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Great article. I have long held a similar view.

fiat money is after all supposed to be a store of the value of our labour which we can then use to trade for other goods or to "save" for future use if our "productivity" exceeds our personal requirements. The system has been distorted because of the added complexity of our financial system, which leads to distorted demand for certain products and assets and the resultant boom and bust's we see in every recession. I see this partly being the result of the capital owners not placing a sufficient risk premium on their hard earned capital. Economists have been so focused on the inflation of consumables and semi durables,that this has allowed asset bubbles to develop. It does not take a rocket scientest to figure out that eg.housing cannot continue growth rates in excess of 10 or 20% pa using borrowed money, when personal incomes only grow at 1.5-5% pa, in line with the CPI. Over a very short term period (relatively speaking)the average earner, who make up the bulk of a market, can no longer afford the asset. The subsequent correction, when it comes, is more severe. If interest rates were more focused on the prevention of asset growth rates in excess of say 5%, earnings and CPI would find a much better point of equilibrium. i.e interest rates should reflect an appropriate risk premium that represents a level appropriate for all classes of consumption. Economic growth rates may be slower than that experienced in the last 25 years, but would be more resillient and would probably grow exponentially faster without risks of major corrections.

A possible solution would be to have a better system of market pricing for fiat money. Why not have one great big money market where a single world currency is used, and an auction system for the provision and use of money is established. Trade accounts would be in one uniform currency, so if you have a deficit,you cannot manipulate it by manipulating your currency. You cannot just print money either, only add products or services to the equation. If you consume more from other countries than you produce and export, the available currency to your economy will grow or shrink accordingly, and you can redeploy your productive resources for its most effective use. This closed system should ensure more stability than we currently have. The Analogy in the article is a good practical example of this practice.

In addition, the current practice of the spreading of risk by use of complex and misunderstood derivatives should be stopped in its tracks. My opinion is that if you are prepared to loan the money to someone, you should bear 100% of the risk of making that loan. This would ensure that your lending criteria are sufficient for the risk you are taking on. CDO's, RMBS, Interest swaps etc,are all "products" designed by institutions to a. increase their income through additional fee income, and b. designed to spread risk. If this practice is stopped, institutions that have poor risk management practices will soon be taken care of by the market through the process of "creative destruction"

It is the unwinding of the past bad practices that we are now paying for and need to work through. I foresee that this will take some time to do before we see the adjustments that are really required. e.g. USA repaying its debt to the world etc. I predict the USA will try to inflate themselves out of their predicament, which unfortunately we will all end up paying for.