Debt and Asset: From a Macroeconomic Perspective

Abstract

The model of a thrifty housewife as the prototype of sustainable domestic bookkeeping is a familiar one. Indeed, the thrifty housewife does everything correctly when she takes care not to spend more than she earns, thus ensuring she does not live above her means. The situation, however, becomes more difficult when many households follow the same rule. In the national economy as a whole, the thrifty housewife can only succeed in her model of living if at least some other households spend more than they earn and become indebted, i.e. live above their means.

Each household can only earn interest on its savings if another economic sector borrows money and becomes indebted but at the same time makes enough profit with the borrowed credit to service the interest and repayment costs. If this is not the case no interest can be generated. The amount of financial assets of one side is always exactly the same as the debt of the other side.

Looking at this from a global perspective, a country can only reach an export surplus if at least one other country has a matching deficit. The attempt of all countries to achieve a surplus simultaneously will fail because the trade balance sheet of the global economy is always zero.

Financial Market Reform: Strengthening Public Interest

Abstract

Financial institutions and governments are keen to stress that regulation should not unnecessarily burden the financial sector. However, the key question must be: how can the public interest be effectively protected and strengthened? — This new WFC-brochure shows the urgent need for financial market reform to catch up and highlights new risks as well as methods and routes towards sustainable financial markets. It demonstrates how trade agreements such as CETA, TTIP and TiSA put enormous brakes on reform and contradict the UN Sustainable Development Goals.

The meaning of the endogeneity of money for ‘conventional QE’ and the different kinds of ‘helicopter money’

The-meaning-of-the-endogeneity-of-money-for-conventional-QE-and-the-dif-hm

Abstract

Financing large scale climate investments and other SDG duties needs new tools. One tool could be a new kind of monetary finance by the central banks. The future finance department of the WFC developed a theoretical background paper which demonstrated how the new tool works and why it precisely fits with recent findings of economic science.

Financing the 1.5°C limit

Abstract

Reaching the 1.5°C limit will have to involve upscaling and accelerating the move towards 100 percent renewable energy (RE). Therefore, investments from 1.5 to $2 trillion per year are necessary. To trigger sums of RE-investments (including private capital) on such a large scale, a large involvement of public grants (at least 300bn per year) will be necessary.

The only promising way to receive yearly public grants on that scale is the involvement of central banks (CBs) as the producer of all legal tender. CBs should purchase standardized ‘Green Climate Bonds’ to channel the so created new money to the Green Climate Fund, Multilateral Development Banks or other dedicated financial institution which are involved in climate finance. No additional debt burden of public budget is needed and CBs gain a new monetary tool to stimulate the economy in a direct way.

The proposed study demonstrates how the new money flows would be financing the global RE-transition.

The monetary system in crisis

The-monetary-system-in-Crisis

Abstract

This paper provides a summary of the current challenges our monetary system is facing and offers an overview of the different ideas for reform, discussing their practical feasibility. It will also demonstrate how a simpler monetary policy tool could facilitate the implementation of many of the ideas that reformers advocate, without a complex restructuring of the banking system. The implementation of this monetary policy tool will enable central banks to regain their ability to act effectively.

Costs of Austerity – Squandering our Productive Resources

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Abstract

Austerity policies are not only practiced since the 2008 global financial crisis, but have been implemented for over 30 years. Many countries are living below their potential because they do not use their existing production capacities, creating idle real capital and large-scale unemployment. Methodologically, neoclassical economic theory can neither explain mass unemployment nor unused production capacities. In this study a heterodox approach has been selected to explain the under-utilisation of productive capacities in a real world market model. It indicates that additional demand frequently results in additional production rather than increased prices. Absurdly, while living below our economic potential we are living above the means of our finite raw materials and produce excessive CO2 emissions. The win-win response is to reduce our CO2 emissions and our over-consumption of finite raw materials by utilising our free productive capacities to expand renewable energies and redesign our production, as far as possible, according to the “Cradle to Cradle” principle of closed loops.1 In this study we calculate the global costs of under-using our productive resources, i.e. the economic losses caused by austerity policies, to be at least US $2.3 trillion a year. In the Eurozone the annual costs of austerity are estimated at 580 billion Euros. These amounts show the extent to which we live below our potential by not using available productive resources. A gradual closing of this production gap would neither overtax the existing production potential nor cause dangerous inflation.

The Monetary Cost of the Non-Use of Renewable Energies

The_Monetary_Cost_of_the_Non-Use_of_Renewable_Energies

Abstract

It is often claimed that renewables are still too costly and not yet competitive with conventional energy sources. But what costs are incurred when renewable energies are not used? Every day during which potential renewable energy sources are not utilised but exhaustible fossil fuels burnt instead speeds up the depletion of these non-renewable fuels. Using burnt fossil fuels for nonenergy related purposes (e.g. in the petro-chemical industry) in the future is obviously impossible. Thus, their burning – whenever they could have been replaced by renewables – is costly capital destruction. This study concludes that, estimated conservatively, the future usage loss resulting from our current oil, gas and coal consumption is between 3.2 and 3.4 trillion US Dollars per year.

Breaking the climate finance funding deadlock

Breaking-the-Climate-Finance-Gridlcok

Abstract

The centerpiece of the WFC proposal is the innovative use of a financing tool that utilises the ability of the IMF to create new money in the shape of its own reserve currency: Special Drawing Rights (SDRs). Such new funding will not be inflationary if issued only against performance, i.e. to produce new goods and services with (mostly) unused productive capacities and unemployed labour. The use and control of this new money could be coordinated by the Global Environment Facility, UNEP, UNDP or the new Green Climate Fund of the UNFCCC.

What we need is a preventive testing of Financial Innovations

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Abstract

Not all investment banking is chaff; it is – apart from excessive trading and innovations such as the never-ending expansion of derivatives – a meaningful part of real economy finance as well. At the same time, there is chaff in retail banking, about which many retail clients can tell us. This means that we have to sort out the chaff, in order to come to a workable and effective financial system.

Financing climate protection with newly created SDRs

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Abstract

The centrepiece of the WFC proposal is the establishment of a financing tool that uses the ability of the IMF to create new international reserve money in the shape of Special Drawing Rights (SDRs). The intention is to support financing facilities such as the new Green Climate Fund established at the COP 16 in Cancun. The IMF member states can decide on the issuance of new SDRs. These are usually distributed to them proportionate to their quota shares. Pursuant to the agreement on the formation of the new Green Climate Fund, member states should agree in advance to commit all or most of the new SDRs to this Fund. A small portion (e.g. 10% – 20%) could be claimed by the member states for the financing of specific climate protection projects.