<Herman Daly on the Credit Crisis, Financial Assets, and Real Wealth The Oil Drum DrumBeat: October 14, 2008>

163 comments on Revisiting an April 2007 Forecast Regarding The Connection Between Peak Oil and the Collapse of the Monetary System

Comments can no longer be added to this story.

| Show without comments | PDF version

noutram on October 13, 2008 - 2:59pm Permalink | Subthread | Parent | Comments top

Sorry to sound dumb but I lost you after the 3rd equation, any chance of some conclusions to your work. What's a loaf of bread going to cost me in 20 years...?

Nick.

Comments can no longer be added to this story.
Beach Boy on October 13, 2008 - 8:53pm Permalink | Subthread | Parent | Comments top

Nick, these are the conclusions from the equations:

1. The existence of a widely available, RISK-FREE interest bearing investment requires a "soft" monetary system, meaning one where the monetary stock grows at a rate at least equal to the nominal risk-free interest rate.

2. For that investment to also yield a REAL positive interest rate, real economic output must grow at that rate or higher. After Hubbert's Peak, real GDP growth rates will be negative for a (hopefully not very long) time until eventually becoming zero (Daly's steady-state economy), and so will REAL "risk-free" interest rates.

Comments can no longer be added to this story.
WNC Observer on October 14, 2008 - 11:03am Permalink | Subthread | Parent | Comments top

I'm not sure I quite buy this notion of the inevitability of zero real interest rates in a zero-growth economy. In a zero-growth, steady-state economy, a high priority must be the minimization of waste. In order to minimize misallocation and waste of resouorces, every asset, including money, must have a rental value. Otherwise, that asset is "free"; when a resource is "free", that encourages wasteful use of that resource (as we have discovered over and over to our regret).

Comments can no longer be added to this story.
Beach Boy on October 14, 2008 - 11:48am Permalink | Subthread | Parent | Comments top

If people could think clearly they would realize that the asset was not really free: it takes as much pain to return the exact amount of money that you have borrowed when the total stock of money has remained constant, as to return the principal plus x% interest when the total stock of money has increased by x% during that period.

Besides, the perception of an asset being "free" would discourage lending as much as it would encourage borrowing.

Comments can no longer be added to this story.
Gail the Actuary on October 14, 2008 - 12:52pm Permalink | Subthread | Parent | Comments top

This may be too radical an idea, but I am not sure money can be considered an asset (in the sense we think of an asset today) any more. It is something that facilitates transactions. It doesn't really work as a store of value any more, if the amount of money remains constant, but the amount of goods it can buy goes down over time. Anyone wanting to borrow money will have to pay for both the expected loss in value and a rental charge. It will be very difficult to find any investment opportunities with a high enough rate of return to justify such debt. For this reason, I see debt (except very short term debt) as pretty much dead if we have a declining economy.

Comments can no longer be added to this story.
710 on October 14, 2008 - 2:14pm Permalink | Subthread | Parent | Comments top

There is a kind of entropy, degradation, decay, or depreciation inherent in most, if not all, non-organic assets. And, after a certain point, it is also inherent in all organic assets. Materials wear out, machines break down, living things age, food decays, energy is lost to heat during energy transfer.

In some cases the decay is measured in days or weeks, but in other cases it can be measured in centuries or millennia.

Money is the representation of the value in these assets, and of the energy needed to move them around.

So there is, and has always been, some inherent value-loss in the holding of money.

But if money could be viewed as an investment in an index fund of ALL available goods and services on the planet, the risk of value-loss ascribed to it is distributed across everything it represents.

Comments can no longer be added to this story.
Gail the Actuary on October 15, 2008 - 11:21am Permalink | Subthread | Parent | Comments top

You are right, but somehow all of our financial planners have missed the entropy part. The emphasis has been on all of the growth and reinvestment of profits.

Comments can no longer be added to this story.

163 comments on Revisiting an April 2007 Forecast Regarding The Connection Between Peak Oil and the Collapse of the Monetary System

Comments can no longer be added to this story.

| Show without comments | PDF version