This is going to be a bit short on math. I haven't taken the time to generate a lot of graphs, and this is my own idea, no economist of note is backing me up on this. But this still makes sense three days after I wrote it, so I'm posting it to see if it makes sense to anybody else.

This will be a long blog post, perhaps more of a mini-pamphlet or book. As I write this, the United States, indeed the world, stands at the brink of the Depression of 2008. Governments around the world are activating mechanisms invented 80 years ago in an effort to halt the slide. Banks are failing, depositor’s insurance is being activated, huge buyouts are happening every single day.

I read the news on Techoncrat and Economic Populist and I realize that due to stupid intellectual property ideals, nobody knows if the banks are leveraged 1:1, 50:1, or 500:1- but most people watching think that first number is large indeed. And it came to me, that perhaps, that isn’t the problem- but rather a symptom of the real problem.

Why are banks leveraged so high? It’s because, in our refusal to let deflation happen, goods are valued even higher. The global money supply is inadequate to measure the true worth of our homes, of our businesses, of the buildings we have built, of the goods that are stored within them, of the services we provide with work, and the myriad of other things we use money and price to keep track of. In other words, the problem isn’t just that we don’t have enough money.

It’s that current economic theories, current mechanisms of creating money, just are not up to the task of governing our current industriousness as a species. And this is not the first time this has happened in world history- The Great British Empire’s collapse was the real underlying cause of the last world depression, and that collapse was for exactly the same reason- inadequate channels of information to govern such a large economy.

Part I: History

Lord Keynes told us that in his day, a Londoner could, with a ring of his telephone, order any good in the world delivered to his doorstep. An American in 1999 could do the same. With a call to his banker, both the American and the Londoner could invest in any business, anywhere in the world. The American in 1999 even had one more trick up his sleeve: the internet. With a computer program he could automate his investments; even to the point of automating illegal investments, such as naked short selling.

The few human beings whose job it was to watch such transactions were all paid on commission; that is, on the number of transactions they were able to govern, and thus their real reward wasn’t for actually governing the transactions, but rather pumping through as many as possible. This spread quickly to loans and other markets- and the first mistake was in the process of being made: financial decisions were being made with inadequate information.

Another change in 2001 was the sudden realization of some that labor was in surplus. Given modern technology and “Around the world in 80 days” turning into “Around the world in 80 hours”, real labor shortages that previously required ever rising wages became obsolete. Need to lower your wages? Just move the factory and let the worldwide shipping network handle the rest. This led to a global increase in productivity never before seen by mankind- a world where, if we actually wanted to stop progress and become sustainable and stand still, we not only could, we could do so with no human being working more than two or three hours every day.

Of course, nobody actually wanted to work so little- not while we were still governed by 19th century ideas of those who do not work, do not eat; and so we ended up with a logarithmically increasing economy AND massive worldwide unemployment at the same time. Transportation technology led us to the third big change; as Thomas Friedman put it, the world became flat.

Opportunity was no longer linked to location; a person in one country, given the same skill set, was just as good as a person in another country, there was no quantitative difference between them. Given an adequate energy supply (one of the two things we don’t have) and an adequate way to value goods (another thing we don’t have), anybody, anywhere in the world, can work for whatever they want or need, and the world can supply it. In fact, in many cases, the world has *already* supplied it, the good is sitting in a warehouse someplace just waiting for a shipping order and a buyer. This goes for both consumable goods, which are quickly regenerated and renewed when they go to waste, as well as durable goods, which could theoretically sit in that warehouse for 1000 years before finding a buyer and be worth the same.

Lord Keynes world failed. We know this from history. But I think we learned the wrong lesson from that failure- the lesson we learned, that is being tried right now, is that free markets need regulation. I think we failed to examine properly the idea that perhaps, just perhaps, our traditional forms of money and economics are engineered for local, simple economies- and as such, have inadequate feedback loops to survive a truly global, transfinite economy where every good just takes energy and motivation to obtain.

Part II: The Collapse

So given the history, did the subprime mortgage crisis really cause this collapse? I say no, it did not. The subprime mortgage crisis was merely a symptom of the real problem: a lack of channels of knowledge and an inadequate money supply.

The first, caused by those commissions for workers in the financial field, *might* be able to be handled with better regulation and bailouts repairing the damage already done. But the second is far deeper; that given current valuation of goods and services, there simply isn’t enough money in the system, perhaps not enough atoms in the solar system, to purchase it all. Guy Fawkes at Technocrat gave me my first clue- in a talk with a banker from England, he learned that the banks are leveraged at least at a factor of 100:1, and many of them greater. And that the loans are not just primary resident mortgages, but commercial paper from large corporations a well. This means, in effect, that RIGHT NOW, globally, the economy is operating on more money than it has.

The reason why credit has become so important to global industry is because there just isn’t enough money around. That fact, in the last two weeks of September 2008, has become painfully obvious.

Governments worldwide are working right now to create more money to handle the problem, but I think the politicians haven’t quite realized the extent of the problem yet. The real problem is that we’re valuing goods and services too high. There is NO reason at all to do so- fiat money is, after all, an invention of mankind; there is no more reason to charge $400,000 for a two bedroom house than $1 for a two bedroom house. Labor also, we’re valuing weird- there’s no reason at all that the average wage shouldn’t be $100,000/day instead of $5/day, except for the fact that our money supply is only about $1 trillion to begin with, and it would have to be $6 quadrillion to handle an economy that large. Everybody wants to make a profit; therefore, over time, the price of goods and services WILL increase, as long as the money supply holds out, and the energy supply to create those goods and services holds out.

But what we’re seeing right now is that those two things are NOT holding out; they are in fact failing. And thus the collapse- the end of credit capitalism as we know it, is happening.

Part III: Solution #1, the default.

At the end of every empire the world has ever known, the same thing happens. An economic collapse leads to a political collapse, and the constituent parts of the empire go to war with each other and become separate economically self-sustaining political units.

With this comes, for the rest of the world outside of the empire, reduced opportunities for trade and commerce. With that comes a cycle of deflation and unemployment that left unchecked, WILL reduce those self-sustaining economies to a level where more traditional methods such as free market capitalism, communism, feudalism, or traditionalism are able to take over and adequately handle the information stream. This is where the world is currently headed with the collapse of the United States Financial Empire. It may take a good deal of War, Famine, Pestilence, and Death before we reduce the world’s population back down to a level where traditional economic systems can handle the economy. NO amount of bailouts or printing of fiat money can save the system now; the 20th century experiment of globalization is dead, the same way the 19th century one died, the same way EVERY empire of mankind has died. Baring some very creative engineering, in the next 5 years Americans will no longer be able to afford products made in India or China, and the “emerging economies” of Asia will have to transition to local markets to survive, being unable to reach the now relatively poor consumers in Europe and North America. The world will become more fragmented, and fall apart. It will be 20 years before the banks are able to be rebuild, possibly 30 years before stocks regain their value. Those of us who have studied history know the pattern; the internet may change it a little bit, but not enough to count once people start ripping out and smelting their copper and tin wire to create local currencies.

And it’s already beginning to happen. It may already be too late to prevent Solution #1. However, I’m going to put forth Solution #2 anyway, in hopes that the proposal may be adequate to preserve the transfinite global economy, but at the very least will be buried in the electronic records of this time in 80 years when this will all happen again.

Part IV: The Bold Solution #2, expiring continually recreated currency

When we examine the causes of the collapse, we find that there are two primary shortages facing mankind that are preventing adequate information from reaching humanity. The first is a shortage of currency. The second, perhaps more importantly, is a shortage of energy. There is no real shortage of energy- if we were even able to use 1% of the solar energy footprint of our world, and 1% of the nuclear energy footprint of our solar system (I separate out solar because even though the sun is a nuclear reactor in and of itself, we didn’t have to create it; other nuclear sources we need to create machines to take advantage of), we’d have plenty.

We could, theoretically with ocean and vertical farming techniques, easily support a population 10x what we currently have in the world, we have the technology to do so, what we don’t have is the motivation and the energy capture techniques.

So, why not create a currency which actually motivates those techniques, a single worldwide currency that anybody with more than a 17th century understanding of physics can create, AND a currency that is expiring, that is, hard to trap and keep and save?

Yes, I’m suggesting that the world go on to the Amp/Hour standard. Kind of like the Kw/h standard, but we already have the technology to easily carry several thousand Amp/hours with you in your pocket in the form of NiMH batteries. Plentiful in that with the right technology, your battery wallet can be recharged daily, at home, from your own ambient energy sources. Useful because large industries need energy to produce things, to pay their workers, and to run their machines, to form their goods and create their services. All consumable goods, all durable goods, take energy to create- energy to mine the ores, energy to reform those ores into something useful, energy to grow the seeds.

It’s potentially an infinite money supply as well- need more, just buy generators and batteries and wait. Every house, every building, has a solar budget or in some cases (radon seeping into your basement? Capture it and turn it into energy!) nuclear budget that can be used to mint more money.

Government would no longer need to have the duty to create a stable money supply- we’d all be in charge of our OWN money supply.

Pricing would become much easier- every good or service can be reduced down to energy input, and that energy input is pretty much the same for every human being on the planet regardless of wealth. Supply would become regulated by available energy; demand would exactly match available energy.

The one big downside, some would say, is that profit and savings become impossible. Well, this is very much a true statement. But in a transfinite economy, famine quickly becomes impossible- if your area can’t generate the goods, all you need to do is create a form of transportation that lives within its own energy footprint and trade energy to another region in return for the goods you need. Without famine, there’s no reason to save, and without savings, profit is just hoarding.

With an expiring currency such as amp/hours, everybody will want to spend their amp/hours within the time the batteries can retain their charge. And spending is where currency has its real value- in the transfer of goods and services. Gold in your bank vault does no good until you spend it; same with any other currency. You want to encourage people to spend all the currency they have, not save it.

The trick, to avoid the collapse other global economies have gone through, is to keep people from spending more than they create. Here too, the distributed generation of amp/hours can help; for if all one has to do is wait a few minutes or hours to afford anything, they will wait. Likewise, if somebody wants to create and needs more amp/hours to create than they can personally generate, they have the additional motivation to sell what they create so that they can gain the amp/hours necessary TO create.

As always, this will separate society into three main groups: Those who can’t help but create (the Creative Class) will be the “rich”. Those who create in their spare time but really have their talent in doing jobs they are told to do (the worker class) will be able to gain the luxuries of the creative class by accepting extra amp hours for their spare time, in addition to what they generate at home. And finally, the lazy class will be able to do what they do best: Sit on their couch watching their solar-powered TV set using minimum energy, while recharging batteries that they trade for barely enough food to survive.

I’m not saying that this will create an egalitarian society, notice, unlike previous items I have written. I’m not even saying this will end the bust-and-boom business cycle. In fact, prices WILL adjust to recreate the familiar capitalism we’ve all come to know and hate.

This just insures that forever afterward, we will never again have a shortage of money or energy; and thus the only “down business cycle” we could ever have would only apply to some, not all products and services, and at most, speculators will only be able to touch the normal person’s life by creating a shortage in a single good or service.

And considering the alternative- a once-in-80-years downcycle that could lead to a worldwide depression, due to production of goods outstriping production of money- it's a better solution.