Have you ever wondered why Local Governments borrow money from commercial banks at relatively high interest rates to fund risk free community infrastructure rather than borrowing money directly from the Central Bank at much lower rates? Have you wondered why electricity from renewable power plants with zero fuel costs is more expensive than power from power plants that burn expensive fuel? Have you puzzled why large cumbersome companies are able to purchase new but smaller more efficient companies? Has it worried you that we can always seem to fund freeways but rarely build new public transport infrastructure? Have you wondered why your rates keep going up even though your local services get reduced? These and many other seemingly unrelated funding problems all arise because of the way we find money to develop new community infrastructure. The underlying reason for these anomolies is that we fund new innovations and new assets with expensive equity finance from savings while we fund the purchase of existing infrastructure through inexpensive loans. If we made it inexpensive to fund the building of new community assets our economic system would become more efficient and our cost of living would drop.
In a previous presentation (http://www.youtube.com/watch?v=vECKlzajUWA) I described how a community can create interest free credit for trading purposes. The Community creates interest free loans backed by money deposits which pay interest. The system works by keeping all the interest free loans within a closed system and by the sponsoring bank or banks earning income from tranasactions. The money itself is tradeable using any other form of money.
Similarly a community can create interest free equity loans to build new community infrastructure. This works by creating another set of interest free accounts but in this case the initial backing deposit does not earn interest. The sponsoring bank earns income from transactions and the community gains a benefit from their investment with dividends instead of interest. Some of the dividends are used to automatically repay the equity investment loans. If a community cannot find a bank to meet its needs then the community can start its own bank with its own deposits.
The first step in creating community interest free equity loans is to deposit money into the system so that it is interest free. The bank now distributes interest free credit backed by the interest free deposits.
The money is distributed as interest free loans to a broad section of the population. The loans must be invested so that the member ends up with ownership of the investment, gets a return on the investment, and repays the loan from those returns. A community, through a political process, decides where it wants money invested. For the sake of illustration let us assume it wishes to invest in renewable energy plants that will produce clean energy.
To do this the community decides how much money it needs to invest to develop enough renewable energy to supply all of the needs of the community. It then distributes the investment money in ways to encourage the use of renewable energy. For example interest free equity loans to finance for renewable energy plants could be given to those who consume the least amount of energy produced by fossil fuels. The consumption of mains electricity per person in the person’s main residence is a good surrogate measure for fossil fuel usage and we give more loans to those who consume less household electricity.
Equity loans are invested to build new renewable energy infrastructure. The investments are sold through an electronic market place described elsewhere under the name of Energy Rewards. https://cscoxk.wordpress.com/2010/02/24/zero-interest-loans-for-ghg-mitigation/
Interest free equity loans with repayments over the life of the asset will make all investments in renewable energy profitable at today’s energy prices. Investors will also agree to purchase energy from renewable energy plants and they will pay with interest free credit.
The Renewable Energy Companies will accumulate profits and will distribute the profits as interest free dividends to members. Part of the dividends will be used to automatically repay the member’s loans.
A member who accumulates interest free money can exchange the money for interest bearing money with another member.
All investments in renewable energy systems are profitable if we remove interest charges and all such investments generate more interest free money than is invested.
The approach can be used for any community investment where interest bearing money has not supplied the level of investment the community desires.
The approach is a variation on what are called income contingent loans of which the Australian Higher Education Contribution Scheme or HECS is an example. Other income contingent loans can be used for any other community investment including public transport, provision of water and sewerage, medical facilities, education facilities, and housing.