Escape to normality

Dec 01 2014 10:49
*Edward Ingram

NEW science points the way to a safe banking sector and financial stability.

Macro-economic design is becoming an established science based upon scientific principles of design for a stable economy.

It is now formally established by my research group which includes bankers, academics, a central banker and speaker.

It has been the subject of most of my essays for Fin24.

There are three major parts to creating financial and economic stability:

The way we lend

Firstly, the way we lend - this is unstable and unsafe. It needs an overhaul - my Ingram Lending and Savings (ILS) models repay borrowed wealth in a controlled fashion. It is still money but the wealth that it represents is repaid at a managed rate.

Repayment levels are not tied into nominal rates of interest. Repaying wealth is the cheapest way to remove risk and the risk premium related to interest rate risk. Repaying wealth gives flexible repayment schedules for commerce and housing finance.

Repaying wealth by a government gives the best risk-free model ever and all of these loans can be utilised as risk safeguarding investments for pension funds, managed funds, people, etc. Preserving wealth means preserving income, not purchasing power. Ideal for pensions - index-link to incomes not prices.

Debts are repaid from incomes - OK?

The way we create money

Secondly, the way we create money is wrong in principle. The interest rate is a price and not an instrument to be used by central banks. A manipulated interest rate does not create or seek to create the right balance. We need a money supply authority (MSA) to manage the stock of lendable money with banks competing 'at interest' to lend those deposits. Interest rates will create the right balance.

This has several advantages. The limited money stock will not put us into an over-borrowed debt cycle that takes years to repay and creates an immovable recession. No bank can be too big to fail, while deposits will be 100% guaranteed by the MSA - they simply replace any losses with the printing press, electronically restoring lost deposits.

When a stimulus is needed (if ever) they will print more money and use that by subsidising a short-term 'buy now while stocks last' discount on all spending. This will stimulate all sectors and supply the money needed for the more active economy at the same time.

AN END TO KEYNES' borrowing and distorted spending. No debt to repay afterwards. No reduced spending for years afterwards while the debt is repaid.

If too much money is created, the ILS system will ride that out protecting everyone from the raised interest rate that this produces as inflation increases its rate. So accurate data and forecasting is not needed before creating the stimulus.

It is fast acting - too small and try again; too large and do not worry. The surplus electronic money stock can be deleted, or we can allow wealth to be protected from inflation. With the ILS models, borrowing costs remain stable relative to incomes.

Some repayment schedules reduce the repayment rates annually so that everyone can keep pace. Start high, end low. The same amount as usual can be lent this way (more in South Africa) - as long as loans are not inflated as they are now in some nations.

Prevent contamination by foreign investors

Thirdly, we have to prevent our money stock from becoming contaminated by foreign investors. They can share our money stock in exchange for letting us have a share of theirs. Both nations will have a stable supply of money stock for lending, just the ownership mix will change.

This will protect our balance of payments - stabilising the currency - protecting our domestic rates of interest and our stock of money to lend.

Vast amounts of foreign exchange will not be needed to defend the currency, and the cost of defending a currency will drop to nearly nothing. No more currency wars.

For more on this science, try the updated main website.

Find out here about the directors and consultants behind this new science. For a glimpse of the book (nearly ready to publish) try this link.

To learn all about it and how we can use these principles to escape from quantitative easing without a fight, try reading about the LOW INFLATION TRAP on the main blog and some earlier pages on that website.

The MSA in each nation will need all of that deposit money which the US Federal Reserve, Bank of England, etc have created and MORE. They will need the ILS model to breathe confidence back into borrowing and wealth.

Then we can escape back to normality.

* Edward Ingram is a past investigative quality control engineer of complex systems, who turned to managing investments and learning all about economics and finance from the experts. Combining these disciplines has enabled him to understand what others see, but have not understood.

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edward ingram  |  money  |  investments



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