Monday, May 14, 2012

The Economic Solution for the World Economy

Just like in the Great Depression in the 1930's we are now 80 years on and are struggling to find the answers that will lead the World Out of the most severe Economic Downturn since the Great Depression that was thought unimaginable only a few years ago.

While I do not purport to have all the answers, it is time for some exceptionally radical thinking.

We have all subscribed to Keynesian philosophy over the years and there is No-Doubt it has served us well up until now.

But I am sorry Keynes, "It is Different This Time"

Since 2008 Governments have done everything they can, to stem the destruction of the Capitalist system as we know it, but nothing is working anymore we have ZIRP, TARP, EFSF etc, Trillions in money printing and countless government funded fiscal programs and yet prosperity for all seems still a mirage for the many.

Sovereign Nations are now at risk, that will set off a chain of events should Greece fall, very similar to the Failing of the Austrian Bank Creditanstalt during the Great Depression in 1931.

However, we simply can't continue Bailing Out the system, so as painful as it may seem, the economic destruction of allowing a Country to fail such as Greece will quickly start to cleanse the system.

While Keynes advocates more Government spending financed by borrowing and more money printing, surely to all who can see, "This is not working this time Keynes!"

Although I appreciate Professor Krugman claims there was not enough spending and we should be spending even more, but shall Governments keep digging until they find the pot of Gold buried somewhere beneath the earth ?

While I appreciate they are Theories and Ideas at the moment, I advocate the following :

1. An immediate establishment of "World Economic Reconstruction Foundation"

2. The "World Economic Reconstruction Foundation" not be owned by Governments, Corporates or Influential Lobby Groups, but be an "INVESTMENT WAR CHEST" owned by society at large through the largest Online "Social Giving Program," using Crowd Funding and Social Media the world could ever imagine. This will act as the catalyst for "NEW CAPITAL" to be born to Invest directly in New Infrastructure World Programs.

3. It is not more Debt the world needs, but a transfer of Capital in a manor that will reinvigorate the Enterprising Spirit within individuals to build a Good and Fair Society, harnessing the enginuity of individual creativity, combined with people's desire to share their triumphs with others. It is a very lonely experience and existence if you are one of the lucky few with vasts amounts of wealth and might have been lucky enough to have been bailed out in 2008. "The Winner Takes All" attitude, no longer prevails, as citizens now realize the only way to take the real prize of prosperity is for citizens to collectively work and co-operate together and share their knowledge, expertise resources and capital with others. The selfish attitude that still prevails among the elite with vast amounts of resources at their disposal, but are so afraid that this time they might not be so lucky to be bailed out, are hoarding capital, "Just in Case," to preserve their own wealth and importance.

4. The Traditional Theory of "Animal Spirits" I would suggest no longer applies to those who may have created their orginal wealth prior to 2008, as now those with Capital or access to Capital are so afraid of failure or loosing their fortune, they do everything possible to preserve their wealth, even if this means well below par expected economic returns by investing in the safety of Government Bonds as there is an expectation that the Government will never default, but will print money instead.

5. I would suggest it is those now with nothing, who have the greatest "Animal Spirit" to take that risk if given the opportunity with even a small slice of Capital and resources, who will be the future leaders of tomorrow and lead the World out of such a terrible Economic Depression. It is a misnomer to conclude that our so called "Star Financier's" have the Animal Spirit, when there is the State backstop or they realize next time the State might not bail them out, increasing the opportunity of only "Very High Probability  Investing such as Government Bonds at practically Nil %"

6. In the past several years, Traditional wisdom has so far focussed on encouraging those who have already substantial wealth to Invest and create New Jobs. This theory in practice is clearly not working, as those with wealth are simply so afraid to take a risk and invest for fear of a potential loss, that they have lost the so called "Animal Spirit." Or alternatively those with wealth have succumbed to the expectation of Government hand-outs to re-ignite the economy as Keynes advocates, that they are waiting in expectation of the next Government hand-out before investing further. Just this weekend in the UK papers there was a war of words between Government and Big Business, each blaming each other and asking each other to get on and do something.

7. Central Banks have flooded the system with money and yet this money has not trickled down to the real economy and the Velocity of Money is at a near stand-still in the real economy. I have a theory that as Big Government and Big Business has evolved and the dominance of the Financial Setor has over-powered everything, there is no Velocity of money to keep the economic engine purring in the real economy. The only Velocity of money occurring is the many micro second transactions occurring daily in the Financial Sector. (Just look at MF Global the week before it went bust $105 Billion Cash went through its Accounts, this is an astonishing velocity of money, that does not hit the real economy),

7. What can we all Do, You Say ?

This time I believe it is up to society to stand up and do something, Governments have done all they can, Big Business could do more, but this time it is up to all citizens to Rise up to the Challenge.

As proposed establishing "World Economic Reconstruction Foundation" would be the start

Harnessing the Internet and modern Technology for "Social Giving" into a War Chest for Investment in the World on such a Grand scale it will make Roosevelts "New Deal" look relatively insigniifcant.

If you would like to be part of this World Project and for Colletive Minds, then I welcome you all to play a role in shaping the future and we can all look back and say this was the real turning point when we all shared ideas, knowledge, capital resources to re-build the world economy.

The Future is in all of your Hands, and we are going to need all sorts of people from IT, Finance, accounts to marketing, to project planning, HR etc etc to turn an idea and the theory into reality, I look forward to hearing from you all.

Post a comment or email

Toby Chambers
Economist and Social Entrepreneur

I challenge you all to Now Rise Up to the Challenge and unlock the Enterprising Spirit within


  1. Very interesting article. However, why do you insist on randomly capitalizing words? Usually, one should only capitalize words at the beginning of a sentence or proper names.

    1. Sorry very bad habit texting etc has changed my presentation style

  2. What are your thoughts on the position Ireland finds itself in.
    Will it be next in the markets line of fire, or will they move on to another country when theyvare done with Freece?

    1. It is totally clear The Euro project as it works has totally failed.

      However some form of common trading currency such as the Euro for business trading transaction, but with the ability of each country to have their own currency for competitive advantage.

      ie a dual currency will achieve the desired result.

      It is not going to be pretty dismantling the Euro project, but the quicker countries such as Greece Ireland Spain etc have the ability currency devaluation and then become competitive, they will become the next Asian Tigers. See post of End Commodity Super Cycle moeny from commodities will be flowing out of this sector trying to find a home somewhere else. This somewhere else could be Reconstructing the Euro economies

      I hope that this is some words of Wisdom

  3. Bank for reconstruction already exists.

    What will be your base currency?

    1. Bank Reconstruction does not provide funding for Greece et al

      The whole dynamics using "Crowd Funding" allows for the allocation of resources from those with Capital savings to those seeking Capital.

      The current Banking structure provides Banks the ability to allocate Capital.

      I suggest it is not currently a "Free Market" as the allocation of Capital decision making is only made by a few select individuals. This is born out by the fact that Commodity Speculation has prevailed from FED ECB printed money rather than this money circulating around the real economy.

      I am not suggested a new currency more the ability of individuals to Freely allocate Capital across markets.

      For example a saver with £1000 could allocate this money across the proposed "Crowd Funding" platfrom to a number of organizations of their choosing

      The real problem in the Economy is the inability of the Start-up sector to access capital. There are literally thousands and thousands of people out there with great ideas but the current market distortions are resulting in the inability of those with the "Animal Spirit" to kick start the economy.

      I trust that this might answer your question

    2. Sounds to me you are describing a credit union, of which there are many.

      I have always wanted to see an investment bank/club, which does not charge interest, i.e. does not give savers a return on their money. Instead money should be invested in start ups, new products on a 50/50 basis with the owner of the idea. Return on capital coming from profits made. If the idea does not work, you loose your money.

      This investment club should also be a marketting organisation, thus reducing the cost of bringing items onto the market.

      None of this will help with the current melt down

    3. Hans

      People would not be investing and nor would they be saving.

      It would be totally different to a Credit Union

      There would be Nil return, simply a method of getting Money cheaply and easily from people who have even say £10 spare to someone interested in start-up. There are various possibilities of people receiving a purchase discount for example when they Gift money to start up business. There are several different models developing at the moment

      There is currently No Velocity of Money in the real economy. The quicker the velocity of money increases by the money circulating around it will create its own dynamic. The FED et al only focus on Quantity theory of Money and clearly with the broken system we now have, this is clearly a failed economic policy.

      Governments around the world simply can not borrow anymore, so Keynesian theory No longer applies.

      This time around we simply can't Spend Our Way Out.

    4. So you envisage simply a charity, and like the ferries which used to offer discounts for share holders. You should thus take out the word owned from your description.

      Why would someone give £10 to the 'Bank' rather than to Oxfam.

      I agree we need some re-inventing of the wheel, as our current one is rather triangular shaped, and will shortly break.

      By increasing the speed of circulation, you are advocating spending our way out. I think this is the indicator rather than the cause.

      Countries with trade deficits are exporting their spending power, this is then coupled with a weak currency, thus feeding even less spending power, more unemployed (UK jobless fell, but is this a continued shift of high paid work to low paid work?). And so the cycle feeds on itself. Ending in hyperinflation, which is the automatic transfer of capital in the current system, by bringing everbody to the lowest level.

      This psychology of a good pool of unemployed, plus as you say the polarisation of money means we continue our route into depression.
      (The rich save and poor have nothing to spend).

      Not the whole population needs to work to supply the goods and services we need, and it is this which has gone out of balance.

      Governments have tried to address this by spending, and now find this is not sustainable.

      So the remedy lies in changing the system where by money is recycled back to those not in work and having a minimum world wide standard of living. Not in more product as you advocate.

    5. This is the economic Conundrum

      Governments bailed out the system in 2008, typical Keynesian response.

      Now Governments are at risk

      Governments say apart from newly elected Hollande they can't tax big business and wealthy people more as they will leave and will not invest.

      What is the answer ?

      Somehow developing a system where money is better recycled back into the economy by people's willingness to "To Do Good" as it benefits everyone will generate the necessary dynamics.

      Oxfam is a reasonable example although we are talking about the Developed World in trouble not the 3rd World this time.

      Great to share ideas as it really needs new economic thinking as currently policies are clearly not working.

    6. If you issue a new currency in the Euro zone then there are some things that will not work well:

      1. Immediately devaluing it – a new currency needs stability to enable prices to be set.

      2. Trading it internationally to set an exchange ratio with other currencies – the virgin untested currency will be murdered.

      3. Re-denominating Euros in the new currency – this will deprive people and government of their remaining foreign spending power and provoke widespread indiscriminate default on foreign debts.

      However if it is issued as a separately accounted purely internal currency then these can be avoided.

      1. The new currency does not have to be immediately devalued. Its issue alone will enhance competitiveness. Its circulation will reduce the amount of Euros required and therefore the Euro debt that must be maintained and the Euro interest that must be paid. This reduced Euro overhead combined with the stimulus of the internal currency will boost competitiveness.

      2. As an internal currency that complements use of the Euro, there is no need for it to be traded internationally because no exchange rate is required. The use of Euros is retained for all international trading. The international value of the currency should be declared as zero and no foreign accounting of should be recognised. It is the nations own sovereign internal currency to allow its citizens to trade with each other without having to using expensive Euros for everything.

      3. Re-denominating Euros in the new currency is a logical consequence of giving legal tender status to the new currency. An internal currency does not require the status of legal tender. It will be accepted by its citizens because it is paid in salaries, the government receives it for payment of tax and it is there when the Euro isn't. Legal tender status is an assurance that its value does not depend on good will. An assurance mostly sought by those whose own goodwill might be questioned. This is not needed in an internal currency, a nation can and must trust its own goodwill. It is better that the currency does not provide this assurance to predatory speculators.

      A dual currency does require everyone to manage their use of Euros for access to foreign wealth and paying existing Euro obligations and the the use of internal currency for access to the wealth of the nation. They will do this.

      Euros can be maintained in the economy by earning them through exports and by more modest borrowing levels that will create no fear in lenders because they will be much easier to service.

    7. Why do they keep giving the the Spanish Banks more and more money ?

      In 2008 while it stablized things around the world once these Bankers are in trouble it is a Black hole.

      People in Spain should be demanding No more money for the Banks as everyone suffers.

      This is not Capitalism. Banks should go Bust painful as it might be this simply can't continue throwing more money in the hope that the banks can be turned around