TOWARDS INTERNATIONAL (CURRENCY) STABILITY
After some decades of relative currencies stability, turbulence has entered the global currency markets again. Overall currency stability is getting a history text book item at fast speed, as the currency value turbulence/storms are getting the default status. This exchange rate volatility is a huge threat for trade and finance (and by this for business and economies, so also for central banks and governments).
This is something the international economy, nor the national economies canít use at the moment: the economies of the West are already in dire straits yet. The western nations suffer of a) real economic decline and b) the debt created as Ďsolutioní to deliver artificial growth when their economies declined. The demolishing effects of pilling up debt as artificial growth are severe. The price of bashing industrial production over the years is presented and is sour. Western nations have burned all their credit space in 3 decades from the 80ties on and are now running both out of bullets and into the debt swamps.
Unfortunately the leaders of the Western World are still in denial on their debt status and perspectives. Even events like the USA asking China to continue buying their debt, or Europe going on roadtour to China, Japan and Brazil for funding donít awake them. By the pressure of doing currency swaps to finance each other debts the central banks are squeezed totally in terms of their independency. They should protect themselves of becoming a part of this debt roulette, but unfortunately most of them havenít resist the call to become bad banks. Financials that are insolvent are getting cleaner every day by offering trash without discount as 100% collateral for loans at the cost of central banks. The USA method of taking into receivership should be practiced a lot more and not selective: any financial in dire straits should be taken in receivership. Bailouts are rewarding bad behaviour big time at the cost of public interest. Bailouts are about non fair, selective capital flows central banks shouldnít do. Governments that bailout financials are even yet worse: what on earth do governments think that they can practice bailouts: they donít know the game. Bailouts by governments leads not only to the financial collapse of those governments, but also to the representative collapse of those governments. Only the leadership of the most desperate economies of the world are pushing the central bankers towards these currency swaps: USA, EU and Japan. The debt denial only increase the problems and wastes valuable time and resources that could be used otherwise. Debt denial is an expensive status at the cost of the future. Currency swaps are just hyperinflation and collapse practiced by a detour.
The leading western currencies will have only one tool still available: massive currency swaps between each other. Debt swaps must avoid debt swamps. Currency swaps that mainly have one single purpose: an artificial model of buying each others debt. Itís the only possibility left for them in their efforts to avoid Weimar/Zimbabwe: the last station before hyper inflation and collapse afterwards. Too less industrial production in combination on the one side and loads of debt driven artificial growth on the other side, is just ordering capsizing of the ship. The Ďfirstí world is getting the liability of the global economy at fast pace. Maybe the fact that they see themselves as the Ďfirstí world is one of the causes.
Creating debt is very easy: just some window dressing and some marketing and some right vendors and the job is done. This is not only about Greece: all European nations have done that in the period towards the Euro implementation. Cooking the books, adjusting statistics, good marketing and good vendors are addictive and for ever (as it canít be stopped without severe consequences). As creating debt is easy, having debt has only one big problem: it has to been served. With amortization payments and with interest payments. Thereís not such thing as a free lunch. Itís just postponed payment with cumulative interest added to it. There are two ways out of debt: One hard good way (working) and one easy bad way (printing). As debt is the result of weak standards: itís most likely that the easy bad way will be taken. Printing is so much more easy that working. But the artificial increase of money supply of printing without any improvement (paying the past with the future) will destroy all savings and pensions. And more important: it will take the purchase power away from the huge increased gray part of the population (and rocks the boat once again heavy). But for now the governments of the Western World are still in denial: About the productivity of their economies (you canít export production without paying the price for it). And about credit as artificial substitute for real growth (if consumption increases and production declines: you know thatís not a sustainable model). Exporting production (with itís demolishing economic effect) is also a late/kast effect of the deep embedded colonial thinking of the West. Making Ďgrowthí by credit boosting has a certain span wide and unfortunately this span wide has been reached for many household and nations.
Increasing money supply as way to pay the past with the future as Ďsolutioní is a huge problem: itís about paying the past with the future. Everyone who says that he/she loves his children as doing this the same time robs their future bigtime: those two are incompatible/contrary actions. But increasing money supply that finance future income is not a problem: if it creates future values: the past is not paid for with the future. This is why current bailouts should be abandoned as immoral, corrupt and inequality enlarging to the both current population as towards our children. This is why Energy focused/narrowed QE should be implemented as soon as possible: it finances investments that deliver returns direct and in the future. Wallstreet has to realize again that without Mainstreet thereís no Wallstreet. Something the have forgotten a long time ago. We donít need governmental fake job creation programs (that not will last), nor fake credit based growth (which is no longer possible). We need market driven industrial production focused on our other big deficit: Energy.
QE can done in two ways: Traditional Wallstreet QE and by a new method called Energy QE. They are 180 degrees in nature. The Wallstreet QE model is Ďtrickling downí, the Energy QE model is Ďpercolating upí. Traditional QE is giving some Wallstreet market parties close to the government and/or central banks a pile of created money at 0,1% interest. The Wallstreet QE model has some very nasty side effects: It benefits only some players with capital supply and low interest rates and leave the others out in the cold (aka a selective not fair distribution model). It also leads to instant capital export as the capital can be put away for 7% at foreign governmental Ďsecuritiesí (anything with 7% interest is not a security). So traditional QE not only disturbs a free/open/fair internal market, it also increases the risks in the system (which will lead to more bailout demand). Traditional Wallstreet QEís trickling down concept doesnít work, not even for a bit: the capital never reaches Mainstreet economy ever. As Mainstreet gets more poor, Wallstreet gets more rich, not by market performance, but just by governmental relations. This is hard to sell to voters. Pure governmental driven inequality enlargement is not a good governance concept (and lead always to huge tensions), economic performance never does. Traditional Wallstreet QE also pushes the value of currencies down. Not a little but big time. Really huge infrastructural works (with a life span of decades) have an average price of $ 5 billion. This is the value of $ 5 billion full in sight of everybody. By all the bailout and traditional QE practice we are unfortunately getting used to trillions instead of billions (while still being a 1000 times greater value). We waste not only money in traditional Wallstreet QE, we also waste the value of money too. With not a single gram more/better future in exchange. Traditional Ďtrickling downí QE is so malfunctioning that it should be abandoned. Yesterday. As should bailouts too. They are the two sides of the same coin. We need new QE models that have a guaranteed percolating up model (which ensures that capital reaches Mainstreet to the max).
Energy focused/narrowed QE is a very clever way of the needed creative destruction: letting go whatís eats capital and feeding what delivers future capital. Itís the perfect hedge for any financial system in dire straits: financial values go \, energy values go /, connect them together and get ó (aka stability). Itís also gives the financial system a life line to contract ordered from its parasitic 10% GDP level, towards the symbiotic/contributing 1% GDP level. It also stops the capital drain that importing energy has created: Energy QE fixes a lot of any unbalanced trade balance. It also stops the money creation process towards real estate (only delivering bubbles) and diverts this capital flow towards energy (with stable demand). It also stops the money creation process towards carry trade which traditional QE always delivers (which make the financial system even more riskful). It also delivers a percolating up (main street based) money creation process (as the trickling down theory of traditional Wallstreet QE is not true). It also stimulates the needed paradigmatic changes regarding new industrial production, kick starting any economy towards a 21st century fixed direction. It also reduces international energy tensions as it delivers new energy supply, increases energy diversity and increases energy security. It also reduces international financial tensions as it prevents the collapse of nations, regions, or even continents (no more energy wars). It also saves the financial system, the economies and by that governments (as financial/economic collapse often deliver problematic dictatorial leadership). It also replace the demand for gold totally: gold is a dead asset of stability achieving central banks that now is leaned out to the boat rocking hedgefunds. Energy backed Capital contributes to both the current as further economic health of nations. Gold holdings do unfortunately right the opposite. Without Energy QE the financial system will go down, economies will collapse and governments will go down under with them. Energy QE delivers the only good way out of these debt swap, by both stimulating current Mainstreet economic activities and ensuring future capital return. The in Energy QE build-in securitization takes care for a good the percolating up function: giving the banks also the income to prevent their collapse. As Energy QE is non-discriminating it has no special benefits for big banks and gives the financial world back the needed fair play ground model.
Energy QE is also the only way by which central banks can avoid their nationalization aka insure their independence. Is that important? Yes it is. Why? Because politicians are even more less careful with other people money than bankers. Putting the money creation back in the hands of the governments is the fastest recipe for wars/bankruptcy/hyperinflation/revolutions. A system where governments and bankers corner each other should be the best system: the more those two disagree, the better the system is. For having the benefits of this diversity, governments and central banks should stop sleeping together instantly (as otherwise the system derails). Pure for the sake of survival of their own separate structures. Regulation should be the big dividing/steering wall between those two keyplayers. People and movements who fight for nationalization of central banks underestimate the level of corruption in governments severely. Nationalization of central banks leads only to more and not to less corruption. It also gives the iron triangle a possibility to exploit more than ever. Regulation is the only influence governments should have over central banks: any other involved leads to the collapse of both sides. And without (maybe reduced) governmental structures and (maybe reduced) financial structures economies as we know collapse. Therefore we need Energy QE and we need it ASAP.
Currency turbulence can destroy whatís left over of the industrial production (as any sales contract can have a useless or even negative value/output). Which is deepening the economic and financial problems even more and should be fixed as soon as possible. This can be done very easily, also in two ways: 1) by a non governmental global currency or by 2) a non governmental global standard. The possibility of the currency of one nation as the global reserve currency is not worth mentioning if weíre thinking in the benefit of all people.
Is it wise to take the currency of one nation as international anchor? No thatís donít wise, even contrary to wise: it delivers that nation an unlimited creditcard which they will use to the max at the cost of the rest of the world. That nation can buy anything in the world in exchange for just some paper of digits in their central bank computer. A national bound global reserve currency delivers a structural parasitic player in the currency market, something no other nations will appreciate. This is way the USA are so rich: not by work, but by cleaver designing Bretton Woods in 1944 and succeed such by the petrodollar system in the 70ties. A national bound global reserve currency not only give one nation too much leverage, it also donít fix the problem of global currency turbulence. As the dollar and the euro move to parity and the dollar is heading for its role as the currency of the West World: it doesnít fix global currency turbulence. We need another solution and we have the choice between the two options that are available.
Is a global currency a good idea? No it isnít: it will only enlarge current management problems and eliminating improving competition. It doesnít matter if this is a global government currency or a global bankers currency: Both will not contribute in any positive way to general development. Why? Quality and distance are contrary facets in governance. The distance between rulers and the being ruled is a gap that produces less involvement. The lack of involved responsibly will lead to a model where this ruling elite will see the people just as cattle than must be explored. A global currency is the highway to serfdom. They can give special interest groups benefits at the cost of us all. Itís a recipe for the biggest corruption ever. Anyone who think that global structures solve anything: you need a severe wakeup call: itís just enlarging problems and corruption while solving nothing. We donít need big governments or big banks (as the first go bankrupt and the second drive us towards just above bankruptcy level so we just stay paying). We need a decental market driven economy (as that is the recipe for aka the perpetuum mobile aka the always producing machine of economic progress). Top structures are mainly parasitic, although their marketing tells you otherwise: they live luxurious in great wealth on the fruit of your hard daily labour. A global currency is just making profit on a greater scale for a select few that donít want to empower people, but just want to explore them. A global currency is just enlarging the problems and cutting any correction influence: not something you want to experience unless your part of these elites. A global currency will set mankind 500 years back in time. It will be a major looting operation of some happy few and their cronies at the cost of us all. As a global currency will be digital: Ďturningí people/groups/regions/nations of is only one second work (just typing the ; character for their record name). Anyone with only the slightest knowledge of totalitarian systems in the 20th century will oppress central powers as the bad guys of the 20th century had. Nor will even deliver such people even the digital infrastructure to do their repressing job. Big Government = Big Banks = Big Exploration. The 20th century is full of examples of huge central leaders who made a mess that not even can be described at the cost of ordinary working people. We need ordinary people / small businesses centred models. Not (political, financial, ideological) elites that abuses the system for their own benefits. But for rare and not easy to understand reasons we sometimes think that when things work bad, we just need to do it bigger to make it work. This strange believe is feed by the interests who made the things worked bad, they just search for an offensive way out, pushing the envelope yet further.
So as a currency always is issued by a party with some agendas, we need a standard as international currency substitute, not an international currency. The difference between a standard and a currency is huge: it are complete different worlds aka it will deliver a quite different outcome of the 21st century. A currency can be manipulated by powers in charge and so is by itís nature instable and has the risk of turbulence. A standard on the other hand can not been manipulated by anybody: itís just a value nobody can manipulate for its own benefits or the cost of others. A standard like the meter, the kilogram or the litre: standards without any overhead or chance for manipulation that made trade much more easy. We need a similar standard for value. Than we decouple value and governments and value and banks and make value both universal and non manipulative. This only works if we use a value that is worldwide available and has world wide an economic value, otherwise it will not work and never fly. The only value that matches these two demands is the kWh value: a very stable (and even in value increasing) international term for trade/settlement. And yes, the value of energy is fluctuating a little around the globe, but thatís relative marginal to any other value anchor. And yes, the value of energy is fluctuating during the daily energy production/consumption cycle, but that can be eliminated by if daytime values are used. The kWh value could change international trade like the implementation of the sea container did: Just one standard making everything suddenly much more easy by cutting out the risks of value turbulence at once and for all. The beauty of the kWh value is that is can be created artificial (making manipulation tactics and inflation politics impossible). For making kWhís there is real investment needed, the kWh canít be realized by printing nor by adding a new line in a bank balance sheet Itís a stable long range value, defined by market actions all around the globe, having less to do with some volatile spot markets for oil/gas/coal. The value of the kWh is stable: a kWh is a kWh and will be a kWh. Itís also a very distributed value: Making kWh is relatively easy: itís just a combination of technology and finance under management Everyone who combines technology with finance under management can join the value supply creation, everybody is already a demand creator. By this the kWh as value also delivers (at no governmental cost) less inequality and by this deflating class related tensions our of economies for free. Not a monetary facet at first sight, but yet from monetary perspective very important: as it reduces the need for governmental spending a lot. The kWh is a distributed value. And distribution always prevents concentrations (and the tensions due to concentrations). Energy as the new international value anchor for trade/valuation/settlements. Nominated in kWh. No manipulation possible, no single nationís interests servicing: Just delivering value stability for all without any overhead.
The kWh value also reduces the need of a battle for money devaluation to minimal values which is taking place all around the world. A battle that destroys savings/pensions and makes more people more governmental benefits dependent in exchange for some export comparativeness. The downside of devaluation is much higher than the upside (as the upside waters down while doing it: as every economy follows this path down instant). Itís too less recognized that inflation is just another (and invisible) tax: governments in debt likes inflation as it fixes their balance sheet inequalities for free.
The kWh as anchor is much more better than gold as anchor. Why? There are several reasons for it. First thereís not enough gold in the world to deliver such an anchor at reasonable prices. The gold anchor will also will deliver an unwanted huge earthquake in value transfer, bankrupting each and everyone beside some happy few. Gold anchor people promote their gold system certainly not for the public interest, but for their own benefit. The exploration, possession and trade of gold takes place mainly place in a negative world perspective (zero sum game: the one wins while the other loses). Gold is a dead asset. It only delivers a guarantee/insurance/hedge against the financial system. Gold holdings have a severe risk of lose of the possession by bad partners (like the MF Global debacle) and governmental seizing (like 1933 in the USA). The practice of hypo and rehypo of gold makes any gold holdings based on quick sand: there is no central register of gold like there is for real estate. And there was such a register for large gold holdings: the asset is always depending on the health of all parties involved: a bankruptcy can evaporate all. Gold is old fashion, has too much downsides in exchange of one (possible) upside and therefore we should abandon gold completely. Any gold backed currency standard is just an illusion: the ink of the laws will not be dry as the value will be watered down already by issuing more paper. Gold backed currencies are merely an illusion for the simple reason that itís a central model that can be manipulated as easy as any fiat money system.
Energy investments deliver far more a better monetary foundation than gold or just fiat based systems. They produce an actual commodity (the kWh) as actual value during their investment cycle and beyond. The real estate legislation of registration of assets is already in place and can be used for energy installations too. The privatization of the energy markets that has take place in many nations make it possible to use energy output as collateral. Energy investments have a huge benefit above real estate investments. Real estate is location bound in value, energy isnít. Need a monetary foundation with build-in amortization and interest payments security? Energy investments can deliver it. Not a security delivered by some (maybe later proven not reliable) partner, but by just a huge market of a commodity every company/household uses.
The financial sector has become a too big part of the Western Worldís GDPs and by that has become from servicing/enabling towards parasitic behaviour. A financial sector size of 1% GDP creates/supports wealth. A financial sector size of 10% GDP just consumes/destroys wealth. But we have to scale this down wisely as in: without collapses. Preventing collapse is preserving economies and governments. Masses that lost their savings and pensions have severe less economic purchase power (and the credit system then is broken and canít deliver it either). Masses that lost their savings and pensions have a lot wide supported anger towards both financials and governments (anger that donít flow away easily). Preventing collapse is something we should be dedicated to. For economic reasons, for governmental reasons, for company reasons, for household reasons.
There are not that many people who understand the crucial demand of economic growth for the financial system. The fact that money = debt is not something many understand. When a loan is issued, only the money of the principal is created, not the money of the interest. The money for the interest payments must be created by economic growth (and in reality inflation contributes virtual also). This is why most banks start to collapse with mathematically certainty when economic growth stalls with the weakest ones first of course. The reason is they donít have any capital to absorb losses as they have be able to lower their tier one ratios to minimum levels by weak legislation. With no buffers left, a no growth environment lead to collapses (as their whole business model was based on collapses).
That growth is gone and will not return for decades in the Western World is obvious. Real growth has left the West already at the end of the 20th century: something that was covered by the artificial credit based Ďgrowthí. Exporting production and importing credit is not a sustainable model, it has a short life line and than it delivers the Ďdouble payment eraí. The West is getting too old, too spoilt, too undereducated, etc, etc. But still they think they rule the world. For some strange psychological reasons they donít recognize quick sand until the sand has reached their necks. The West has a very difficult period ahead: wealth addiction is very hard to cure. No pencil can describe the turbulence the West is facing if they are forced to face the facts when they hit reality without the credit buffer to Ďprotectí them. The West has lived too long beyond their means and must not only adjust, but unfortunately also pay back their excesses. This is why Energy QE is important: it could improve the perspectives of the Western World severely.
So we need Energy focused/narrowed QE for stabilizing the financial system. And we need the kWh as currency substitute anchor for stabilizing the global trade system. With those two the danger of PeakEnergy for economies and monetary systems can be put aside too.
Gijs Graafland / Planck Foundation / Amsterdam 2012
(copyright free transcript of the opening speech on the Planck Foundationís monthly Energy QE Seminar of January 2012)
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