By holding all deposits denominated in a house-token currency, that it has the power to issue in unlimited quantities, Socibuild will create a banking system where participants are completely immune from losing their deposits.
Furthermore, the unrestricted ability of Socibuild to issue as many house token loans as it wishes (due to its unlimited ability to issue house-tokens), in a manner that is independent of the deposits it holds, will ensure that the credit available to businesses, which operate within Socibuild’s house-token economy, will never dry up and correspondingly, that economic recessions will never happen again.
Although drops, perhaps even crashes, in the price of financial assets, that get overpriced from time to time, will continue, these need never again shrink the real economy.
Furthermore, the resident’s dividend, paid out in house tokens, can always be nudged up if consumption ever flags to the point where large numbers of businesses are in danger of going bankrupt. This is yet another instrument available to Socibuild to ensure that economic recessions never happen again.
Socibuild house tokens will be valued as currency units for as long as people value housing, which is to say: for the foreseeable future. This will stabilize the value of Socibuild house tokens and will make them a suitable currency to do business in and hold as savings.
To understand the earth-shattering consequences of these statements; to understand how Socibuild house-tokens are a panacea to all the problems that currently plague our financial system; it is necessary to first understand the problems at the heart of our current financial system along with the serious risk they pose to civilization itself.
The Mess Global Finance Is In
Financial instabilities and economic recessions are the bane of market economies. We all know what they mean: Job losses, tight credit, loss of business, bankruptcies, loss of income, evictions, homelessness, banks closing their doors, lost savings, asset devaluation, hyperinflation, runs on the bank, riots in the street, anxiety, and uncertainty as to how to procure the very means to live. Recessions are the root cause of so much pain and misery. For those just starting their career, it can be almost impossible to find a job during a recession.
Many people feel there is something fundamentally wrong with our banking system, that’s why, according to a recent survey, bankers are the 5th least trusted profession in Britain, yet despite this, beyond a vague sense of mistrust, the majority find it hard to put their finger on exactly what is wrong with the current state of our finance system, or the best way to fix it and ensure that recessions stop occurring – once and for all.
The root cause of all recessions is that the institutions which hold deposits are not the same institutions that issue currency.
Or, at least, not in an unregulated manner. It is true that banks create money from debt, but they can also become insolvent due to mandatory reserve ratios. This limits how much money they can loan out to businesses and creates the possibility they might default on deposits. While the purpose of banking regulations may be to limit reckless lending, those same regulations and mandatory reserve ratios can also reduce the supply of credit exactly when the economy needs it most.
The fundamental problem is that, because you have multiple separate banking institutions all trading the same government currency, there needs to be regulations to prevent some banks from out-loaning other banks in a kind of lending arms race.
If every bank issued its own currency (which other banks were forbidden from issuing), it could take responsibility for the results of its own lending policies and, as such, would not need to be restricted by regulations which are often counterproductive to promoting economic well-being through discouraging counter-cyclical lending.
Regulations that restrict lending and enable banks to become insolvent in turn give rise to financial contagion, where a reduction in lending, on the part of some banks, reduces the money in the economy, which reduces the ability of businesses to run profitably resulting in layoffs, which in turn result in debt defaults, which in turn downgrade the debt of all banks and reduce the balance sheets of all banks as well as the amount of money they are capable of lending.
Fiscal contagion, the effect where one large bank going down or reducing its supply of credit can, in turn, affect all banks, is the root source of instability in the global finance system.
Another major problem with today’s banking system is that the business model of banks, which relies on making money through receiving more in interest than they lose through loan defaults, is totally unsuited to incentivising them to engage in counter-cyclical lending activities which are necessary to stabilize the system. I.e. through increasing aggregate lending at times when credit is scarce.
The problem here is that when money is scarce, the default rate on loans goes up. While it is possible to compensate for higher loan default rates with higher interest rates up to a point, the problem is that raising interest rates raises the loan default rate even higher! This is because higher interest rates require a more aggressive schedule of larger loan repayments, and the larger the loan repayment required, the less likely it is that people will be able to meet their repayment schedule – for this reason, increasing the interest rate is not a panacea to addressing high default rates due to a scarcity of money in the economy.
For all these reasons, it is not profitable for today’s banks to loan out large amounts of money at low interest rates during periods when credit is scarce and the rate of debt defaults are high.
Socibuild’s business model is entirely different. The goal of Socibuild is to maximize the value of its real estate holdings as denominated in the currency of the host countries where it owns the real estate.
The purpose of the Socibuild banking system is not to make a profit in house tokens. Why would it need to make a profit in house-tokens when it can issue an unlimited amount of them? No, the purpose of the Socibuild banking system – to which all policies that relate to the issuance of house tokens must be geared – is to maximize the desirability of Socibuild’s real estate as a place to live and do business. Thereby, maximizing the value of the assets, which the company owns, and the rental revenues it collects from those who inhabit its real estate.
It should now be clear that Socibuild’s business model is optimally suited to counter-cyclical house token lending that will act to stabilize its economy and prevent recessions from ever occurring. A region devoid of economic recessions is a more desirable place to live. Therefore, it is in the interest of Socibuild to enact a house token lending policy that ensures that its economy will never undergo a recession. This includes lending house tokens out during periods where the default rate on house token loans exceeds the interest it collects.
Our current financial system is a messy tangle of overly complex regulations, which no one understands, none of which address the relatively simple foundational cause of instability in our banking system. So long as the underlying structure of our financial system and the business model of the banks which hold our deposits does not favour counter-cyclical lending (and it currently does not) all attempts to regulate banks are futile as they build upon fundamentally unsound foundations.
In Mathew, Jesus lays out the importance of basing all planned efforts on firm foundations:
“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. 25 The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. 26 But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. 27 The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.”
Mathew 7 : 24 – 27
Socibuild’s housing-token system will be built upon a rock. Our current global finance system is built upon sand, and no amount of complex regulating and tinkering can change that fundamental truth. As globalization progresses, as the banking, insurance and finance systems of many different countries each regulated in a different way link together in ever more complex ways, our house upon the sand has steadily got bigger and wobblier, but its underlying foundational logic has not changed and when the rains of political instability come down and the winds of fiscal contagion blow, the size and complexity of our global financial system will only serve to make its crashing collapse all the more catastrophic.
Catastrophic Financial Collapse Could Happen
In principle, central banks do have the ability to protect people’s deposits through the mechanism of quantitative easing. In practice, this is not routine (QE is referred to as an unconventional monetary tool) and whether they choose to do so or let the banks fail is a political decision. There are certainly loud voices in some corners who believe that letting banks fail (despite the catastrophic consequences that would ensue) is “healthy.” If many of these misguided people were put in charge of a number of central banks, they could destroy the already unstable global finance system.
Beyond that, while quantitative easing can protect deposits, it is pretty ineffective at increasing bank lending to individuals and businesses which continued to flounder well into 2009. Furthermore, global finance is still a murky place, there are 192 countries, each with their own banking regulations, all doing business, lending money to each other and insuring each other’s assets. How can such an interconnected arrangement of many different regulatory systems possibly be regulated? The general consensus among the experts is that global finance is as unstable as ever.
Most disturbing, however, is the wild card of automation. Automation has the potential to vastly amplify the effects of a financial crash by many orders of magnitude. If, during the next credit squeeze, employers start automating to cut costs, then that will cause more unemployment, leading to more debt defaults (due to unemployed people being unable to pay their mortgage), leading to tighter credit, leading to more automation, leading to more unemployment, leading to lower tax revenues. Mass unemployment from job automation will be difficult for political systems to handle at the best of times, but if automation occurs as a knee-jerk response by industry to a tightening credit environment, it will simultaneously vastly exacerbate the severity of a recession and governments will have to rapidly respond to automation during the very time their tax revenues are declining most sharply.
Recession: one simple word that represents so much. What is a recession? At its most essential level, a recession is a deterioration in the bonds of society. Recession is a deterioration of trust. Recession is a deterioration of faith. Recession is a loss of those reciprocally connected social roles (jobs) that combine to form the fabric of society in which participating citizens contribute to and get back from – at least on a monetary level. During recessions, men and women get laid off and get disconnected from their work; those who aren’t laid off, become anxious they will be and struggle to put in the extra hours; while families experience financial stress and hardship, a factor known to be related to higher levels of domestic violence.
During recessions, people are left wondering: “We have the same land and natural resources today as yesterday, the same number of able-bodied people with the same skills today as yesterday, so why are we suddenly so much poorer?” In small societies, where people know each other and cooperate through reciprocal bonds of trust and familiarity, financial recessions would not occur. Although, bad blood in a small community, as a result of some betrayal, or perhaps infidelity, could significantly reduce cooperation along with the community’s wealth and productivity – but at least small independent communities can continue to function without money. Large societies with populations in the millions, however, require monetary systems to facilitate cooperation and trust. In order to do their bit in a large economy, highly-specialized workers must have faith they will get paid money for their efforts, and furthermore, have faith that the money they get paid will be worth something. When our faith in the financial system deteriorates, levels of cooperation, along with everyone’s quality of life, deteriorate as well.
If the financial system breaks down, the entire extended network of cooperation will also break down. This is the most extreme end state of a recession, so far it has not yet happened. Not even in the 1930s, but it is worth keeping in mind that we have only been off the gold standard for about 50 years. Furthermore, in addition to using an increasingly complex financial system to coordinate payment, we also use a far more complex communication system – the internet – to send orders to suppliers, and the suppliers themselves are now highly sophisticated organizations that are heavily reliant on databases and complex logistical networks to deliver goods and services to customers. Small corner shops still exist, but appearances can be deceiving since most corner shops order much of their stock from large wholesalers and over the internet.
And our financial system is only becoming more fragile with time. Analysis shows that the 2008 crisis started off far worse than the 1929 Wall Street crash. In the 1930s only a third of U.S. banks failed – and that was after the Fed responded very badly. In 2008, 12 of the 13 largest financial institutions in the U.S. were on the verge of going under. Had the fed not acted promptly as it did, the results would have been unthinkable – total collapse. Furthermore, imagine if a future mega-collapse of the global banking system, in turn, caused a string of bankruptcies in large companies like Amazon, Wallmart, Tesco; or even worse, imagine if specialized manufacturers of critical components for the electrical grid, like transformers and capacitors, or the internet, went bust. Imagine if the data centers of the world went down as a result of either: going bankrupt themselves; a degraded electricity grid; or the bankruptcy of industries that supply the critical components they need to operate; imagine if the end result of the financial crash was the collapse of the internet (or a drastic slowdown of the internet). What would that do to air traffic? What would that do to the coordination of international shipping and logistics? The truth is, the internet as an advanced system, has only been with us for 20 years or so. It hasn’t stood the test of time, so we don’t know how robust it would be in the face of a major failure in hardware manufacturers, that could result from a truly massive financial crash.
It’s time to talk seriously about solutions to fiscal instability…and then implement them.
How Socibuild House-Tokens Would Work in Practice
Money = monopoly + accounting + agreed value
To achieve a monopoly, whichever entity issues the currency must be the only entity that is allowed to issue the currency. Yet existing copyright and trademark legislation already enable people to be the sole issuer of anything to which they are the sole owner of the copyright to, or to manufacture anything with a trademark embossed on it that they own.
Consider a company that registers a trademark in reference to the sale of tokens, coupons, etc., the company prints out tokens that contain its trademark and these tokens have different numbers on them. Such tokens could be considered to be products, and if those products have the trademark of the company on them, then other people would not be able to legally manufacture similar products with the same trademark. Thus, legislation that forbids businesses from infringing on the trademarks of rival businesses could serve equally well as anti-forgery laws.
After this, all that is needed is to combine a monopoly of numbered tokens, perhaps coins or notes containing the company’s trademark, with an accounting system.
All banking really is, is a list of names with a number next to each name, managed by someone who gives the owner of an account the sole control over how many numbers he or she wished to deduct from the account and add to the account of someone else (with the exception of legal contracts willingly entered into that entail an obligation of payment). That’s it! That’s all banking is! Beyond that most of the technology of banking focusses on the problem of combining security with convenience. Of simultaneously ensuring that someone can tell the bank to credit the account of someone else at the drop of a hat and that this payment gets made promptly and at the same time ensure the bank doesn’t respond to an impostor that orders money to be transferred out of an account they pretend to own into an account they really do own.
However, turnkey banking systems already exist.
A company can then combine this accounting system, with paper or coins by promising to issue people who hold accounts with them with tokens in such a manner so that the combined value of the numbers on the tokens that the “token-teller” gives them exactly equals the number which the token-teller deducts from their digital account, beyond that the company must also guarantee the reverse transaction: that whenever someone hands a bunch of tokens, containing the company’s trademark, to a token teller, the token teller will faithfully add the number equal to the combined numbers displayed on all the tokens onto the token account of the person in question.
And that’s all there is to it! We now have a banking system, along with coins and notes!
The final piece of the puzzle is to persuade people that having numbers added onto their account is a desirable thing : something so desirable that they are willing to expend effort in the service of someone else, or surrender valuable goods which they possess, just to get those numbers added onto their account.
The most straightforward way to persuade people that having numbers added to their account is desirable enough to exchange goods and services for the sake of is for the issuer of the currency to own something that other people already want so much they are willing to exchange goods and services to possess or make use of and then to willingly exchange the currency they issue for the use or ownership of their asset.
By far and away, housing and land are the best assets to make a currency redeemable for due to the following reasons:
Transparency:
The root cause of the mess that our current financial system is in arises from the fact that its original foundations are based on goldsmiths lying about how many gold bars they had stashed away in their vaults. Land and houses are huge: you can’t lie about how many you possess.
Use Value and Low Depreciation:
People are willing to pay significant amounts of money merely for the temporary use of houses, therefore the issuer of a token currency can make it redeemable for the use of housing as opposed to the possession of housing. This allows the issuer to hold an asset that can form the value basis for a currency without depleting their asset holding through transferring ownership of it to those who wish to redeem their currency for it. Furthermore, housing only depreciates slowly when used, conversely, land positively increases in value when it is used heavily.
The Most Fundamental Constituent of Reality:
Products come and go, even different kinds of food go in and out of fashion but space and time are the most fundamental, eternal components in our physical universe. What basis for a currency could be more real than land rent: purchasing the right to occupy a portion of space for a period of time?
Good Fiscal Policy Raises Land Values In A Community:
The issuer of a currency is also the controller of fiscal policy. Areas with good governance, plentiful credit and a welfare system that simultaneously prevents poverty, and the crime that is sometimes associated with it, without curbing industry and initiative are desirable places to live. This means that rents – and corresponding land values – will be high. Thus, if land forms the basis of a currency that an entity issues, that entity will be highly motivated to set and fine tune fiscal policies to promote general social well-being and prosperity on the land it owns in order to maximize the value of that land through building social capital on it (hence the name: Socibuild)
It should now, hopefully be clear that Socibuild house-tokens have the potential to stabilize finance, banish recession, avert catastrophe and promote prosperity across all the lands which Socibuild owns which will hopefully someday be extensive enough to provide a home for every human being alive.
