This banking system is dying. I don't talk about it too much anymore because there's nothing that can be done to stop it at this point, but the Bretton Woods monetary system that has been in place since 1944 at the conclusion of World War II is coming to an end. An interest-bearing debt based monetary system, which is what we have, has a finite life span from the moment it's born, and this one has reached its unsustainable peak and is on the way back down, fast.
It's sixth-grade math, you can't deny it, there is no wishing it away. It just is.
So then, the question is what will rise as the next monetary system. Never complain about me giving problems and not answers, here's a doozy. I've been sketching these ideas out for several years now, and I've finally found a few other people who are thinking along the same lines. If the current crisis has the end result of giving an alternative monetary system critical mass then it may be worth it.
Our current monetary system built on a central banking network that was established when we did not have the capability to communicate with each other in real-time, and thus banks were created as a mutually trusted third party. By both parties using bank debt, which is fungible (one US Dollar is as good as another US Dollar, just like one barrel of light sweet crude is as good as another barrel of light sweet crude), we can get away with carrying bits of bank debt called Dollars instead of hauling potatoes and chickens to the market to buy whatever else we need.
This system was born in 1693 with the Bank of England, we
have been running the same system for the subsequent three hundred and
sixteen years. It was the birth of the centralized banking system, which actually has worked very well, until it didn't.
See, this puts the banks squarely in the center of the system and gives them the ability to cheat. The result is that, if you haven't noticed yet, Goldman Sachs pretty much runs our government, looting us daily by proxy. (If you're not ready to admit this then… you have some reading to do. May I suggest the excellent and very readable Rolling Stone article by Matt Taibbi)
So now we have the economic equivalent of the newspaper–something which was created for a time when the Internet didn't exist and has outlived its usefulness.
A distributed monetary system run by the people would be infinitely more stable, liquid, and less prone to corruption and looting. There is no central agency which can be bought or otherwise manipulated.
The way to solve this problem is by creating a viable alternative to the central banking system. No doubt we will still be stuck with the current one for a while, witness how long it's taking newspapers to die, but a better more useful system will eventually conquer these dinosaurs.
If we approach this problem with modern tools and infrastructure some interesting possibilities emerge. My favorite is open peer to peer money (debt) system.
A peer to peer system in which everyone becomes their own profit and loss statement and the social graph is connecting people enables people to create debt chains–which results in the money being ultimately backed by something tangible. By paying for things with debt–just like we do today–the people who trust you end up with your debt, and those who don't trust you don't get your debt.
It's a very democratic and efficient system, almost impossible to manipulate. Washington will no doubt hate it passionately.
But that's not even the best part. The best part is that it allows more of the productive output of the economy to become liquid debt.
A very profitable business model would be to create an exchange that
accepts debt for fungible assets and matches that debt between
parties. That's essentially what exchanges are today–regulated
market places where you can be sure that you're purchasing what you
think you're purchasing. A group of people who all agree to trust
each other (of course, we all know how that's worked out lately…)
By guaranteeing member debt as a trusted third party you're actually providing a very valuable service.
This would be the same thing–you'd register with exchanges that you
trust and you can be assured that the matching bit will be done in a
liquid marketplace with known and verified participants. A corn farmer registers and is able to convert his debt into another amount that he actually needs–US dollars to spend at Walmart for example. Or the corn farmer could be matched directly with the tractor mechanic if they're connected, so that the tractor mechanic could get paid in corn directly. It gives you the ability to execute a transaction directly on the most favorable terms.
But anyway, that's implementation stuff. The end result is that you can take the ability to produce a good or a service and find a liquid market for it, which results in more of the useful output of
the economy being harnessed and turned into liquid debt. That's very
powerful. And it pretty much eliminates the need for Wall St., which has historically performed this function. That would be interesting.
Note that I have no delusions that the mass market is ready for something like this yet. However, for financially literate people and investors, something like this would be incredibly useful and profitable. And when the public is ready to understand and use something like this 5-15 years from now it will hopefully already have been developed and proven.
I know that all of this is in its infancy, but the tools to implement something like this have only recently become available. I think its possible, realistic, and inevitable at SOME point, but we need it now. It's also the kind of ambitious project that really gets my blood pumping.
I've found a couple of other groups like Ripple which are talking about developing standards for something like this. There seems to be a decent concentration of these people around Boston, so if you're in the area and are interested in brainstorming at conceptual or technical levels, email me, I'll probably try to set something up.