A Golden Goose for the Local Economy.

As the economy crashes around us, we are all getting a crash course in economics. When the economy is growing too slowly, the Fed opens up the spigots and “gooses” the system (by lowering interest rates and making credit easier to get by the banks). The Fed’s latest interest rate slash to 0-¼% will be the most that it can do, without making interest rates “negative”..

In a typical boom-and-bust cycle, after the economy has been booming a little too much, and there is concern for inflation, the Fed tightens up the credit and raise interest rates, restricting money flow into the system, and a recession occurs.

Pretty simple.

Except for now, when there has been too long a period of loose money and easy credit and low interest rates, and we’ve had bubbles in stock markets and real estate – which are popping.. Now the system is addicted to even more loose money and easy credit, and instead of going into a recession, is threatening to go into a deflationary depression if the credit isn’t kept flowing at full force and the economy continually “goosed”..

So let’s leave that mess for to see whether we might apply the same principles at the local level. Is there a way that we could employ local capital to invest in local economic activity in such a way that the local economy could thrive, regardless of the the state of the national (and global) economies? Many people are beginning to suggest looking at alternative ways to become more independent of the crashing global economy. ( )

Within our community there are people with “means”. They currently invest their capital in the national or global stock markets, bonds, real estate and commodities. They are interested in making a return on their money – in these days they are probably most interested in preserving their capital when many of these investments have been losing propositions.

Suppose a community entity were to be created – a for-profit business. Its scope could include any products, goods or services that would be created for the local community. These could include food production farms, local restaurants, craft production, or local services. Call this business consortium “Community Enterprises Inc.”

Community Enterprises Inc. would sell bonds in order to finance its activities. The return on these bonds would be in the form of “products” so as to make investing in these bonds a desirable venture. These might be called Community Enterprise Bonds.

Any individual or group could become part of Community Enterprises Inc., by presenting their business plan to its Board for feedback and acceptance. For example, a team could put together a business plan for a local food restaurant, a market garden, a consulting service, or an auto repair garage. A business whose plans were approved would be supported with borrowed funds from the Community Enterprise Bonds. Any business with a solid business plan would be approved, as long as their business offering provides goods or services needed by the community. This would exclude businesses needing a larger market share outside the community in order to survive. Only those businesses scaled to serve the community would qualify.

A community which is producing real goods and services for its citizens would also be ideal for utilizing a local currency to facilitate exchange of goods and services. As long as there is a “flow” of goods/services from providers to recipients within the community, a local currency would be viable. In essence, a local currency is simply a means of keeping track of IOU’s and credits. All that is required is a computer server with appropriate software, and people sign up and receive an account with a balance of “0”. Trades are kept track of by moving credits from one person’s account to another.

These local currency credits could be utilized for paying for the goods and services produced by local businesses. The bond investors could be paid back in the form of specific goods or services, or they could be paid back with local currency credits, that could then be exchanged for any goods/services from local businesses.The Schumacher Society has information about numerous alternative economic systems that support healthy communities.

There were many local currency systems that were developed world-wide during the 1930’s in places such as Worgl (http://www.reinventingmoney.com/documents/worgl.html) – a town in Austria that issued its own local currency and created thriving local economy – until the government shut it down. Another local currency was started by Swiss businessmen during the 1930’s – the WIR credit exchange system. It accounts for 25% of the economic activity in Switzerland now – and helps to balance out fluctuations in the Euro activity of Swiss businessmen, which may contribute to the stability of the Swiss economy. In the US during the Great Depression, there were thousands of “scrips” or local currencies which were allowed to exist until economic recovery, when they were forced to shut down by the federal government.

The Fourth Corner Exchange is a credit-account transfer system that is well and thriving currently in Bellingham, WA. It has community trading groups from all around the Pacific Northwest who utilize its webserver for member accounts. The members of a local community (for example the 150 trading members in Port Townsend) use the zip code filter to trade with members who are within their own area. Other communities are developing around the Pacific Northwest that are utilizing this system for their local trading, and can also use it for regional trading between members in neighboring communities.

So, as our current economic environment continues to deteriorate, we may want to consider a local investment mechanism and establishing our own local currency.
http://chuxpermablog.blogspot.com/2008/12/golden-goose-for-local-economy.html
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