Biota Restaurant Review

Performance Art in Bowral

We were looking for some entertainment over the Easter Long Weekend. The movies on offer did not appeal. We had been to the Canberra Folk Festival. Then we heard about Biota in Bowral and so off we went for lunch.It fulfilled all our expectations and more. It was performance art at its best.

Arriving during daylight hours allowed us to spend some time shopping in Bowral and to inspect the Biota kitchen garden. The fresh bread smells of Bowral and the goodies in the garden made us eager to get involved in the main performance. The interior of the restaurant with its open space, interesting art works, and open kitchen was a perfect setting. As we were amongst the first diners chef had time to greet us before going back to his plating stage. The staff at work were visible for the whole performance and for those people in the far flung reaches of the restaurant the staff appeared on closed circuit TV.

We were given a pre-teaser (amuse bouche) of pomegranate seeds with a eucalyptus based foam served in a beaker followed with Biot s own sourdough bread with cultured butter. These were the first of many culinary surprises that would make the next two hours great fun and good entertainment.

All the dish descriptions looked interesting so we used the time honoured method of closing our eyes and pointing. We would have been pleased no matter what we picked. As it was each dish was not what was expected and as the meal progressed we tried to guess how each dish would appear. There was always a twist to the listed ingredients and a few other amuse bouche in each dish. A few of these follow and we leave it up to you to discover those we missed.

We had expected the strips of mackerel to be grilled but they were warmed in pan. The surprise were what appeared to be tiny lotus buds but were long red baby radishes.

The strips of duck marinated in juniper syrup were served with some form of roasted cereals. I had expected something like a natural muesli and am still puzzling over the type of cereal. The surprise was the perfectly soft cooked egg supporting the duck pieces.

The finger had pointed to pig s jowl. We had imagined roasted pork with crackling. The dish was decadently rich with a high percentage of pork fat but where was the crackling? We found out when we tasted the rich sauce covering the dish. The best of the crackling had been ground and used in the sauce. The surprise was the leek cooked with amaranth.

The lamb rump was perfectly cooked with an olive caramel sauce. What appeared to be pepper over the accompanying vegetables was garlic ash and the surprise was crispy prosciutto.

We expected a cake covered in a sauce when we ordered Green Tea Cake and Coconut Milk. We did not expect a mound of chocolate earth with green moss covered with an early morning frost.

The fruit salad with ice cream was a potpourri of fresh and preserved ingredients. The surprises were the small pieces of cucumber and the gelatinised chia seeds which we thought, before asking, were melon and some form of sago.

We were allowed to take pictures for our scrap book and you can see them here. http://ahfongcox.wordpress.com/2011/04/24/performance-art-in-bowral-biota-restaurants/

Next time we will book into the next door motel and attend the evening performance. This will allow us to have that extra glass of wine to round out the event.

Increasing Investment in Renewables through Energy Discounts

The government proposals to introduce a price on carbon are an attempt to encourage investments in renewables and as a way of discouraging energy use.  It uses price as a control mechanism.  The idea is to reduce consumption by increasing the price of energy from fossil fuels and hence encourage investment in renewables.  This approach could theoretically reduce the level of green house gases.

There are difficulties with this approach and with other price mechanisms, such as emissions trading, because they are difficult to adjust and they tend to be inequitable. They can cause unnecessary hardship, which in turn requires some form of compensation. This in turn tends to reduce the effectiveness of the price increase. Price increases reduce the competitiveness of the community because of losses due to less energy consumption.  Higher prices do not guarantee that the energy supply will increase. The reason is that the return on investment for energy supply is low compared to other investments – particularly investment in fossil fuel energy.

To overcome these difficulties with pricing it is recommended that the government introduce a discount system for people who consume less energy.  The pricing mechanism that energy companies currently employ where the more energy consumed the less the price per kwh could be replaced with a scheme where the less energy consumed per person in a household the less per kwh is charged. Households with a low per head consumption of electricity receive a discount on their per kwh energy charges.

This approach automatically adjusts income received by power companies because the energy saved by the low consumers is sold to the high consumers for a higher price. The discounts are paid from the increase in price to high consumers.  Such an approach will be seen by the community as fair and will not be seen as a form of tax grab by the government.

The approach can be made even more effective by requiring the discounts received to be invested in ways to increase the supply of renewable energy.  Power companies could offer different investments, such as bonds to build a solar farm.  Discounts could be used more directly to purchase solar energy systems or install insulation or double-glazing or other forms of reducing consumption of mains electricity. Discounts could  be sold if people did not wish to purchase investments.

This approach of giving discounts when a person does some other restricted transaction is widely used in private markets. An example is the Coles and Woolworths petrol discount and other coupon systems.

Government soliciting interest free loans from banks and the interest free loans used to increase the size of the discounts can further leverage the system.  The loans are repaid from the payment from the bonds or from energy savings or from sales of the increased energy obtained from direct investments.

Increasing the size of discounts with interest free loans

In Australia banks have to go to the international and local capital markets to raise loan funds for their reserves to satisfy the need for loans.  When a bank makes a loan it creates credit and extra cash deposits but it needs a certain level of reserves. There are limits on how many loans a bank can create and this is determined by the reserve ratio of deposits to loans.  That is, in total a fraction more deposits must be held than there are loans outstanding. So if a bank increases the money supply with a loan it must have a fraction of the amount of money it loans available as reserves.

These reserves could be obtained via interest free loans in the following way. This would be much cheaper for the banks than raising reserve amounts on the open market, where the bank has to pay interest, or if the banks increase reserves by raising equity.

If the government, or other institutions like super funds, have large cash deposits that are being held for long term purposes such as pensions and superannuation, then those cash deposits can still earn interest but can be used as security for the interest free loans.  One or more banks are likely to take up the offer as they will obtain large cash deposits that they can use to leverage the creation of their regular loans. The banks give interest free loans equivalent to the cash deposits that are held in reserve. The loan funds are safe because they are secured against cash deposits and the loan funds will overtime be repaid from the returns on the investments created with the funds.

The citizens win because they get a stake in the energy infrastructure that will continue to earn income long after the loans are repaid.  The government wins because it does not have to increase the price of energy as the loan funds can be used as discounts for the low consumers.  The banks win because they get interest free reserves.

The citizens will see that the system is fair an equitable and will see this approach will ensure an adequate energy supply no matter what happens with the climate.

Summary of Energy Discounts

Instead of increasing the price of energy with a carbon tax the government can introduce a scheme of Energy Discounts for citizens who consume less energy.  Energy Discounts must be invested in ways to increase the supply of renewable energy or to make better use of existing energy.

Making sure all investments go through a central market place of approved investments, and banning people who abuse the system from future allocations of Energy Discounts, will ensure wide-spread compliance.

The funds to pay for energy discounts come from charging high consumers of energy more per kwh and from issuing interest free loans.

The system can be set up with little or no legislation and it can be done on a Energy Company by Energy Company basis. Companies that encourage investment this way could get some form of compensation the more discounts they provide.  Households have to join to receive discounts but households with a high per consumption of electricity have to pay more per kwh whether or not they join.

An Alternative to Water Restrictions

Demand Management through Water Pricing and Discounts

Actew’s proposal for a new water restriction regime includes the idea of using a variable price as a control mechanism. As water levels fall the intention is to reduce consumption by increasing the price to discourage consumption.  This approach could theoretically replace water restrictions.

A problem with this approach, and with other price mechanisms such as water trading, is that variable pricing is difficult to adjust and tends to be inequitable. It can cause unnecessary hardship that in turn requires some form of compensation. This in turn reduces the effectiveness of the price increase.

If variable pricing does stem the use of water, it can reduce the competitiveness of the community because of losses due to lack of water. There is no guarantee that the water supply will be increased, as the return on investment for water supply is low compared to other investments. The pitfalls associated with using price alone are described by SavenijeandvanderZaag.

To overcome these difficulties it is recommended that Actew introduce a discount system for people who consume less water.  Actew’s current pricing mechanism – under which the greater the volume of water consumed, the higher the cost per litre – is already a discount for low consumption households.

This recommendation is that instead of water restrictions, we introduce more discounts for low consumers as well as price increases for high consumers as water levels drop. This approach automatically adjusts income received because the water “saved” by the low consumers is sold to the high consumers for a higher price, so keeping total income the same even though water consumption drops.  Such an approach will be seen by the community as fair and will not be seen as a form of tax grab by the ACT government.

The approach can be made even more effective by requiring the discounts to be invested in ways to increase the supply of water.  Actew could offer different investments, such as bonds to build the Cotter Dam or to refinance the loans Actew have taken out for the dam.  Discounts could be used more directly to purchase water tanks or recycling systems or could go towards community-wide investments such as ponding with water use for outdoor areas. Discounts could be sold if people did not wish to purchase investments.

This approach of giving discounts when a person does some other restricted transaction is widely used in private markets. Examples are the Coles and Woolworths petrol discount and other coupon systems.

The system can be further leveraged by Actew soliciting interest free loans from banks and the interest free loans used to increase the size of the discounts.  The loans are repaid from the payment from the bonds or from water savings or from sales of the increased water obtained from direct investments and so are “no risk” to the people receiving the loans.

Actew increasing the value of discounts with interest free loans

In Australia banks have to go to the international and local capital markets to raise loan funds for their reserves to satisfy the need for loans.  When a bank makes a loan it creates credit and extra cash deposits but it needs a certain level of reserves. There are limits on how many loans a bank can create and this is determined by the reserve ratio of deposits to loans.  That is, in total a fraction more must be held in deposits than there are loans outstanding. Therefore, if a bank increases the money supply with a loan it must have a fraction of the amount of money it loans available as reserves.

These reserves could be obtained via interest free loans that make it much cheaper and therefore more attractive for the banks when compared to raising reserve amounts on the open interest bearing loan market or from raising equity.

If the government, or Actew, has large cash deposits that are being held for long term purposes such as pensions and superannuation,  those deposits can still earn interest but may also  be used as security for the interest free loans.  One or more banks are likely to take up the offer as they will obtain large cash deposits that they can use to leverage the creation of their regular loans. The banks give interest free loans equivalent to the cash deposits that are held in reserve. The loan funds are safe because they are secured against cash deposits and the loan funds will – over time – be repaid from the returns on the investments created with the funds.

Actew wins because it obtains financing without having to pay interest on the funds.  The citizens win because they get a stake in the water infrastructure that will continue to earn income long after the loans are repaid.  The government wins because it does not have to impose water restrictions or increase the price of water as the loan funds can be used as discounts for the low consumers.  The citizens will see that the system is fair and equitable, and that they will be ensured of an adequate water supply no matter what happens with the climate.

Summary of Water Discounts

Along with increasing the price of water as dam levels drop Actew can introduce a scheme of Water Discounts for citizens who consume less water.  Water Discounts must be invested in ways to increase the supply of water or to make better use of existing water.

Making sure all investments go through a market place of approved investments will ensure compliance. Those who abuse the system are banned from future allocations of Water Discounts.

The funds to pay for Water Discounts comes from the higher prices paid by high water usage consumers and from issuing interest free loans.

The system can be set up within the existing pricing regulations and approval sought later from the Price Regulator for varying the price if it proves necessary.  Approval from the Price Regulator to allow future variable pricing is likely because the increase in collections is returned to consumers as discounts.

Making a profit on interest free loans

At the macro level cooperative systems can have a big impact on the financial system. For example, with a little cooperation, adept use of technology and some interest-free loans banks could play an active role in helping to control the money supply to prevent inflation.

The existing banking system is meant to control inflation by limiting the creation of debt. Unfortunately the system fails to achieve this because it provides a profit incentive for each bank to issue as many loans – and therefore create as much debt – as possible even though all banks understand that too much debt puts them all at the risk of systemic failure.
One of the basic functions of banks is to supply credit and there is a limited amount of credit that a community can support. The current banking system is a Tragedy of the Commons where community credit is the commons.

The tragedy occurs because of the way extra money tokens are introduced into the monetary system.

When a bank creates a loan it puts money into a cash deposit account and balances it with a loan secured against an asset. The quantity of money that banks can lend is constrained by the need to set aside a percentage of this amount, placing it in reserve so that it is never loaned out. The exact amount of the reserve depends on the policies of the controller of the currency, which is normally a Central Bank.

Other rules that banks must observe include the need to accept transfers of money from other banks and the need to keep their books balanced, which means they must have loans backed by assets to match their cash deposits.

When an individual transfers money from a bank, the bank has to ensure that its total deposits continue to match its loans. One way to achieve this balance is to borrow money from another bank that has more deposits than loans. The new loan is secured against the loans of the borrowing bank. When this happens we have a loan secured by another loan which in turn is secured by a real asset.  The original asset has been used a second time to create money. This means the system can generate many more loans than there are existing real assets.

The result is a continuous system where loans and deposits are created, loans are repaid, money is transferred between banks and loans are made between banks. The system automatically keeps the number of money tokens in balance with loans made and it should be self regulating.

However, all banks make profits by issuing loans. As they continue to make loans they find that they in turn have to go out to other banks to borrow money to keep their balances in line with their assets. In a growing economy and in one where loans are being rapidly repaid many banks have to increase their supply of cash by borrowing money at interest from other banks. However, there is always a strong push for assets to be over valued and too many loans created, giving rise to the temptation for for financial institutions to invent derivatives and insurances under the guise of reducing risk.

We can break this cycle of positive feedback if we can find another way for banks to obtain deposits without having to pay interest on those deposits. If such a system could be put in place it would result in greater profits for the banks because they no longer have to borrow money and pay interest on the increase in the money supply. It would also reduce the incentive for banks to encourage asset inflation or to develop unnecessary and risky financial products.

It can be done by banks issuing a limited number of interest free loans where the money in the deposit account does not collect interest.   The issues with such a system are deciding where the loan money will be invested, ensuring the loans will be repaid and securing the loans in case they are not repaid.  These objectives can be achieved in the following way.

There are many institutions that have large cash deposits which collect interest which in turn are used to pay benefits to their members.  Such institutions are pension funds, superannuation funds, and governments with defined benefits committments.

Such an institution can ask the bank for an interest free loan secured against its existing deposit. The institution promises not to collect interest on the money from the interest free loan while-ever it is in its account and it promises not to remove its cash deposit while-ever the interest free loan is outstanding.  The institution still expects to receive interest on its deposit.

The Institution takes the interest free loan and it in turn creates smaller loans using the loan money and giving it to its members according to some criteria.  This money is also interest free and it must be invested to build a new productive asset.  The loan must be repaid from the income from the productive asset.

Overall system control is achieved by finding Institutions willing to commit their money long term to fixed deposits and by finding enough projects that will be able to repay the loans from the new productive assets.   Banks are limited on the amount of interest free loans they can create by finding institutions willing to risk their existing deposits.  Institutions will limit the deposits they allow to be used as security because if too many interest free loans are created so the interest on interest bearing loans will drop.

Institutions can use this process to control asset inflation within their communities.  For example, if there is housing/land price bubble then interest free loans can be issued to members to build new dwellings.  Even the threat of such an action will help prevent house/land speculation.

The system described above is a strategy to solve the tragedy of the credit commons.  In this case the community commons is credit.  The strategy is to give credit to members of a community but under the condition that they repay the credit from the earnings from new investments.  It is important that the interest free credit be used to create new assets not buy old assets. Using interest free credit to buy existing assets will simply cause an asset bubble and increase the problem.

Compliance is controlled by requiring the members of the Institution who receives the loans to use them for investment purposes.  If they cheat the system then they will never receive another interest free loan from any other organisation.

Banks win from the system because they increase the money supply without having to borrow money from other banks.  Banks can still borrow money from other banks but such loans will be with existing money not newly created money.  After a short time it is expected that banks will operate at a 100% fractional reserve.  That means they will only lend money they have on deposit.

In summary we have built a collaborative system where the credit commons is limited by the ability to create new productive assets.

This contrasts with the current system where the credit commons is unlimited and each bank is limited in its credit creation only by its willingness to create loans.  As we have seen the current system forces banks to exploit the credit commons because if they don’t then others will. The interest free loans approach means that banks are not tempted to create loans that encourage bubbles in asset prices.