Vermont’s Public Bank

Over in North Dakota, the state-run bank has been an oddball, yet very successful, model of 1910s socialism.  It’s the only state-run bank…well, although it looks like it’s getting a sibling in Vermont.

Three out of four Vermont communities have voted to convert the state-run Vermont Economic Development Authority into a true banking institution.

Banks do business by storing some peoples’ money, and lending it out to others, charging interest on the loan.   Part of the 2008 economic meltdown was due to banks taking far too risky investments, losing not only the principal but harming their ability to pay interest to those whose money they were lending out.  Lending stopped, borrowing stopped, savings were depleted, and everything went to hell for a time.    That is, until the Federal government stepped in to bail out the messed-up banks.

The hope is that a state-owned bank, taking a more credit-uniony stance, will run its lending policies in the interest of building value, not simply turning a quick buck.  The Bank of North Dakota does an enormous amount of business investment, handles college savings accounts for North Dakota children, and is more directly involved in the financial building of the State’s economy than some financial advisory board.  As the Vermont study points out, states already do a lot of lending and financial investment without the benefit of acting in a bankly manner.  Actually crossing that line into hanging a big “BANK” sign on the capital building makes one side worry about financial abuse, the other side cringe away from the evils of Socialism, but calling a bank a bank and doing business accordingly is the smartest step for a state that wants to control its own financial wellbeing.

Good luck, Vermont:  the Bank of North Dakota turns a hundred years old in 2019; hopefully you’ll overcome any shortsighted opposition and come into being before then.


Marijuana Money

Marijuana was legalized by the state of Colorado for recreational use as of January 2014.   In the first week, it’s reported over five million dollars of pot was sold by dispensaries, making it about as good as the Avengers movie opening weekend.

Unlike the Avengers movie, you can’t just swipe your debit card to buy some sweet bud.  Thanks to the Controlled Substance Act, the Federal Government still sees pot as a Schedule I drug.   You know who else is governed by federal laws?  Banks.

Banks were once a much more state-oriented institution, up until the 1990s.  If you banked in one state, drove to the next state over and tried to do business with a branch of the same bank, you probably wouldn’t be able to do too much.   This isn’t the entire reason, but as banking began to spread across state lines, it began to fall further and further under Federal rules and less on state laws.

So, the banks that issue credit cards, offer merchant accounts, accept EFT transfers, and all other non-cash transactions, are worried that their involvement in the marijuana business in Colorado will bring scrutiny on their books.

There’s a simple parallel to this, though.   You know who else does business that’s legal in their state but illegal in other states?  Nevada brothels.  It’s possible to use your credit card at the brothels, so at some point banks stopped worrying and took the brothels in their greedy, greedy arms.   Sure, there’s no broad Federal law banning prostitution, so marijuana is a bit more restricted in that way.   However, once banks get comfortable with this newly-legal industry, they’re gonna find some way to make money off it. Who has ever heard of a bank passing up on business for moral reasons?

(picture via)

 Update 1/23/14: The Justice Department will change laws to allow banks to deal with legal marijuana businesses.

Burt’s Bucks

If you missed last Friday night’s episode of Raising Hope, you didn’t get to see the trials and tribulations of a fledgling monetary system.

Called “Burt’s Bucks“, S04E02 started out with a revelation:  Burt finds out that he can get paid in other things than money — lobsters for instance!   This gets the Chance’s minds turning: who else would take barter, and how can they make it work for everyone?

Continue reading

Amazon Coin

Amazon has officiallly launched its own micropayment currency, called Amazon Coin.  Currently, one ‘coin’ is worth a penny, which makes it somewhat simple for calculating the exchange rate. It is designed for buying digital content for the Kindle, from books to apps, and customers buy or earn Amazon Coin in order to load their account.

With a name like “Amazon Coin”, there’s sure to be comparison to the BitCoin phenomenon, but they’re nothing alike.   Getting an Amazon Coin will be akin to sticking a $10 into the arcade token machine and getting forty brass tokens to stick into the pinball machine.  A Coin is worth one hundredth of a dollar; when the dollar fluctuates, so will the Amazon Coin.  Calling it a ‘coin’ is a bit of a misnomer; in the business world, internet currencies are “tokens” or “coupons”; only governments make coins.  But, whatever symantics Amazon thinks having online coins will avoid scrutiny from governmental entities is their own problem.

So why even call a “Coin” something different?  Why not just call them Amazon Gift Cards – which are already a thing, a way to get your money into Amazon in bulk to use for smaller transactions.  One thing about it being a “Coin” is that it becomes a purchase transaction, rather than a gift card which is increasingly regulated as persistent storage for money.  I’ll bet that there will come a day when app developers and participation in the Mechanical Turk will have the option of being paid in Amazon Coins.  This makes Amazon a barter-world: you do work that earns Amazon real money, and in payment you get tokens to spend at the Amazon store.  Sounds a bit like company scrip, don’t it?  Scrip isn’t horrible, as long as it isn’t misused.  Amazon isn’t dumb enough to require all transactions to be made with the same virtual money system, but if they did they wouldn’t be the first to try and restrict payment options.

Buying Amazon Coins diverges from the gift card model when you try and buy them: the more Amazon Coin you buy, the deeper the discount you get.  Spend $90, get 10,000 tokens (equivalent of $100).  Let’s see a gift card do that – even though there’s no real reason a gift card couldn’t have bonus dollars loaded during the transaction.  You can buy a gift card and then sell it to somebody; there’s a transferability in it.  Amazon Coins, not so much: according to the terms of use, you can’t transfer them or redeem them for cash.  You’re stuck buying products from Amazon – but you can bet that somebody will figure out how to capitailze on the 10% bonus and come out ahead.  But, since this is a retail transaction, Amazon can decide to stop selling coins to somebody if they don’t want to.   All this puts more control in Amazon’s hands, which doesn’t always sit well with people — which is why eBay relaxed their PayPal requirements for sellers.

The other benefit for Amazon, aside from giving free Coins when buying the tokens, they can just hand them out willy-nilly without using coupon codes or other odd redemption processes.  If you own a Kindle Fire, you’re getting $5 in Amazon Coin just for free, to encourage the use of the system.  Go ahead and spend them, but be careful when converting your dollars into Amazon Coin: be aware of what you’re getting for your money, like any other product you might buy.

Gold Prices Dropping

You may have noticed that the price of gold and silver has taken a fall in recent months, with gold plummeting significantly just in the last few days.   One big factor in this loss of value is that ETFs and other market investors in gold and gold futures are selling off and –

Hm?   Oh, you thought gold was immune from the ebb and flow of “imaginary money” of the stock markets and federal reserve?   You might want to look back and remember that in 2003, when gold Exchange Traded Funds started being traded, the price of gold has gone up five-fold.  For the most part, investing in gold is a commodity market, with a limited supply and varying demand.   Not much different than grain futures and the like; when the dollar gets weaker or demand goes up, the price increases.   That’s nothing inherent in the object; that’s the benefit of investment.    When gold ETFs came on the market, suddenly demand went up; coincidentally, over those same years the value of the dollar dropped, causing the price of gold to inch higher.

Gold’s perceived immunity from market fluctuations is that, because it isn’t consumed or renewed, there’s a level of stability to it.  Up until 2003, if you bought gold in the seventies and sold it at a 2003 price, your return would have been pretty close to inflation.   The past ten years have resulted in growth beyond inflation, so that’s where everyone got so interested, driving up demand and prices.

So, what goes up comes down:   if the selloff of ETFs is any indicator, demand for gold is dropping, and so do prices.  The world economy seems to be recovering, which will reduce inflation.  I highly doubt that the price of gold will suddenly return to 2003 prices (or lower), but there’s likely to be a correction back down below $1,000 sometime soon.

So, should you sell now?  Well, if you bought recently, no; you’ll take an unnecessary loss.  Wait another ten years, you’ll do OK (although not as inflationarily well).   If you bought five years ago:  maybe (and I’m not your financial advisor, so do your own research) and take your 100% profit out, invest it somewhere safe, and in a couple years buy when things look at about the bottom of the curve.   If you bought gold more than ten years ago:  you’ve waited this long, you must have a reason; this is a blip in the long-term increase in the price of  gold, a boon for those who were watching closely, but every investment sees sudden, huge gains and quick loss of value, and that’s exactly what long-term investing is supposed to ignore.

But, now, when should you buy?  If you want to use recent evidence as an indicator for the future, wait until the price has dropped significantly, then start watching ETFs and futures and look for expectations of a rise in demand.  Look at the U.S., China, and European economies, watching for excessive borrowing and printing of that “imaginary money” gold investors so fear.   The increase in demand combined with economic slumping and coated in a creamy shell of inflation is the ripe time for gold prices to rise; when you can check those off your list, that’s a time to buy.

Economy-Building, One Taco At A Time

Personally, I think this looks gross.  I like Doritos, I like tacos, but I can’t bring myself to actually buy one of those Taco Bell Doritos tacos.   I’m in the minority, though: three hundred and fifty million of the MSG-laden quasi-meat products have been sold and consumed by red-blooded Americans, and that means something.   It actually means 15,000 new jobs at Taco Bells across the US just to keep up with demand. That may be only one tenth of one percent of the total unemployed, but who complains about one-tenth of one percent improvement in today’s economy?

This goes to show that big numbers aren’t necessarily what is going to magically save things.  Sure, the housing market and banking interest rates are a big deal, but they are a macro-level of the economy.  Creating a product, even at a couple dollars each, that consumers want is going to have a positive impact on the economy.  “Trickle-down” may not have been as beneficial as predicted, but this is a “trickle-up” economic effect.  If each of those 15,000 new jobs were filled with unemployed workers (most of which undoubtedly were), at over a hundred dollars a week, that’s a million dollars saved in government benefits.  Those workers are making more money, hopefully, which allows them to spend more when they go shopping, which probably results in a mix of higher profits and more hiring in their area, which also results in more sales tax paid, more income tax collected, and more deficit reduction.   Just from one tiny taco.  I might have to go grab one for lunch next time I’m in Fergus, so I can continue to do my part for the economy.