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Former President of the Central Bank of Belgium on Why the Money System is a Taboo Topic

"Speaker: Bernard A. Lietaer, Research Fellow, University of California
Title: Monetary blind spots and structural solutions

Covering the Crisis generated two days of intense interaction and fruitful debate between leading global players from the world of financial journalism. Fresh insights were offered, new connections were made, experiences were shared and innovative ideas were generated."


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Makes me

so angry!

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    Why? I find Lietaer's reasoning quite enlightening...

    Is Our Monetary Structure a Systemic Cause for Financial Instability? Evidence and Remedies from Nature.

    Bernard Lietaer

    Fundamental laws govern all complex flow systems, including natural ecosystems,economic and financial systems. Natural ecosystems are practical exemplars of sustainability: enduring, vital, adaptive. The sustainability of any complex flow systemcan be measured with a single metric as an emergent property of its structural diversityand interconnectivity; it requires a balance in emphasis between efficiency and resilience. The urgent message for economics from nature is that the monoculture of nationalcurrencies, justified on the basis of market efficiency, generates structural instability inour global financial system. Economic sustainability therefore requires diversification in types of currencies, specifically through complementary currencies.

    Why is the financial crisis of 2008 treated as if it were the first? The World Bank hasidentified more than 96 previous banking crises and 176 monetary crises since President Nixon introduced the floating exchange regime in the early 1970s (Caprio andKlingebiel, 1996). Even before this period, financial booms and bust cycles were, inKindleberger’s words, a remarkably “hardy perennial” (Kindleberger, 1978); heinventories no less than 48 massive crashes between the 1637 tulip mania in Holland andthe 1929 crash on Wall Street. In short, it may be tempting to consider financial andmonetary instability as a given, as part of Schumpeter’s “creative destruction” of capitalism. But Schumpeter was referring mainly to the rise and fall of business units,not the monetary system. Could it be that a bug in the monetary system keeps crashingthe operating system of capitalism, and that this has generated financial instability duringthe entire Modern capitalist era?Our view is that such repeated breakdowns, in very different countries and times, under different regulatory environments, and in economies with very different degrees of development, signal some underlying structural problem. If such a deeper mechanism isinvolved, it could explain why each new set of regulations achieves, at best, only areduction in the frequency of banking and monetary crises, without getting rid of themand their horrific economic and socio-political consequences.

    We now have scientific evidence that a structural fault is indeed involved in generating financial crashes. The theoretical breakthrough is the capacity to measure with a singlemetric the sustainability of complex flow systems, which include natural ecosystems and economic or financial systems. Understanding and empirical substantiation of thismechanism has arisen from quantitative ecological research. For those desiring full technical and mathematical proof of what will be claimed here, please refer to the relevant paper (Ulanowicz, Goerner, Lietaer and Gomez, 2009). The most relevant points are summarized hereafter. A recent and surprising insight from systems ecology is that sustainability is as much about “what is not” as “what is”. How can this be?

    ...the very absence of order (even if its potential is never activated,and therefore unnoticed and unmeasured) plays the key role for a system to persist over the long run, to adapt to changing environment, or survive unexpected challenges. We know this intuitively and also from our experience of day to day living, exemplified in the familiar expressions “laid-back”, “I can cope with that” and “slack in the system”; but we rarely recognize it in our collective affairs, much less acknowledge its importance for sustainability. We will next show why this happens to be even more significant than the first variable, order, if we are to understand sustainability.

    The key conclusion is that nature does not select for maximum efficiency, but for a balance between the two opposing poles of efficiency and resilience. Because both are indispensable for long-term sustainability and health, the healthiest flow systems are those that are closest to an optimal balance between these two opposing pulls. Conversely, an excess of either attribute leads to systemic instability. Too much efficiency leads to brittleness and too much resilience leads to stagnation: the former is caused by too little diversity and connectivity and the latter by too much diversity and connectivity.Sustainability of a complex flow system can therefore be defined as the optimal balance between efficiency and resilience of its network. With these distinctions we are able to define and precisely quantify a complex system’s sustainability in a single metric. The generic shape of the relationships between sustainability and its constituent elements is shown in Figure 1. Observe that there is an asymmetry: optimality requires more resilience than efficiency! (The optimal point lies closer to resilience than efficiency on the horizontal axis).

    Until recently, total throughput and efficiency have been the only means for us to identify the relative success of a system, whether in nature or in economics. For example, in ecosystems, as in economies, size is generally measured as the total volume of system throughput/activity. Gross Domestic Product (GDP) measures size this way in economies and Total System Throughput (TST) does so in ecosystems. Many economists urge endless growth in size (GDP) because they assume that growth in size is a sufficient measure of health. GDP and TST, however, are both poor measures of sustainable viability because they ignore network structure. They cannot, for example, distinguish between a resilient economy and a bubble that is doomed to burst; or between healthy “development,” as Herman Daly (1997) describes it, or explosive growth in monetary exchanges simply due to runaway speculation.


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    It's not Lietear that makes me upset he seems like a stand up gu

    It's the fact Krugman is out on television knowing what a fraud the whole system is and he defends it like the traitor to humanity he is.

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