Goals for Ecofinance  Compatible with steady state economy (no growth in throughput)  Cannot require continuous exponential growth or liquidation of NK  Must finance most important investments  Green technology  Ecological restoration  Public goods  Eliminate speculation  Seigniorage for public sector, not banks  Countercyclical, stabilizing  Cannot promote short term thinking

Current System

Vertical money Gov’t forces us to pay taxes; we must accept money or go to jail Our economic production backs money supply Gov’t spending limited only by biophysical constraints

Horizontal Money & Industrial Capitalism  If central bank (CB) targets interest rate, no limit to lending; If CB enforces fractional reserve, firms use commercial paper (higher interest)  Where do i (interest) and p (profit) come from?  More loans or more vertical money required. ECONOMIC GROWTH  What if p<i? Must liquidate assets, including NK  Procyclical system

What do people invest in (USA)?  ~$14 trillion in mortgages  Economist: The repurchase revolution  “Companies have been gobbling up their own shares at an exceptional rate.”  “Since interest paid on debt is tax-deductible, whereas interest earned on cash is taxable, by increasing its net debt to finance buy-backs or dividends, a firm cuts its tax bill.”  Major buybacks in NYT THIS WEEK: Google, Whole Foods, Visa, Alston, KKR, CVS, Samsung, IBM  NYT: Record margin debt poses risk for bull market  “The amount of money investors borrowed from Wall Street brokers to buy stocks rose for a seventh straight month in January to a record $451.3 billion”  Most money is borrowed to buy existing assets, not to create new wealth

Actual system: Financial Capitalism and Asset Inflation  NYT: Despite Drop in Commodity Prices, Farmland Values Rise  Inflating asset prices outcompete returns on real investment  Credit availability determines asset prices  Financial sector captures all rent

Interest Bearing Debt in US

updated

Growth and Inequality or Collapse  Debt is 360% of GDP and growing faster than GDP  5% interest? 18% of GDP? Credit market debt, net of gov’t

Current System: Financial Capitalism & Asset Inflation  Bubble busts, asset sales make prices plunge; banks capture assets, stop issuing new money  Industrial economy (Hedge investors) must also collapse

Re-inflating Bubbles: interest rates and QE

Desired System

Ecofinance: Vertical money finances needed investments; tax pollution, extraction, rent

100% fractional reserve

100% Reserve  Demand deposits  Money belongs to investor, not bank  Can’t be loaned  Investor pays bank  Investment accounts  Time deposits  Loaned at interest: Bank is intermediary between borrowers and lenders  At risk: no insurance  Banks accounts  Banks own money  Loaned at interest

Transition  Gov’t time deposits (huge creation of vertical money) to back current loans  Interest payments to gov’t and withdrawals reduce money supply for private sector, free up biophysical space for gov’t spending  i.e. reallocate between investments in private and public goods  Requires controls on shadow banking, commercial paper

Advantages  Countercyclical  Restores gov’t control over interest rates