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mrbluze writes:
"An interesting blog post by Charles Hugh Smith on Why Banks Are Doomed: Technology and Risk.:
The funny thing about technology is that those threatened by fundamental improvements in technology attempt to harness it to save their industry from extinction. For example, overpriced colleges now charge thousands of dollars for nearly costless massively open online courses (MOOCs) because they retain a monopoly on accreditation (diplomas). Once students are accredited directly--an advancement enabled by technology--colleges' monopoly disappears and so does their raison d'etre.
The same is true of banks. Now that accounting and risk assessment are automated, and borrowers and owners of capital can exchange funds in transparent digital marketplaces, there is no need for banks. But according to banks, only they have the expertise to create riskless debt.
...
One last happy thought: technology cannot be put back in the bottle. The financial/banking sector wants to use technology to increase its middleman skim, but the technology that is already out of the bottle will dismantle the sector as a function of what technology enables: faster, better, cheaper, with greater transparency, fairness and the proper distribution of risk.
There may well be a place for credit unions and community banks in the spectrum of exchanges, but these localized, decentralized enterprises would be unable to amass dangerous concentrations of risk and political influence in a truly transparent and decentralized system of exchanges.
It's still early days, but can new electronic currencies such as Bitcoin become mainstream without the assent of governments?"
(Score: 3, Interesting) by gallondr00nk on Monday February 24 2014, @12:07PM
The model the author works on hinges on the fact that the banking sector creates, rather than eliminates risk. Yet, if the sector is bailed out at every opportunity, how is there any risk? In individual part of it may collapse, but the sector itself remains intact.
Yet the sector is so collosal that failure to bail it out would have wiped out a large percentage of the money supply. Positive Money [positivemoney.org] estimates that in the UK banking generates around 97% of the money supply.
I'd agree with him so far as to say that a money supply that is created as instant debt in unsustainable. Back in ancient Sumeria, the original inventors of permanent debt peonage, they had a jubilee every 70 years as without it the economy would collapse. Proposing such a solution now would seem hopelessly radical. Since we've done nothing to address the conditions leading to the 2008 crash, it's inevitable that we'll witness another reasonably soon.
I don't see a convincing argument in the author's statement that technology will bring that system down. We already have the means for decentralised currency exchange, along with some small sites that allow us to lend and borrow money without the banking system. What precise method would one have for avoiding deflation? Who would control issuing new currency? If it was through a Federal Reserve type structure, who would receive it? What great new technology would lead to a surge in p2p currency exchange?
I'll share my own leftfield solution. If the problem is that most wealth is created as debt through banking, I would combat that by instead dividing all newly issued currency throughout the population at large at no interest. The fiat currency would stay, but fractional lending would be abolished.
Inflation could be controlled by the amount in circulation, roughly the same as it is now. It would give people a guaranteed income in an age where automation is reducing our need for labour. It would stimulate consumer spending in an economy that relies on it. It would eliminate survival anxiety for a great many people who are currently in poverty, and the suffering caused by spending an entire life on a debt roundabout. People could group together to borrow, lend or invest money.
Something needs to change, as our current system is little more than a snake eating its own tail.
(Score: 1) by G-forze on Monday February 24 2014, @12:41PM
This is a problem that I seldom see discussed even though the newspapers nowadays seem to be filled with articles stating "Technology will eliminate our jobs!". The problem is not that automation is making goods cheaper to produce, but that the savings are not being distributed among those that formerly benefited from the revenue (i.e. the workers), but stays at the top which gets ever richer while the workers are laid off. I see no way in which the market forces will correct this shift in power, and am afraid that some kind of central planning will have to come into play. Perhaps as you suggested, through a central authority taking over the creation of money, or through heavy taxing of those making their fortunes using automation.
Anyway, we will soon have to realize that the days when every respectable citizen had a 9-5 job are gone, simply because there will not be enough such jobs for everyone, and that some kind of citizens' salary will have to be instituted to compensate. This will have the added benefit of letting people do what they like and are motivated to do, instead of what job they happened to find, which will lead to much inventiveness and creativity. I also expect things like hand crafted goods will become much cheaper, as people see their hobbies as extra income and not something you have to live of.
(Score: 0) by Anonymous Coward on Monday February 24 2014, @01:41PM
70 years between jubilees? I had heard 7, making it relevant to debts that aren't multi-generational. Maybe that was a different culture though.
I like the idea of distributing new cash to the populace rather than the banks, it helps to offset the disproportional impact of inflation on the lower classes, gets the money into circulation faster, and maximizes the economic benefit by stimulating the "economic headwaters" (since as a rule money flows uphill).