Nov 30 2010

Argentina’s disenfranchised create their own money system

I’m not sure I agree with the title (although catchy) used on YouTube for this video. After all, what is money anyway? Most modern currencies are fiat currencies – their value only comes from our collective belief or agreement that it has value. The Euro, Dollar et al are not backed by anything – not gold, not silver, not water nor anything… Really they are just bits of paper and coin to a lesser extent and largely just ones and zeros on computers. Their legitimacy largely comes from government’s accepting payment of taxes in the currency in question. The two basic requirements for “money” are:

  • it is a store of value
  • it is a medium of exchange
Argentina’s Global Exchange Network’s credits satisfy the second requirement certainly and most probably the first also. So I think that “Argentina: Surviving by creating their own Money” or the like would be more accurate – even if it does look like “fake” Monopoly (the game, that is) money 😉

Argentina: Surviving without money

How the poor of Argentina are trading goods and services in a global exchange network.

Taken from the OU course ‘International development: challenges for a world in transition’ (U213)…

Nov 29 2010

Drupal Module for LETS and community currencies

Since I last looked for software that can manage a Local Exchange Trading System or community currency, the range of offerings seems to have improved greatly. Of particular interest to me, being an avid fan of Drupal, is the following module for Drupal:

Living Economy

An all-embracing and flexible package which includes a mutual credit engine, transaction forms and displays, including several views and blocks. It can be used as a digital back end for paper money projects, or to run an entire LETS or Timebank. With a little tweaking, it can manage currencies conforming to a wide range of designs.

If you’ve looked at Cyclos and CES, then this module will do most of the work of either of those.

I haven’t checked it out yet but it looks very promising and has a comprehensive list of features. I’ll post an update when I’ve tested it out 🙂

Jan 28 2009

Support your local economy

Local Market by Unbudi Fairy.

Maldivian 50 Rufiyaa : The Local market which is buzzing with movement all day long

What price globalisation? Globalisation has been presented to us a model based on economies of scale that will deliver mass customisation of products and services that we want or need. In my experience, what it has delivered is a more homogeneous culture with less choice and diversity. Increasingly cities around the world are converging with high streets featuring the same old multinational chain stores. Small, family owned businesses have gradually been disappearing over the recent past.

But products and services are much “cheaper” now than in the past, many may say. So it appears but of course there are many hidden costs or “externalities” to use the economic term. Aside from the moral need for fair trade and the cessation of exploitation of workers in the form of cheap labour in so-called “lesser developed countries”, surely it is ridiculous to import food that could be grown locally from half way around the world as has been the case.

With or without cheap oil, the hidden costs of such practices have a huge impact on the environment. Large scale agriculture has obvious negative impacts such as deforestation, soil erosion and so on. Artificial fertilisers are required to nourish plants grown in this manner. Monoculture or the growing of crops on such large scales requires the use of artificial pesticides which damage the environment and our health. Whether or not excessive food miles or the importing of food food from distant countries has a direct impact on the climate is another debate but certainly it does leave us in a vulnerable position.

This Ship Is Sinking Cover by david.marrufo.

“This Ship is Sinking” is a chapbook created and independently published by Los Angeles graffiti artist EWSO.

Many “developed” countries are unable to provide their populations with food for longer than a few weeks if an economic shock disrupts the international flow of goods and services. Indeed, the collapse of the world’s marine commerce, doesn’t bode well.

When budgets are tight, the natural tendency is to economise and shop wherever goods are cheapest. If the cheapest option is to buy our necessities from the multinational chain stores, there other hidden costs in the form of pushing down the local wage rate for local workers and small businesses. Money spent on cheap foreign goods simply leaches money from the local community again leaving us vulnerable to economic shocks. And what happens if the chain store goes out of business? We may no longer have the local skills and resources to fill the vacuum.

One of the main drivers in modern economic thought for globalisation is “customs union theory” on which the European Union is formed. This theory essentially states that if one country is better at producing one good, let’s say potatoes and another country is better at producing wheat, that each country should specialise in producing the good at which it excels and trade with the other country. In this way both countries should have more of each good or potatoes and wheat, in our example. But if there is an economic shock of some sort and trade is reduced, both countries are in a vulnerable position.

A more sensible approach is that each country should be self sufficient in the basic necessity goods making them less vulnerable to economic shocks. Of course, more of something is not always necessarily better. In the case of food, obesity levels in “developed” countries are an indicator that this may be the case. Being self sufficient in necessities is not to say that trade cannot exist between countries for less essential or luxury goods. But at least survival is no longer survival is no longer such an issue in the event of an economic downturn.

In recent years, largely motivated by peak oil theory, there have been movements to re-localise our economies and practice more sustainable methods of agriculture such as permaculture. There is some debate and controversy surrounding peak oil theory but now faced with the harsh economic conditions we endure, these movements have other motivating factors for their adoption, namely the credit crunch.

If you still need more convincing, check out the films below. And your comments are very welcome…

WAL-MART: THE HIGH COST OF LOW PRICE is a feature length documentary that uncovers a retail giant’s assault on families and American values.

The film dives into the deeply personal stories and everyday lives of families and communities struggling to fight a goliath. A working mother is forced to turn to public assistance to provide healthcare for her two small children. A Missouri family loses its business after Wal-Mart is given over $2 million to open its doors down the road. A mayor struggles to equip his first responders after Wal-Mart pulls out and relocates just outside the city limits. A community in California unites, takes on the giant, and wins!

Running time: 98 Minutes

Future of FoodThere is a revolution happening in the farm fields and on the dinner tables of America, a revolution that is transforming the very nature of the food we eat. This documentary explores the disturbing truth behind the unlabeled, patented, genetically engineered foods that have quietly filled grocery store shelves for the past decade. It also examines the complex web of market and political forces that are changing what we eat as huge multi-national corporations seek to control the world’s food system.

Running Time: 89 minutes.

View ‘The Future of Food’ on VeeHD

Jan 27 2009

A Satirical Interlude from the FKNNewz

This is definitely not for the squeamish but it is quite funny. Nobody escapes from Deek’s satire and sardonic humour in the FKNNewz. Be warned – GreatgrandParental Advisory Explicit Content.

The American Dream – Death, Debt & Delusion

Tonight’s Headlies… admis traitors bail out American dream preserving world financial nightmare Only a few innocent children killed by US war machine say evil murdering scum In the UK shopping still popular despite emptiness of consumer lifestyle

Jan 26 2009

Fractional Reserve Banking explained

What follows is a rather simplified analogy but should help to explain our modern “fractional reserve” banking system…

Once upon a time, people used gold as currency. Gold does not corrode easily and as such is deemed to be a sensible way to represent and store value. The problem with gold though, is that it is not easily transported due to its weight and furthermore it is not easy to conceal large amounts of gold when travelling.

So, to lessen the risk of being robbed by outlaws and highwaymen, a goldsmith would take a deposit of gold from someone, who intended to travel from their own village to another, in exchange for a gold receipt. The traveller could then redeem their gold receipt for an equal amount of gold when they arrived at their destination from another goldsmith.

As long as the two goldsmiths had an arrangement to honour the receipts, then the traveller could travel more safely, as they could easily conceal a receipt for an amount of gold that would have been very difficult to hide. Of course, the goldsmiths would charge a small fee to the traveller for availing of this service. So far so good.

In bigger towns and cities people would avail of this service from goldsmiths when they didn’t intend to travel. They didn’t know all their neighbours and were reluctant to store a lot of gold in their homes, as occaisonally people’s homes were robbed. Instead they would store their gold at the goldsmith’s place of business as the goldsmith had greater security around the clock to store the much sought after gold.

Over time people started to buy things with the gold receipts rather than redeem the receipts for gold and buy things with gold. The person selling something could just as easily redeem the receipt for actual gold as the person making the purchase. This was essentially the birth of paper money.

Now here comes the “innovative” part. The goldsmiths began to realise that not everyone redeemed their gold receipts immediately. So, if they had some major expense such as buying a piece of land and didn’t have enough of their own funds to make the purchase, rather than borrow some gold from someone else and pay interest on their loan, they would write themselves a gold receipt. As long as they honoured that receipt by replenishing their gold reserves with real gold that they earned over time, the system would remain stable and intact.

The only danger was that everyone who had deposited gold would come to redeem their receipts all at once. But because people were now used to using receipts for trading as against using gold, this tended not to happen. So the goldsmiths were able to maintain a fraction of their gold reserves and nobody was any the wiser.

Over time, even more “innovation” took place. The goldsmiths started to decrease the the amount of real gold that they held in reserve and increase the amount of receipts. Furthermore, they started to lend receipts to other people who were short of funds to make their own purchases. This was the birth of fractional reserve banking.

Of course, the goldsmiths or bankers would charge a small fee or interest on the loan of the receipts, to the borrowers, to avail of this service. Lending receipts to other people was far more risky than issuing “fake” receipts to themselves. It was one thing to trust their own ability to pay back their own loans but quite another thing to trust someone else. So of course, they demanded some collateral for the loans from the borrowers, in the form of deeds to their land or homes. If the borrower was unable to pay back the loan for some reason, the banker could always repossess the land or home that was provided as collateral. The banker could then sell the land or house, most likely at a profit and the loan would effectively be paid back.

The real problem though was the matter of charging interest on the receipts. An example should help to illustrate. Let’s say that there are two bankers in a city who provide loans of gold receipts or money. They both agree to honour the receipts with gold when someone wants to redeem a receipt. The bankers figure out that they only need to keep a fraction of the actual amount of gold that they hold in reserve as not everyone will try to redeem their receipts at once. They work out that the ratio of gold to receipts is one to ten.

So, if Mr. Smith the goldsmith has 50 pounds of gold in reserve, he will issue 50 pounds in receipts initially to the depositor(s) of gold. But because the depositor(s) will not redeem the receipts immediately all at once, he lends out another 450 pounds in receipts to various borrowers. This brings the total amount of receipts that Mr. Smith has issued to 500 pounds of receipts.

Similarly, Ms. Banks has 50 pounds of gold on deposit for which she issues receipt(s), and lends out another 450 pounds of receipts bringing the total amount of receipts that she has issued to 500 pounds of receipts.

So the total amount of receipts issued now from both banks is 1000 pounds of receipts. Lets say that the loans issued had to be paid back within one year. As long as the borrowers all pay back their loans within that year and the original depositors don’t look for their gold back within that year, everything should be fine. There is 1000 pounds of receipts in circulation and the various borrowers should be able to earn enough receipts to pay back their loans.

However the problem is that both Mr. Smith and Ms. Banks have charged 10% interest on the loans that they issued. There are 900 pounds worth of loans, requiring that 990 pounds be paid back (900 pounds of principal plus 90 pounds of interest). Lets not forget, that there were also 100 pounds of deposits (between the two banks). So, by the end of the year, if the loans are to be paid back in full with interest and the depositors also redeem their gold deposits, 1090 pounds have to be returned to the banks. But there is only 1000 pounds in circulation so unless somebody mines another 90 pounds of gold some borrowers will have to default on their loans and thereby loose their collateral and have their homes or land re-possesed.

The modern banking system is far more complicated by the fact that money is no longer backed by gold and fractional reserve requirements are often lower than one to ten, of money on deposit to money loaned out. The musical chairs analogy is very appropriate. When the music stops playing or lending stops for some reason, somebody is going to end up without a chair to sit on. Somebody is going to loose their collateral in the form of their house or land. This is nothing to do with their trust worthiness, credit history or ability to earn money. It has nothing to do with a mortgage being 100% or more of the value of their house. There simply is not enough money in circulation to pay back all loans and the interest charged on them.

Not a very fair or sustainable proposition, I think you must agree.

Jan 25 2009

Become Financially Intelligent part 1

“Paul Grignon’s 47-minute animated presentation of “Money as Debt” tells in very simple and effective graphic terms what money is and how it is being created. It is an entertaining way to get the message out. The Cowichan Citizens Coalition and its “Duncan Initiative” received high praise from those who previewed it. I recommend it as a painless but hard-hitting educational tool and encourage the widest distribution and use by all groups concerned with the present unsustainable monetary system in Canada and the United States.”

This film is a gem. It explains clearly and simply how the current financial system has evolved and its shortcomings. The banking system and particularly “fractional reserve” banking necessitates that some people will not be able to pay their debts as there is not enough money in the system to for everyone to pay back the interest they owe on their loans. It’s like a game of musical chairs and everything seems great until the music stops playing. As soon as the music stops, (as soon as lending stops for whatever reason) some people playing the game will not be able to find a chair (pay their debts).

Furthermore, the film highlights that this financial system is just one system and that there are others. Complimentary or local currency systems like LETS (Local Exchange Trading System) are able to provide liquidity or the ability for people to trade with each other when other systems fail.

We are so involved in the current financial system that it’s hard to see any way out of the credit crunch that it has created as a foregone conclusion. Understanding how the financial system works is the first step in learning how the system can be improved, complimented with other more sustainable systems or maybe even abandoned.