ZIRP for the People and by the People to help solve our energy & environmental dilemma

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DrKrbyLuv's picture
DrKrbyLuv
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ZIRP for the People and by the People to help solve our energy & environmental dilemma

If we are serious about wanting to reduce our dependence on finite fossil fuels and simultaneously protect the environment, then we better talk about how we might fund the needed changes on a major scale. We have the power to fund a huge transformation whereby we may greatly reduce our nation's energy and water usage while adding sustainable energy sources.

The plan is to upgrade our housing stock and commercial buildings to reduce their energy usage by 50% and to shrink their carbon footprint by 70% within 7 years. Almost all of the financial benefits would accrue directly to the people.

There would be no need to increase taxes or to add a penny to our national debt. This would be a powerful stimulus package in revving up our ingenuity and productivity while increasing employment.

Most people do not realize that we (any sovereign nation) are free to issue our own money. We issue bonds every day and equally, we are able to issue dollars. It's been done successfully before (greenbacks, Guernsey, Pennsylvania colonial script, pre-WW2 Germany, etc.) so this is not a novel idea or theory.

The U.S. Treasury would directly issue the money as 0% loans without adding to our national debt. Banks or other lending institutions would be required to qualify the projects and borrowers. Final decisions could remain in the private sector with risks and costs profitably compensated through fees and transaction charges.

The costs, borrowing insurance policies and performance verification could be rolled into the 0% loan package. Congress would establish general criteria but would not qualify the loans. Individual states could establish the standards that they deem appropriate via building codes. For example, Nevada may put a higher emphasis on air conditioning and the availability of water while Vermont may decide to push comfort heating.

Source U.S. DOE

To qualify, an existing home or commercial building owner would be required to show that the potential energy and/or water savings will be greater than or equal to the service of the 0% loan (average 10, 15 and 20 year terms). This may include added insulation, new windows, new doors, mechanical equipment upgrades, energy generating devices, common community grids, gray water reclamation, water saving fixtures, etc. A new home or building could qualify by modeling potential savings against a minimum standard base.

  1. According to the 2000 census there were 115.9 million housing units in the United States that account for around 21% of our total energy usage and 28% of our electrical usage. Housing units average around $2,200/year in annual energy costs.
  2. There are approximately 4.6 million commercial buildings in the U.S. that account for around 18% of our energy usage and approximately 32% of our electrical usage.

The average cost to upgrade our housing units would be $16,500 each with a range of $11,000 - $22,000. Over a seven year time span, costs would be approximately $1.9 trillion or $273 billion a year. The average commercial building upgrade would be around $410,000 for a total cost of $1.8 trillion or $269 billion a year.

The program could reduce our total national energy usage by 20% and our electrical usage by 30%. Similar programs could be applied to the transportation and industrial segments to further reduce energy usage while adding sustainable technology.

The hidden “home run” benefit of this program is the 30% electrical savings. Our national power grid (three main sectors) is an engineering marvel but it was not designed to handle the heavy load now imposed upon it. Our electrical power grid has become unreliable (especially in the summer) and the quality of electricity diminishes with load which shortens the life of computers, motors, appliances, etc.

Replacing or upgrading our power grid will come at an astronomical price. Superconductors, new generation equipment and upgraded switching devices would cost over $1 trillion dollars. By reducing our electrical usage we can get more service life out of the grid while working on sustainable alternatives and battery technology to enable us to begin pulling homes and buildings off the grid in earnest. The 6-8% transmission and distribution losses could be saved by on site and local electrical power generation.

What about inflation?  As long as goods and services are added commensurate to the newly issued money, there would be no inflation.

There is no reason to tax and punish the people in order to reduce our energy and water usage. Problems can sometimes be opportunities in disguise as long as we are smart about solutions.

Some energy facts:

  • Buildings and homes consume almost 40% of the total energy used in the United States and 60% of our electricity, more than cars/trucks or manufacturing plants - U.S. Department of Energy
  • Despite past efforts to conserve, CO2 emissions coming from fossil fuels used for power generation grew at a rate of over 12% for homes and commercial buildings from 1990-2003 - U.S. Department of Energy
  • Green buildings typically reduce energy usage by 30 - 70% - U.S. Green Building Council
  • Only 7.5 percent of total U.S. energy consumption came from renewable sources in 1998. Of that total, 94 percent was from hydropower and biomass (trash and wood incinerators) - U.S. Energy Information Administration
  • Though accounting for only 5 percent of the world's population, Americans consume 26 percent of the world's energy - American Almanac
  • Total U.S. residential energy consumption is projected to increase 17 percent from 1995 - 2015 - U.S. Energy Information Administration
  • Carbon emissions in North America reached 1,760 million metric tons in 1998, a 38 percent increase since 1970. They are expected to grow another 31 percent, to 2,314 million metric tons, by the year 2020 - U.S. Department of Energy
  • The United States is the world's largest single emitter of carbon dioxide, accounting for 23 percent of energy-related carbon emissions worldwide - U.S. Department of Energy

Larry

 

dander2194's picture
dander2194
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Re: ZIRP for the People and by the People to help solve our ...

And just think how many jobs it would create!

green_achers's picture
green_achers
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Re: ZIRP for the People and by the People to help solve our ...

What? You believe all of those numbers from the gubmint?

Thanks for the promised discussion.  I'm still not so sure that doing this through our banking system would be a good idea.  Maybe if you limited it to community banks, credit unions and S&Ls.  The corporate financial sector is every bit as bloated and bureaucratic as the worst case of government, in fact they're virtually the same at this point.  Well, except that corp execs expect to get millions in bonuses while the govt pays civil service rates.

Of course, you would have absolutely no chance of getting your plan through our current bought-and-sold Congress unless you cut the big banks in for their share of the free gubmint money.  We see how well that's worked on the climate issue.

I also still don't see how this would preclude a "stick" option.  As was stated in the other thread, there isn't any incentive for landlords to go along with your plan.  We have excellent examples such as the Clean Air Act and the Clean Water Act where a combination of regulatory sticks and funding carrots has greatly improved those resources in this country.

DrKrbyLuv's picture
DrKrbyLuv
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Re: ZIRP for the People and by the People to help solve our ...

dander2194 - I agree this would create lots of good jobs that would remain.  For example, this plan could be Phase 1 with existing technology applied (e.g. geothermal heat pumps, icyene spray insulation, freecooling, zoning and thermo-pane windows, duct sealing).  By funding such a huge project we are also building a future industry that could find profitable export markets. 

Phase 2 could include new CHP (combined heat and electrical power generation) technologies integrated with Phase 1.  For example, a fuel cell becomes much more efficient (cost effective) if the rejected heat is captured by a geothermal heat pump.  PV (solar photovoltaic) installations (including batteries) can be 50% smaller when the energy demand has been reduced by 50% in Phase 1.  Aerogel may be used to build future windows and walls with superior strength and insulation properties.

green_achers - you're right, commercial banks may not be the best partners.  The thing I should have stressed is that the federal government may not be required.  According to Byron Dale and Thomas Hedin, states may charter their own banks to make funds available for rebuilding infrastructure.  They are working to get the Minnesota Transportation Act (MTA) passed by state congress.  This is one of the most promising bills being considered by any state.

Many apartment building owners would welcome 0% loans to upgrade their property while reducing energy cost volatility but surely not all.  Section 8 housing could be required to comply and eventually, a stick might be needed to push the stragglers.  There would be no need to do this for several years as the early demand may be hard to keep up with.  By then, energy costs will give a better ROI.  

I don't think this is an impossible approach.  People are figuring out that our monetary system is usurious.  The next thing they will start figuring out is the unbelievable potential we would have in issuing our own monetary system.  The current system has no chance of continuing once these two concepts are understood by the people.

Larry 

scepticus's picture
scepticus
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Re: ZIRP for the People and by the People to help solve our ...

DrKrbyLuv,

The level of change which you're talking about, is IMO both unnecessary to achieve your goals, and also moves in the wrong direction towards greater centralisation.

What is required is to let the market set interest rates where it wants. Current 'real' (i.e. inflation adjusted) interest rates are estimated at -5%. Unfortunately nominal rates (i.e. the rate the fed pays on reserves kept at the fed) cannot fall below 0%.

This lower floor on rates creates a distortion in the market for loans and savings, which creates deflation which will ultimately destroy all wealth if allowed to continue. The reason the 0% bound exists is because people can hold cash or gold which clearly has the property of a 0% coupon anaonymous bearer instrument.

If this distortion were eliminated interest rates would be free to vary +ve or -ve, and thus bringing some much needed balance between saver and borrower, and between present and future.

The market needs to be freed to support nagative nominal interest rates. Incidentally, I mentioned this to sam a couple days ago, just before he got banned.

 

 

 

green_achers's picture
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Re: ZIRP for the People and by the People to help solve our ...

So in essence, those state govts would be creating fiat money?  What would the people who would be expected to accept these notes for doinng the work be able to redeem them for?  Not trying to be argumentative, I don't dislike the idea, I'm just trying to understand it better, and it looks like you've given it a lot of thought.

DrKrbyLuv's picture
DrKrbyLuv
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Re: ZIRP for the People and by the People to help solve our ...

scepticus - I agree that in our current system, the Fed rates are below inflation levels as are the yields on savings accounts, CDs and  T-bills.  Your concern with centralization is well founded.  Now, for example, interest rates are arbitrarily set by the Federal Reserve Bank of New York.  They disconnected from natural market forces a long time ago.

My original post suggested that funds be made available directly through the U.S. Treasury.  There are other, maybe better, plans out there that de-centralize the monetization process.  Here are some quick mechanics of Byron Dale's plan to have individual states charter banks as opposed to begging for money from Wall Street (Ellen Brown): 

Many people are getting tired of waiting for the Federal Reserve and the federal government to act, and one of them is a Minnesota resident named Byron Dale. Dale has drafted a bill called "the Minnesota Transportation Act" (MTA)...It would mandate Minnesota's Transportation Department and State-chartered banks to enter into an agreement providing that the banks would advance funds for legislatively-approved transportation projects in the same way that banks make commercial loans – simply by "monetizing" the projects themselves. Banks routinely monetize the promissory notes of borrowers just by making book entries to a checking account and saying "you have a new deposit with us."

Under the MTA, the state-chartered banks would create a pass-through account titled an Asset Monetization Account (AMA), monetizing the bid value of projects. This would be done in the same way banks that monetize collateral, except that the deposit would go on the bank's books as an asset rather than a liability, turning the bid value of the project into "money" without debt.

This money would be debited electronically out of the AMA and credited to the State's Transportation Account (STA), from which it would then be debited out and credited in to the contractor's bank account in a state bank, according to the terms of the contract. The contractor would spend this money to complete the project. The money would flow into Minnesota's economy, where it would provide for better, safer, more durable roads and bridges. It would be used to purchase goods and services, benefiting business. It would go to pay taxes, helping the State balance its budget. And it would flow back into the state-chartered banks as interest on outstanding loans, reducing the number of loan defaults and improving the profits of the state-chartered banks. In this way, says Dale, the MTA would benefit every segment of society. 

This is a transportation bill but the concept could be applied to what I described in my opening thread.

green_achers said:  What would the people who would be expected to accept these notes for doing the work be able to redeem them for?

green-archers, thanks for adding some good points.  Let me try to answer some questions: the money should be issued as USNs (U.S. Notes).  Right now, all paper and digital legal tender is in the form of FRNs (Federal Reserve Notes) but both could be defined as legal tender.  So, would two currencies be equally acceptable?  I think people would find USNs more than equal to FRNs because in both cases, the U.S. government is providing the backing.  An FRN adds to our national/state debt while a USN doesn't.  IMO, the FRNs would quickly fade away, displaced by a more solid currency.

Larry

scepticus's picture
scepticus
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Re: ZIRP for the People and by the People to help solve our ...

I think having individual state banks is a great idea, and have read ellen's article on this before. Some state already has one right (is it nevada)?

However  the infrastructure projects may turn out to be unprofitable on the terms you outline - because estimating the return on investment is based on world energy market prices which may fluctuate. In general while world energy prices are depressed the energy saving work you suggest is unlikely to meet the criteria for ROI of 0%.

Obviously cap-and-trade can help here but the prices of energy will remain variable, and here is the problem with undertaking your project at a fixed rate of 0% interest. You may need a baseline of say -3%, which would recognise the fact that at current market prices the project is not profitable. However with a rise in prices over the term of the loan the ROI may indeed turn positive.

DrKrbyLuv's picture
DrKrbyLuv
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Posts: 1995
Re: ZIRP for the People and by the People to help solve our ...

septicus - North Dakota has a state chartered bank which is a really interesting story that Ellen Brown and others have written about

Charles Fleetham reports that “North Dakota is a sparsely populated state of less than 700,000, known for cold weather, isolated farmers and a hit movie – Fargo. Yet, for some reason it defies the real estate cliché of location, location, location. Since 2000, the state’s GNP has grown 56%, personal income has grown 43%, and wages have grown 34%. This year the state has a budget surplus of $1.2 billion!”

Last year, Michigan citizens paid over $5 billion dollars in personal income tax. With a state bank like North Dakota's we could reduce this burden, fund new businesses, and restore our crumbling water and sewer systems. And we don't have to feel sorry about Wall Street losing our business. They didn't "earn" the money they lent us. They created it in computers and charged us interest to boot. Let's follow North Dakota's lead and get free from Wall Street's web.

septicus said: However the infrastructure projects may turn out to be unprofitable on the terms you outline - because estimating the return on investment is based on world energy market prices which may fluctuate. In general while world energy prices are depressed the energy saving work you suggest is unlikely to meet the criteria for ROI of 0%

Energy costs would be based on local rates, for example, New Yorkers pays more for electricity than most of Pennsylvania.  Since 2000, the average cost of electricity has risen by around 30%, or just over 3.5% a year.  Below is a longer trend line for natural gas. 

Source: National Energy Information Center

From 2004 through 2008, propane has gone up 60%, or around 15%/year.  Heating oil has almost doubled in the same time frame.

Your concern with fluctuating rates is valid as decreases in the cost of energy could eliminate the savings.  Over the long haul I think this is unlikely but one possibility is to build a "volatility allowance" into the lending criteria that could for example, limit 0% loans, to 90% of the projected savings.  This builds a buffer so that essentially, the cost of energy would have to drop by 10% to hit the negative ROI that you described.

On the other side of the equation, if we base the ROI on the past,  in all of the above cases, there would be a positive savings ranging from 3.5%/year to 15%/year.

septicus said:  Obviously cap-and-trade can help here but the prices of energy will remain variable

I think cap-n-trade is a scam, here's a link that details some of the mechanics.  Thanks for the interesting discussion.

Larry

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