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.

3 thoughts on “A way for the government to fund the broad band network

  1. Kevin, I think you missed the point of the share market.

    The government can’t simply issue $43b of stock to its citizens for a company that will have ZERO assets and ZERO revenue and still have the need to raise $43b!

    That’s right – companies issue stock to RAISE funds … someone has to PAY them for the shares. You can’t just give them away.

    Additionally, if the company owns its own shares, why would it need to ask the Reserve Bank to issue it cash, when it can simply sell the shares?

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  2. Collin,

    Please look at the presentation at http://stableproductivemoney.wordpress.com/2009/04/03/increasing-the-money-supply-without-loans/

    Shares are the equivalent of “Rewards” they are not regular currency until they are converted into regular currency until they are spent by the company. That is the shares are really delayed payments by the government increasing the money supply in a way which earns no interest and not cashed in until needed.

    When the shares are “redeemed” it increases the money supply and this means we will need put less reliance on the banking sector to increase the money supply.

    The money comes into existence after the asset is created not as we have it at the moment before the asset is created.

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  3. This is an answer to a direct question from Colin via another channel.

    “Sorry, Kevin – but you’ll have to explain that to me. You could show me some real figures or present a detailed flow chart of where how the real money (to pay for the infrastructure) interacts with the fake money (rewards) and why people will benefit from selling rewards at a discount instead of investing money for a good return.

    I do like your idea of abolishing fractional reserve banking, however this will in turn destroy the capitalist banking system entirely, severely restrict the money supply and may cause “rewards” to become a second tradeable currency, if only on a black market.”

    Thank you for asking these questions because I need to find out how to explain both the problem and the solution. If you can tell me what makes it understandable for you then please let me know what it was. I tried in the presentation to show some diagrams. http://www.slideshare.net/cscoxk/increasing-the-money-supply-1223091

    We currently increase the money supply by loaning money into existence. Some Banks (including the Reserve Bank) are given the privilege of being able to lend money they do not have on deposit. It is crucial to really understand this fact. Until this is understood the rest does not make sense. Perhaps an outline of how to construct a money system helps http://stableproductivemoney.wordpress.com/2009/03/24/a-better-way-to-increase-the-money-supply/

    Most money that banks lend already exists but the banks do create a lot of new money as measured by the M3 money supply. $170 billion in 2008 for Australia alone. This money was loaned into existence. The reason we do this is that banks do not loan money to people who do not have an asset of some kind. Thus a bank lends money to people who have an unencumbered asset like a house so that the new money is backed by an asset. Theoretically all money that banks lend are covered by an existing asset. All money that exists if the system works “correctly” would appear to be covered by an asset of some kind. Unfortunately the current system does not work the way it is supposed to work because money and loans are intertwined by the way we create the money. In particular loans are made against loans and this pyramids out of control. Banks are under enormous competitive pressure to keep making loans and so we get asset bubbles. This all happens because of the way we increase the amount of money in circulation and because as soon as we make a loan out of “thin air” we charge interest on it. Interest is meant to be rent on an asset but if there is no asset then the money has to come from somewhere and that is often by making another loan.

    So to solve the problem we should do the following.

    Do not lend money unless we have it on deposit. – abolish fractional reserve banking.
    Only pay interest on money when it is backed by an asset.

    That is we need another way of creating money than loaning it into existence.

    Here is how we do it.

    Make some restricted money that does not earn interest and that must be invested in potentially productive assets. The money stays restricted until it has produced a new productive asset – that is something that will generate income and did not exist previously.

    Now there are many ways to do this and Rewards is one way. We give people Rewards that must be spent on new assets for generating renewable energy or in ways of saving energy. Rewards earn no interest and only become real money when it is spent and the supplier has delivered “the goods” and it is installed. So the supplier gets the Rewards then goes to the issuer of the currency and says – please remove the restrictions on my Rewards as I have produced an asset and this new money is backed by an asset.

    Another way of doing it is to give people shares in a company that is going to build a productive asset. The shares are just shares in the company and are not money just yet. The company when it needs some real money takes some of the shares and asks the Reserve bank to remove the restrictions on those shares. The Reserve bank does that and now some of the shares become real money that can now be used to build Broadband Network asset that will earn money.

    So what have we done. We have issued some non interest bearing money and turned it into an asset. The non interest bearing money is now made into real money. Problem solved.

    It will work. It is easy to implement – It could be operational within three months for cost to the government and be paid for from ongoing transaction fees.

    Why does it work and why hasn’t it been tried before? Well it does work and it has been tried before but people did not realise it. The whole Torrens title is a “Rewards” system where the land title is the constrained form of money. That is why Torrens Title was such a good invention as it enabled an asset – land – to be monetised.

    What I am saying is that we can do the same for other new assets that are currently not commercially attractive (they do not give enough return quickly enough) but are of value to the community. Also assets like public transport can be funded the same way. The reason things like renewable energy plants are not commercially attractive is that we want our money back again quickly because we use present value calculations techniques. If you used whole of life and ignored the present value calculations then renewable energy plants give a greater monetary return than fossil burning plants because their running costs are lower. If you remove financing costs for most capital intensive investments then they become immediately and spectacularly profitable.

    You should not use this system to increase the money supply if the asset is not a new asset and if the asset does not over its lifetime produce more money than it cost to build. So you cannot use the approach to fund general expenditure. The best place is “nation building” infrastructure.

    With respect to Rewards becoming a tradeable currency – yes it will but also remember that we control and know exactly who owns what Rewards (shares) and there cannot be a black market in Rewards because they only exist in the system.

    How do we get people to obey all the rules? Well if people are caught abusing the system they are simply excluding from further participation either as a buyer or a seller in any particular Rewards program. All these systems are voluntary – but if you break the rules then you are out.

    With respect to selling Rewards for a discount why would anyone do it? Well you would do it if you wanted money for some other purpose than Rewards. Rewards are ONLY to be used for designated purposes and if you could not do that designated purpose but wanted money for something else then you will sell your Rewards for a discount.

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