IMF report

The recent IMF Report predicts China’s growth will be 6.5% in 2009 while the advanced economies will drop by -3.8%. This is a huge difference.

China’s growth is holding up because the Chinese government control the money supply. The rest of the world is in a mess because the banks have created too many loans for non productive purposes. The banking system adjusts itself by reducing lending until the bad loans are removed from the system. This slows economic activity. The IMF suggests stimulus packages to put money into the system. Unfortunately governments – except the Chinese – still use the same mechanism to increase the money supply that got us into the mess. That is, governments increase the money supply by allowing the banks to lend money, they do not have, back to the government who now spend it on stimulus packages. 
There is a better way. We can increase the money supply by the Reserve Bank giving money to the general population but requiring the money be invested on productive assets. We have two obvious candidates where we need to invest massive amounts of money. One is investment to reduce ghg emissions and the other is the National Broadband Network. The government can tell the Reserve Bank to increase the money supply by issuing money, giving it (not loaning it) to the population and requiring the money be invested in ways to reduce ghg emissions and in the Broadbank Network. 

A way for the government to fund the broad band network

The government can fund the broadband network and give the economy an immediate stimulus without going into debt.

To do this the government issues every citizen in Australia with shares in the new Company with a face value of $2500. Anyone who wants the shares registers to obtain them. Many people will keep them and many people will sell them for whatever the market will pay them. Probably most will sell. This will create an immediate stimulus to the economy. The company will have a large amount of shares and when it needs some funds it will convert some of the shares to cash by asking the Reserve Bank to issue it with zero interest new money. This increases the money supply but only as assets are created to back the money. Because the money in the company will be spent on producing an earning asset this will not be inflationary. Thus the government can at one stroke solve the ownership problem of the new company, not go into debt, stimulate the economy, and solve the broadband infrastructure.

This is a variation on increasing the money supply as explained in http://stableproductivemoney.wordpress.com/2009/04/03/increasing-the-money-supply-without-loans/

The whole idea of the broadband network is to provide infrastructure at a reasonable price for all Australians and if you remove the capital cost of the broadbank infrastructure then the last mile becomes very cheap. This means we can have broadband at very low prices which will increase productivity (and taxes) because the price of communications will drop.

If the last mile is already in place, such as in Canberra with Transact, then those assets can be purchased from TransACT with shares in the new broadband company. Similarly Telstra in those places where ducting to the home is available can be given shares of equivalent value. This would accelerate the introduction of broadband through existing Telstra as they will make the ducts available otherwise the NBN will do it in parallel.

As long as the broadband company ONLY owns and builds infrastructure and does not get into selling what is sent along the wires then this will give us the worlds cheapest communications infrastructure with all the economic benefits that will come from low priced communications. Giving shares to both the general population and to those whose assets can be used as part of the network is the fairest way of dividing up the ownership of the new asset created by through increasing the money supply.

Where is the downside? Well the company initially will NOT make 10% or whatever rate is deemed necessary for people to invest existing money to build the network. Perhaps the profit can be set to be at the percentage productivity improvement for the country as a whole and prices set accordingly? So as productivity goes up so the return goes up and prices go up. As productivity goes down so prices go down. If we believe (as I do) that a NBN will increase the productivity of the nation this would seem to be a sensible regulatory mechanism to contain the monopoly that will ultimately evolve. What this means is that the nominal value of shares of $2,500 will be lower. That is the share price will be perhaps $1500 but this does not matter because people were given the shares for nothing.