Tuesday, December 2, 2008

Consumer Price Index & Inflation

There are basically two kinds of goods. Those needed by the consumer - food, clothes, leisure, health, etc. and those needed by the producer - factories, companies, brands, patents, buildings and assets... And there is some stuff used by both - semi durable goods used for production, like cars, computers, etc

Most central banks act when they see a rise in the level of Consumer Good prices (CPI), they also generally act against any rise in the general wage level as it may lead to inflation and further increases in the CPI.

But rarely do Central banks act when they see a rise in the general level of producing good prices, and it is clear that all asset prices have risen recently, including housing and stocks.

They also do not act to buffer a general rise in company profit levels, although it usually leads to further increases in producing good prices.

Why are central banks and economists so happy when production good prices rise relative to consuming good prices ? Could it be that the political power resides with big business?

Of course. It also goes some way to explain why the bail out of big business is the "preferred" path is addressing the current financial crisis.

Pity really, as putting money into real wages and investing in broad scale community resources and infrastructure would more rapidly fill the debt bubble with real economic demand and big business would be better off in the long term.

Fixing the Current Financial Problems

The theory runs that you can boost global demand by offering more credit - or increasing debt. And economists argue that the world needs the growth in total demand to absorb the productivity gains in Asia.

So let us look at schemes by which domestic demand can be boosted - offering increasing levels of credit/debt or alternatively - boosting social spending via domestic government programs; direct financing of government deficits by domestic central banks; and increasing the minimum wage and increasing other family incomes.

These last three increase inflation, but inflation is a debt reducing factor and in the current climate may be healthy.

The other side of the coin though is that the debt bubble has been politically encouraged because it boosts investment profits, and the political power assumed by this profit flow has meant that real wages have stagnated, more low and middle class wage earners owe more money to asset holders, and more small asset holders owe more money to big asset holders and their intermediaries.

A real and democratic solution would be to raise real family incomes and real wages, even creating jobs in stressed areas - but that requires an elected government facing off criticism from big business and economic think tanks, who actually know this action will solve the problem but are loath to admit it, preferring to offer the bail out of big business as the only solution.

Its a pity, but the political power lies with those who a) profited by the debt bubble, and b) look like profiting from the "solution"

Thursday, November 27, 2008

Exciting Times?

The last three months have been quite amazing times. The A$ has gone from 95 to 60cUS - investment banks have folded, mortgage houses been bailed out, shares have fallen 50% in value.
So what how did this happen?

The short answer is that the government bodies that should be regulating the financial world have not done their jobs.

All around the world the regulators have allowed companies to hide the interconnections between themselves and satellite companies, and with trading partners and customers.

If you go back to my theory on the source of wealth, you can see that the spirit of the laws and regulations on company reporting and disclosure as designed to make transparent the links between the real source of wealth and the participants in that transformation of energy - ie reading a companies report should allow you to identify the source of wealth creation and the share of the wealth that passes to each participant - worker, owner, shareholder, etc.

But financial speculators derive their wealth by bleeding wealth out of the real system and they have been adept at convincing regulators that special cases exist for not disclosing the methods they are using - things like linking shares to special voting rights, pre-emptive rights over assets, cross management deals, and the hoary old "commercial in confidence" has been used to argue that the books of these companies are not open to public viewing.

The results have been a bloating of the non-wealth producing (and wealth bleeding) non-energy transformation sector to the point of failure.

Now, if these were just normal businesses with bad business plans or tough trading conditions, their failure would free up energy sources for other businesses to transform and continue to create wealth, and individual business collapse (while hard on those involved) is not a problem for everyone else. But speculators are parasites on real businesses and they know that failure for them disconnects them from wealth, and they use all their political powers to remain linked to the real economy - even though that damages everyone else.

The longer answer is that we use the same currency for both real economy energy transformation transactions and speculative transactions. This links speculative failure to the real economy. But it doesn't have to be this way.

Its normal for other currencies to be nominated in deals. A lot of import export contracts are written in US dollars even though neither importer or exporter lives in the USA.

If we had the FINO - a currency used only for speculative trading in shares, derivatives, futures contracts, and anything that was not directly linked to energy transforming activities, then a failure in regulation, or a collapsing bubble of speculations would affect the exchange value of the FINO back into other real currencies, and this internalisation of risk would provide the feedback loop to drive self regulation.

Saturday, August 2, 2008

Stalled Debates on Climate Change

Been following the media over the last two weeks? Lots of sensible comments by the "little" people on taking action, lots of small scale good news stories and lots of suggestions on how "you can make a difference".
Lots of nothing from big business and government, lots of targets and future time frames and how much money has been "earmarked" to address climate change.

What is not being said is that diverse alternate energy programs - solar panels on roofs, solar hotwater in houses, bicycles, and public and cooperative transport solutions, don't offer profits to organisations and financial systems that make money by speculation, greasing political wheels, and funding monopolistic large infrastructure projects.

Huge desalination plants, clean coal power stations, geosequestation of CO2, nuclear power stations, hydrogen fuel cell cars, these are great money makers because only the very big industries and large financial groups can fund them - perfect financial monopolies.

The small step solutions are too democratic, too easy to copy, too domestic!!

Pity that they are just as effective. Look at electric cars - the car manufacturers will make some money producing them, but plug in charging will break the service station refueling monopoly and slash the oil company profits, not to mention reduce government fuel excise ( not as easily garnered from domestic electricity costs ) Fuel cell technology maintains the production-service station-tax structure, so it is little surprise it are getting government support and media airtime.

"Look to the money trail" is good advice. If you can not understand the inaction of government, or the illogical action like cutting domestic solar panel rebates, look at who stands to make or lose money - if it breaks a monopoly, if it's fairly easy to copy, if it's achievable by the ordinary person, you can bet it will be resisted, reduced, and struggle for government support.

Monday, July 14, 2008

Global Warming & Wealth

If you accept that wealth is embodied energy, then Global Warming is the crisis we have to have. Our problems are twofold.

One is that the source of this energy is currently limited. We are using up the fossils fuels and minerals. We are reaching the limits in farming and forestry. And we are not seriously value adding energy in wind, solar, tide or thermal. In short, the sources of energy is peaking and, with growing populations, our wealth will decline.

Our second problem is that along side the energy based wealth system, we have a huge corporate & financial wealth system that feeds off the energy based system.

This system already understands that it will need to forge new links into any new energy sources to survive, and it will fight hard to maintain the existing links and preserve the wealth flow it enjoys from the old fossil fuel and agribusiness energy sources now under threat

So back to Global Warming. There is little doubt that the climate is changing. The questions are whether human activity is responsible and whether we can do anything about it. It doesn’t matter. Unless we develop renewal energy sources, limit the use of fossil fuels, and conserve and rebuild the agricultural sources of energy, we are going to get less wealthy.

Government and corporations understand this. The extended debates over climate change and the small scale reponses in reducing fossil fuel use conceal a more serious issue. How to refocus our actitivies onto renewable energy based wealth creation without exposing the corporate and financial wealth system.

We need to be wary of two things. Global Warming will be pushed as a crisis requiring a personal moral response – tighten our belts, take your share of the punishment, it’s not governments fault, this is bigger than all or us!!! – while not much happens.

Worse still, Global Warming could be pushed as a crisis requiring draconian reponses, the partial suspension of democratic rights, the imposition of economic change, hugely costly projects which favour the corporate and financial wealth system.

There is no need for any of us to become less wealthy. But we must understand where real wealth comes from and invest in those sources, and reject the crisis politics that will try to insulation the non-energy based wealth processes from change.

On Sources of Wealth

Wealth is embodied energy. Traditionally we have taken solar energy in plants, animals, and fossil fuels, and gravitational energy in minerals, water and thermal heat, and turned it into products. We have “value added” and our wealth reflects the energy we transformed. We are wealthier than past generations, and this is seen in the captured energy in our schools, hospitals, transport systems, information systems, and other physical infrastructures.

We have invented processes to stablise energy, in basic banking, in ways to trade goods and extend the shelf-life of foods. We also gain wealth by transforming the energy in ourselves into services. This capture and transforming of energy has created wealth from the earliest primitive man to today’s modern global societies.

It explains our core belief that the environment is important, and our difficulty in understanding the financial markets, where money is a traded commodity and speculation is a non-energy transforming process.


Frugalnomics - What is it?

Frugal as in frugal, thrifty, not wasting resources, careful, sparing, costing little
...nomics as in economics, practical and political science of production, consumption and distribution of wealth.

Frugalnomics is an attempt to make some sense of the strange and mysterious things you read about in the business papers.