Saturday, April 26, 2014

Fixing our monetary system

Our current monetary system has three major flaws. What we have to do is find a way to manage these flaws.

The first problem is Fiat Currency. We need currency based on something tangible, not just promises to pay. But we can't go back to the gold 
standard, and the suggestion of sunshine that I saw in an earlier comment wouldn't work because it would give equatorial regions an advantage. My idea would be a currency based on carbon. Not carbon credits, but actual carbon pulled out of the atmosphere and stored in bulk. It's physical and measurable.

The second problem is Fractional Reserve Banking, where banks only have to maintain a fraction of their deposits in the central bank in order to give out loans. This is simply a matter of law. In the 1930's, with the bank reforms pushed through by FDR, the reserve requirement was pushed up. The higher the reserve requirement, the less money the private banks could just invent out of nowhere. This helped keep inflation under control, but I don't think it ever got above 26% in the US. It's much higher in some other countries.

The third problem is Compound Interest, where we pay interest upon interest upon interest again and again and again. I recently got a debt consolidation loan that had a fixed rate, without any compounding. It's wonderful. I think all loans and credit cards should be like that. Need a loan for 10K at 10%, you'll pay $1K in interest for a total of $11,000. That's it. This could be required by law.

The banks would fight these changes tooth and nail every step of the way, but if we made changes like these it would bring our monetary system to heel and make it a servant of the people instead of our money being our master and us being the slaves.

2 comments:

Chris Marr said...

Hey Chad,
Liked most of your post except for a major issue that's bugging me. I cannot get behind your suggestion to use carbon as a basis for currency. This is because you shouldn't use an element that not only is as common as dirt, it tends to be a significant component of it. Though the thought of using a potential environmental solution as a basis of currency is emotionally appealing, we both know that once you bring carbon down to a pure form, it is pretty much indistinguishable from coal. If we could ever lick the storage problem, a better currency backer would be units of electrical power in the form of MWmin. Since it is usually sold on the wholesale electric market for about $50/MWhr currently it would be close to the same value. Unfortunately, since we don't quite have the appropriate storage tech yet, we cannot really have a strategic reserve.

Chad Lupkes said...

Good response, Chris. My issue with using units of energy as currency is that our goal as a civilization has always been to reduce the cost of energy, which would not help if we're trying to use that cost as a measure of value. I really think it needs to be something physical. Whether we choose something rare or common, and I understand your concern about such a common element, it needs to be something that would maintain value over time. Energy costs are going down, gold prices are going up. So neither seem to be a good fit. Any other ideas?