments (privatizing profits and socializing loses), quite don't understand the concept of open/fair/free capitalism and abuse open/fair/free capitalism for their own agenda (George Orwell: Animal Farm: some pigs are more equal than other pigs). QE should be used for energy transition. To be more precisely: without EQ the needed massive/fast energy transition will not happen. QE channelled though energy transition investment saves the economies, the savings, the pensions, the financials (if they will be regulated), the governments and the currencies (as in: central banks). Of course all the people that have abused the housing markets, again will try to abuse the energy driven QE. This could be out-ruled by some smart regulation to prevent such weak assets as 'stated income' loans. The tools needed are all listed in this Energy Finance paper. Bank regulation is not our job, that's the job of both governments and the financial industry. If we use QE for energy transition we will save the economies (giving them time to adjust to new 21st century realities), the financials (giving them time to adjust to the new 21st century realities), the governments (giving them time to adjust to the new 21st century realities) and by this all our future, our savings, our pensions and our democracy/freedom (as collapse with 100% certainty leads to bad forms of authoritarian governments). We fix our energy system and gets all the other for free included. It gives the central banks a load of currency covering energy harvesting assets plus also a load of future energy income. The currency gets stronger, as needed. This way even currencies will be able to adapt themselves to the new growthless realities of the 21st century. QE the old style (just watering down currency values) will not deliver Sustainable Prosperity). QE this new way will build and maintain Sustainable Prosperity. If central bankers start to understand Energy as QE, energy price rises will bring prosperity instead of collapse. The asset based CDS type is non QE instrument that central banks can use and by which they can support severely the new energy investments as well generate huge incomes. The asset based CDS will replace gold leases completely. Gold leases delivers as side effect economic turbulence, asset based CDSs delivers stable economic recovery and transition, beside it delivers more income as gold leases deliver. QE still is needed as the economic process doesn't create enough money for the massive energy transition wave (as the IB motor is in reverse in the old markets).Central Banks must take a huge mental barrier to see energy as currency saviour, but when they understand the theory, they will practice it certain. Combined with the Energy as TOD concept, the Central Banks assets based CDSs as first line, the Energy as QE concept (based on COD as method?) is very much capable of generating a massive energy transition investment wave.


Author: Gijs Graafland


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