Universal Basic Financing - Part III | Monetary Politics
Monetary politics.
What it this about? You can just buy that Lego for your kid, when they are the right age. Demand gets supply right away in a robotics and computer based society. This is the goal of monetary politics.
This article was inspired by The Alchemy of Finance by George Soros. I addressed the historic perspective of financing in an earlier article. Understanding the whole based on a sample is the basic idea behind Economics.
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The rule of investment is timing. You set when to buy and sell well, then you may gain some money to spend. Money bridges that gap between salary and consumption.
All economic models assume a credit money that is tied to an ethical school. Society to gives feedback to people and companies with money, not just by laws. The classic definition of credit money is just to exchange for products. It does not teach you anything, but enables the exchange.
Most of these models are bound to a type of credit score. Each of them reflects a certain ethical school of teaching. Ethics is about your behavior, and role in society. Sometimes ethics dictates to limit growth and welfare to give feedback to people and companies, how they should behave.
Model I. The monopoly of the central bank | Inflation
The first model is the central bank model. Central bank leaders usually have one goal, and that is maintaining price stability. Central bank leaders are appointed and approved by the executive and legislative branches. The reason is simple. Price stability is in the interest of the governing majority. Central banks protect the assets of the wealthy or the income of the higher earners compared to the median. Price stability is in the interest of all, but especially the wealthy right of the median. Using a single currency secures the rule of law and governing in a democracy.
Model II. Fiscal Politics | Unemployment
The Keynesian model is fiscal politics. Governments have other obligations. They take care of the disabled, elderly, and unemployed. This is the interest of the minority, or opposition. Governments collect income taxes to support these groups. The government finances reducing unemployment from debt as long as the central bank can keep price stability. Once the government reaches the goal, the extra tax payments of growth will cover paying it back. More people will work, and the differences disappear. Fiscal policy typically adjusts the use of human labor. It was very popular between the 1930s and 1950s. The New Deal of Roosevelt built the electric grid and the freeway system.
Model III. Monetary Politics | Employment and consumption
The third model is the monetary model usually labeled with Friedman. Monetary policy is the common goal of adjusting the interests of growth and unemployment. If people and businesses decide on the debt themselves, then they do better long term decisions. Interest rates will reflect real risks of projects, and meaningful projects will be built first. A stable population of thousand people will spend the available resources on the projects with higher return, and lower risk. Monetary policy is typical to adjust the use of energy. It was extensively popular in the 1970s to the 1990s after a spike in oil prices and inflation. Monetary policy supports growth, and decisions are driven by the federation of central bank, government, few investment banks and venture capital. It has some limitations for an even smaller minority. Existing debt holders insist on setting barriers to entry by setting withholding rules like the Basel standards. Lower fluctuating interest rates would bring them out of business otherwise. This is the reason why Keynesian economists set a natural rate of unemployment to 4%. Monetary politics is favor of higher employment and consumption, and better energy use of labor in exchange for some unemployment. Monetary politics supports entry barriers, and oligopolies and monopolies that master their Art. I refer here to the book Zero to One by Peter Thiel. Many monopolies and oligopolies built up in the 1990s to 2010s on cheap debt for low risk conglomerates.
Model IV. Decentralized currencies | Free trade, Robotics
Legal standards like the partnership, letter of intent, or cryptocurrencies allow some relief from the monopoly of the central bank. Limiting growth to maintain price stability, or the creditworthiness of existing debt holders require making capital expensive. New research and development projects may suffer. Cryptocurrencies addressed this problem by allowing parties to set prices in their own projects without actual down payments. Decentralized payments and pay later schemes help in certain situations at a local level. They have an issue of liquidity. Liquidity can be solved, if cryptocurrencies are treated as a cash, and income taxes on earnings are paid in dollars to the government. This is what happened in the United States legalizing some crypto ETFs. The single dollar is a constitutional requirement. Decentralized payments for labor may collide with government policies in controversial areas like prostitution, organized crime, forced labor. Decentralized money may support growth in case of heavy local licensing and minimum wage regulations like cab driving, software development. Decentralized financing is going to support extremely low-cost services that replace human labor like cloud services or artificial intelligence. Licensing usually ensures a minimal salary that does not apply to these robotic services.
Model V. Credit Money | GDP Per person
The academic credit money definition covers the entire population. It does not require a monopoly of the central bank. Checks used to be something similar to a pay later scheme. People could agree on a partnership to build a building. Banks can lend in the case of credit money to people a fixed amount of dollars per person regardless of central bank wizardry. The limited supply per person, the term period to pay back, and the rates adjusted by individual repayment statistics make sure that the money supports growth. This growth is similar to the multiplicator effect of the Keynesian model with the limited monopoly of the central bank, and the distribution of government services. This perfect union of people is the credit card system. It assumes financially educated citizens. It does not really exist today at scale for this reason. Credit cards are limited to personal payments. The concept of credit money is the one that covers 100% of the population including the wealthy, high earners, full-time consumers like the disabled, retired, developers of growth, disruption, robotics services, and anybody else. All demand is fulfilled in a credit money system.
The next article will describe how ethical standards skew the credit money model to adjust consumption for the good of society.