Monday, May 7, 2012

The Energy Bank

Many of my posts revolve around the idea that money is the capability to do mechanical and electrical work. In many of my posts, I discuss how the Federal Reserve should maintain our currency such that there is a zero percent inflation in the price of mechanical and electrical work, i.e. that a true zero inflation currency is one in which $1 can always buy you the same amount of work on average (while gasoline and electricity prices will fluctuate hour-by-hour and day-by-day, the yearly average price of electrical and mechanical work would remain the same because the Federal Reserve would print or remove currency from circulation to maintain yearly average prices.)

But this idea is obviously too large a concept to be easily implemented. It involves so many people, all with desires for different levels of inflation. So, I've been working on ways to implement an inflation-proof currency at a smaller-scale, one where you don't have to wait for the Federal Reserve to implement such a program.

So, how do lots of people today try to implement inflation-proof currency? Some groups implement a local currency and some people accept payment in precious metals. Other people don't leave money sitting in checking accounts; they just purchase gold/silver or even better, they constantly re-invest their money into CDs and bonds. The problem is that many of these attempts to fight inflation are ad hoc, high risk and fail to appreciate the fact that money is the capability to do work.

The goal of this post is to discuss two ways that groups of people can invest their money so that it doesn't matter if the Federal Reserve continues to allow inflation to be >2%/yr. My main conclusion is that if you invest wisely, then you can avoid getting hit with an extra 2-3%/yr tax on your cash assets (or more if we see QE3). [Note that inflation is basically a tax on those people who don't invest wisely. Inflation is basically a tax on the middle class, i.e. people who have most of their money sitting in checking, savings, money markets and CD accounts. Inflation doesn't normally hit the rich or poor as much as it hits the middle class, so the goal here is to discuss ways that people can invest their money such that it's inflation-proof  (Note:  I'm not going to tell you to purchase gold or silver. In fact, the world would be a much better place if people stopped using gold/silver for investment purposes. This would lower the price of gold/silver so that it could be used for a much better purposes, such as catalysts for chemical reactions.)


Option#1:  Start your own energy currency
   With this option, you and a group of people start your own currency that is tied directly to the amount of energy assets you owe. As more people start using the currency, you take in more energy assets and print more money. There would be strict rules on how much money you could print, so that the yearly average conversion between $ and MWh of work remains nearly constant. Certain towns have started their own currencies. What would be unique to an energy currency would be the rules dictating how much currency could be printed as any given time.

Option#2: Start your own energy bank   (or energy credit union)
   Create a bank (or credit union) that takes in deposits from normal people, and invests that money into energy assets. To cut down on costs and to allow it to grow, make your energy bank an online bank like ING. [Note: from here on out I'm going to use the word bank, but I really mean either a for-profit bank or a non-for-profit credit union.]


 The bank would have certain rules for what happens with each of its products. For example:
Product#1:  Checking Account             A checking account is like investing your money into energy assets that can quickly be converted into mechanical and electrical work. This would be like stored water behind a dam, oil&gas, and coal. Most people want to keep their money in safe accounts (i.e. that promise not to lose nominal value), but stop and think for a second, what is a safe asset?  (Not gold, not oil, not books, not art, not computers, not cell phones, not individuals, and not any particular technology.) What makes something a safe asset is the degree to which the risk has been taken away by mixing it without lots of other investments. The whole idea of a checking account is absurd in some sense. We want to be able to spend every $ in the account at any given moment in time, but we also want to see it earn interest. The two are mutually incompatible with each other. It's like having your cake and eating it too. You can't have immediate access to money and have it earn lots of interest because you can't invest the money (i.e. the work) into the construction of a power plant (so that you can earn interest on the work invested) and at the same time have work available to give to somebody else at the same time. Banks get around this dilemma by hoping that not everybody wants to spend their money all at the same time. What banks do is that they invest some of the money, and then they rest their hopes on the laws of large numbers (i.e. that their won't be a run on the banks.)
But I think that some people might be willing to accept having checking accounts that might gain or lose $ value. Notice that if the money in checking deposits only purchases items that can easily be bought and sold, such as stored energy (oil, coal, gas, pumped hydro, etc...), then there would not be problem of 'runs on the bank.' If everybody in the bank wanted to use all their money at the same time, all the bank would have to do is to sell the oil, coal, gas, pumped hydro, etc...). This can be done rather quickly. It's not like selling assets like power plants or houses.

Product#2:  Savings Account           The savings account would have stricter rules on how often money can be moved out of the account. The savings account would have a mix of energy assets, some stored energy as well as some electric utility bonds. The return on investment (ROI) from this account would likely go into the checking account to pay for any ATM or Tellers fees (this online bank would use other banks' ATMs and tellers, but the eventual goal should be to eliminate the need for ATMs and bank locations.) Any ROI from the savings could also go to the checking account to make up for collective swings in the price of stored energy.

Product#3:  Money Market / CD       This account would pretty much only be investing in bonds from electricity generators and companies in the oil/gas/coal business.  There would be penalties for removing money from this account. The reason for the penalties is that this represents work that has gone into capital that can't be easily sold like power plants  (Low risk investment account) 

Product#4:   Investment Account#1 __   This account would invest in stocks and bonds of large electricity electricity generators and large companies in the oil/gas/coal business.  (Middle risk investment account)

Product#5:   Investment Account#2 __   This account would invest in stocks and bonds of small electricity electricity generators and small companies in the oil/gas/coal business.  (High risk investment account)

Product#6:  Investment Gambling  __   This account would invest in the stocks of start-up energy companies. There would be set rules for keeping the money in the account. This would be extremely high risk, and should be treated like entertain funds that you don't mind losing in case of major start-up faiures. (Extremely high risk investment account)

So, I think that a group of people could start up their own Energy bank (or credit union), and as long as you follow very strict rules and you communicate well with your customers about where the money from each product is being invested, then you could start a bank that virtually acts like an energy currency. The investments from the bank would be inflation-proof, i.e. the assets don't lose value when the government prints money. Think about it. How does the government printing money effect the value of your assets if all you own is stored energy and the capital to produce electricity? The answer is that no amount of government printing money will effect your capability to produce work. Printing money only hurts people who hold onto cash (or cash-like assets.) This is how you make an energy currency without having to "print your own currency."  You make a bank that acts as it were an energy currency. This is completely legal even in today's world of banking regulations. You just have to educate the people who deposit money in the bank about where their money is being invested. You have to be completely transparent.

I really like the idea of an Energy Bank, so here's some more ideas on how to make this idea really take off.  Feel free to use them to make your own Energy Bank because if you make an Energy Bank that functions completely online, I'd be glad to be one of your first depositors.

1) Link the checking account with major online payment systems like PayPal and Amazon
2) Allow money transfers via email from one checking account to the checking account of other people you want to pay (some banks are already starting to do this)
3) Allow people to scan checks with their smart phone  (that way you don't have to go to a teller to deposit checks)
4) Allow people to write checks, and have the bank mail the check to the recipient  (most banks do this already)
5) Allow people to use the ATM and tellers of different banks   (though, there will be fees for doing this.  The fees are paid out of the return on energy investment in the savings/moneymarket/CD accounts.)
6) Make it easy for people to accept credit card payment through their phone (like SquareUp)
7)  Allow people to make money in their checking account by having them fill out surveys or write product reviews online.  Use this money to pay for the ATM/teller fees or to grow the amount of money in their bank accounts, i.e. allow everybody to make money by allowing them to work over the internet. (Note Google or Dropbox should be doing this right now...i.e. giving you more electronic storage space if you fill out surveys online.)
8)  Encourage people to save and to invest rather than to be constantly be taking out more loans.  
9) Make it as simple as possible to move money into investment products and away from checking accounts. This would be done 100% online (perhaps by having internet reps who can talk with you 24/7 about the products, and they get your signature on an online form stating that you are aware of the risk of investing in some of the more risky products.)


The goal of the Energy Bank is (a) to create an inflation-proof currency so that your money doesn't lose value over time due to the gov't printing press, (b) to invest your energy/work (i.e. money) in companies with positive rates of return on work invested, and (c) to teach people the relationship between energy/work and money.  To emphasize this connection, the amount of money in each of your accounts would be given in units of dollars as well as in units of work (MWh). Right now, banks aren't transparent about where your money is being invested. One goal of an energy bank is to emphasize the transparency of investing because it's important to realize that money is energy/work, and how you invest your money/work/energy determines whether you can make a return on investment on your money/work/energy.

5 comments:

  1. An ideal broker will offer you tutorials and help on understanding the nits and grits of commodities market. Evaluate the above mentioned things before you hire a broker, you will not be disappointed.

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  2. CT,
    Thanks for the link to your website.
    I completely agree with you. Before starting a bank or credit union, you should hire a broker or somebody else that is knowledgeable of futures, derivations, swaps, etc...
    That person is not me. From your website, it looks like that is what your company does. More power to you.
    I'm interested in the idea of starting an energy bank because I see a lot of crazy ideas out there on the web for printing new currencies (especially ideas for printing renewable currencies.)
    My goal with this post is to point out the fact that you don't have to print your own currency. You just have to start a bank or a credit union.
    Would you agree with the idea that an energy bank (as detailed above) could effectively act as an inflation-proof currency? (if you hire the correction people to reduce risk through futures, derivatives, swaps, etc...)

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  3. nice posting.. thanks for sharing.

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  4. This comment has been removed by a blog administrator.

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  5. You are one straightforward writer. I enjoyed reading your article and taking in all the interesting information. I share your thoughts on many points in this content. This is great.


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