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IRTA Conference - Barter 3.0 Intro
- 1. Barter 3.0 21st Century Credit Clearing & Beyond Chris Cook IRTA Convention Ocho Rios 14 September 2012
- 2. “21st Century problems cannot be solved with 20th Century solutions”.
- 3. Market 1.0 – decentralised & disconnected
- 4. Market 1.0 – physical market presence
- 5. Market 2.0 - centralised & connected
- 6. Market 2.0 - presence via intermediaries
- 7. Market 3.0 - decentralised & connected
- 8. Market 3.0 - network presence
- 9. Market 2.0 reached Twin Peaks
- 10. Peak Credit - financial demand on people
- 11. Peak Resources - demand on finite resources
- 12. Peak Credit – intermediary Banks create credit pyramids on their bases of Capital Credit Capital
- 13. Banks outsourced credit risk
- 14. Freeing Capital to support more credit creation
- 15. Totally – securitisation and sale of debt to 'shadow bank' investors
- 16. Temporarily – Credit Derivatives (CDS - a time-limited guarantee)
- 17. Partially – using credit insurance from insurers such as AIG
- 18. Radioactive cocktails of all three, like CDOs, structured finance and so on
- 19. The Result was a bigger Credit Pyramid than Banks alone could sustain… Credit Investor Capital Bank Capital
- 20. …and an opaque 'shadow banking system' of Investors holding sliced and diced risk Credit Investor Capital Bank Capital
- 21. This pyramid of Credit funded the Mother of all Bubbles in US property prices….
- 22. …and servicing this credit finally exceeded the financial capacity of the US population
- 23. Maybe the end of cheap oil spiked the bubble?
- 24. Peak Credit – was the point when the Property Bubble began to deflate
- 25. But by now no-one knew where the Risk was Credit Investor Capital Bank Capital
- 26. Banks started to think, “if this is what our balance sheet looks like…..”
- 27. “…what does everyone else’s look like?”
- 28. The problem is not shortage of money - liquidity
- 29. It is shortage of Capital - solvency
- 30. Solvency of Banks is one aspect Credit Capital
- 31. The other aspect is the solvency of populations
- 32. And a secular decline of purchasing power
- 33. Loans which cannot be paid, will not be paid
- 34. Non-performing loans drain money out of the system...
- 35. ...threatening a deflationary spiral...
- 36. ....which requires periodic transfusions
- 38. Quantitative Easing – increases quantity of money and prevents deflation
- 39. This dilutes the value of money, and causes inflation of financial asset prices
- 40. Money will only inflate retail prices if lent or spent into circulation
- 41. But at the Zero Bound of 0% dollar interest rates strange things happen
- 42. Investors buy anything but dollars whether it carries a return or not
- 43. Investors buy Structured Products from Banks and Units in Exchange Traded Funds
- 44. The motive is Fear: investors aim to avoid loss, not to make speculative transaction profit
- 45. Financial demand – not consumption – has caused correlated commodity bubbles
- 46. Markets have suffered a cardiac arrest
- 47. So Investors have actually created the very inflation they seek to avoid
- 48. Financing - short term investment in creation of new assets......
- 49. ....and trade credit necessary for the circulation of goods and services
- 50. Funding – long term investment in productive assets
- 51. “21st Century problems cannot be solved with 20th Century solutions”.
- 52. In fact, the answers lie prior to the 18 th Century.........
- 53. …..and in a Flight to Simplicity