Friday, February 20, 2015

Regulatory Reform, or………Wreck you Sooner than Later Reform?

Regulatory Reform, or………Wreck you Sooner than Later Reform?

Ganga Prasad Rao
Energy, Environmental and Mineral Economist

Disclaimer: The author makes no claims to factuality of the contents, or the outcomes of designs elaborated in this column.

Regulatory Reform is an oft-heard cliche in political circles, and among economists, investors and bankers. (One almost immediately suspects a conspiracy amongst them...or, is that being too intrusive?) Textbook regulatory reform is all about enhancing the efficiency of regulations - existing, under revision, proposed, and prospective, of maximizing net benefits, ie, incremental benefits net of incremental costs, about internalizing externalities - non-pecuniary and pecuniary, and reducing policy uncertainty. But reality is as much distanced from theory as politics is from truth. Regulatory reform has turned in to a catch-phrase, even a catch-all for unholy intentions of PV-capitalists, whether within the nation, or without.
Before unraveling the intrigue around it, lets first put regulatory reform in perspective. Regulations are necessitated for a myriad reasons: from defining the legal framework for initiating business, and the boundaries for conducting business with the Government, competitors and the general public, delineating the rules by which business in multi-lateral trade contexts, to oversee, monitor and enforce ethics in financial commons, and in such contentious areas as IPRs, or, to assert property rights, particularly concerning the environment and the safety & health of the public. Other motivators of regulatory reform include revisions and amendments to international multi-lateral agreements, streamlining with international practices and standard, especially if that is accompanied with enhanced access to international resources, advances in technology and concomitant changes in public risk, political and policy advances, new discoveries, changing social preferences, catastrophic-events -whether natural or anthropogenic, as reactions to court fiats and interpretations, regulatory rulings, and even opportunistic contexts such as bilateral (hedge) funding. Paradoxically, regulations are a two-edged sword; they are deemed onerous with repetitive amendments and revisions that increase the burden of compliance on both sides of the Government-Business divide, and thus the cost of administering regulations and doing business, but they are also sought by businesses for varied reasons, extending from protection of markets and prices from internal- and trade- competition, to avoid business and policy/unforeseen risks in the present and of the future, to the exploitation of real and strategic opportunities presented by macro-economic, political, technological, or transitory events. From this angle, regulatory reform serves as a channel, a medium, a bridge that permits businesses to be in continuous touch with the Government, and seek reforms/amendments that, both, insure them from costly risks and positions them to exploit profit opportunities.
Stakeholders in reform negotiations are buffeted by various pressures - some that would induce them to cooperate, others compete, and yet others, strategically accommodate either in bilateral, or multi-lateral contexts. Cooperative reforms are often 'patriotic' and concern domestic businesses seeking trade-protective and non-competitive advantages. Strategic rulemaking is the norm, and is exploited by governments of different leanings and foreign entities who may leverage their  antipodal niches across the Nation:ROW divide as polar hedges in financial markets to their advantage. Such reform is guided by strengths and weaknesses, opportunities and threats, anticipatory strategic moves, and literally, a 'give-end-take' attitude. In an adversarial context - whether real or stage-managed, both sides predictably stone-wall each other, and resort to legal challenges that delay reforms, potentially delaying the introduction of superior technology, and extending the life of an inefficient and privately-enriching obsolete technology, regulation or rule. Unlike the adversarial context in which partisan interests sub-optimize the social pie, cooperative and strategic regulatory reforms have the potential to maximize social FV gain, albeit if participants negotiate ethically, without corrupt intents.
Regulations are measured in various dimensions - efficiency: static and dynamic, social-, environmental-, economic cost and benefits, transactions costs, but less overtly, their impact on political fortunes and indeed, the capital markets. Every regulation, every amendment, every revision has its winners and losers among stakeholders who are hedged politically and financially. In fact, much of the lobbying budget owes to attempts by business stakeholders - small, groups, and large, and who sponsor elections, joint government-business initiatives, public events and leverage social media, to seek amendments, inclusions and exclusions, the opening or closing of loopholes that either pre-empt a private risk, or open an opportunity for concentrated private gain. Despite strategic cooperation, the Government and Business have long been at odds with each other in matters regulatory. This owes its origin to the competitive nature of businesses that induce firms to perpetually cut costs, whether by holding wages down, skimping on ESH-expenditures, or ignoring their CSR obligations, and in their opposite, the Government's efforts to 'left' the ship by seeking employment growth, wages and lifestyle enhancements and social security. Hostility between the Government and Industry, predictably, exacerbates in Left-leaning and Centrist regimes that pursue a path of compromise, accommodate sensitivities on both sides of the issue and seek to sustain economic growth, protect the livelihood and the lifestyles of people, tighten ESH standards, and safeguard the environment. On the other hand, Mercantilist and right-leaning governments (beyond Majoritarian multi-party democracy, weak coalition governments, and 'competitive federalism'), abet an unbalanced, populist, nominal, PV-hastening regulatory regime, the gains from which are disproportionately usurped by empowered party men, 'in-the-know' corrupt bureaucrats, businesses and investor community. Thus, and far from the economist's ideal of a vehicle to enhance efficiency incrementally, regulatory reform sub-serves a strategy pursued by the two sides that either obtain them the approval of the masses as consistent with electoral mandates, the nature of the government, and indeed, the macro economic hedges, and/or, profits at the bourses. Such strategic regulatory reform is likely deeply mired in conflicts of interest on both sides – conflicts that impinge on democratic representation, cross-sectional and inter temporal efficiency, trade fair play, financial prudence, legal  diligence on one hand, and upon competition, ESH/labor-relations and Corporate social responsibilities on the other.
To better comprehend the context within which regulatory strategies evolve, let us  examine the impact of CC-Trade and the consequent globalization of economic activity. Globalization and trade that took off with the frenetic pace of synergistic developments in Finance and IT, brought the bourgeoisie, even the proletariat in every corner of the world face-to-face with the realities of global competition, opportunities and risks. Changes in risks, opportunities and incentives associated with existing or new technologies, inventions and discoveries are magnified by the global reach of the CC-economy, the global, multilateral competition for CC-capital and -technology, and the domestic opportunities offered by friendly or strategic political parties. In this context of globally-magnified stakes, regulatory reform induces anticipatory strategic moves by the CC-Industry (and political parties) to secure prospective rents and avert anticipated losses. Political contributions and the funding of electoral candidates is one such strategy that pays off handsomely. Such contributions facilitate access to legislators (and bureaucrats) and ensures the Government is receptive to their interpretations, claims and proposals (regardless of actual election outcomes). Given PV-incentives that face businesses are mirrored in political parties and the Government - the electoral competition for votes in majoritarian elections only heightening those tendencies, regulatory reform, whether cooperative or strategic, is often a thinly-veiled camouflage for mutually PV-aggrandizing policy reform. Whether induced by competitive threat or opportunism, regulatory reform has turned in to an overtly public, yet obfuscated and camouflaged strategy to PV-aggrandize regulatory stakeholders by leveraging financial markets to monetize opportunities that the markets would otherwise not offer. This extends from introducing unsustainable and non-competitive technologies, regulatory policies with loopholes, options and alternatives that would normally not be permitted or considered, modifying terms of trade to favor FV-reducing options for the PV-gains that accrue private parties, delaying or denying discoveries and innovations, permitting unsustainable subsidies, politically-motivated interventions in such matters as competition, the timing of approvals, issue and renewal of licenses, even IPOs, tariff-setting and revisions, and litigation, to name a few. These strategies typically reduce a societal future by hastening it, motivate instruments that concentrate 'capital market-alpha gains' in political hands and corporate entities, and distribute costs amongst a large group across space and time in a manner that makes them invisible, imperceptible and seemingly of little consequence, if not incognizable (thus engendering an inter-temporal private-public externality in the sense that stakeholders who would benefit are pro-actively induced to seek such design, and the affected public largely unaware or unable to respond effectively. NGOs, claiming to represent the public, are oftentimes party to the design). Examples abound: from arms purchases, pricing 'subsidized' pharmaceuticals, auctioning of property rights and their cancellation, doctored PPAs and exploration-contracts to alter sectoral fuel-choice and trade competition that unbalance the playing-field, to land acquisition, permitting foreign investment & competition, and regulations governing infrastructure investments. Despite their potential impact upon global environmental and labor market impacts, each has the potential to rake in a PV 100% in the capital markets, and together they represent a very real and perpetual challenge to long-term sustainability of the nation, even the society. Thus, in Populist-PV-Nominal regimes, the incentives and motivations that underlie regulatory reform are quite often to the opposite of the long-run social good.
On a more sedate note, most CC-Technology is Capital-intensive, involving plant and equipment that  necessitate large, upfront investment, that can only be recovered across decades. Given governments last only a few years, and both, political parties and voters, have short memory and are notoriously fickle, businesses must devise a means to ensure their profitability beyond mere survival. It is in this context that regulatory reform turns significant; in fact  reforms take on strategic hues that seem more like 'BizAssurance'. 'BizAssurance' addresses uncertainty in input, output and factor markets, a key objective of reform initiatives and government-business negotiations, by seeking deals with institutions, organizations and entities that obtain those ends. To start with, the CC-Business identifies significant political- and 'cause-enemies', approaches the former to take a position opposite the latter, and further ensures they will react in a predictable and strategic manner in certain contexts and contingencies. Next, it makes fiduciary monetary deals with 'permanent' government institutions, such as the RBI, with whom it registers its budgetary support lines and FDI keys in return for 'Taxassurance' (AMT) and 'FXAssurance-FX Bands' (the latter as determined by the bounds of FX-interpretation on the multi-decadal compacts around IPN-exchanges between friendly nations. IPNs represent macro-prudential, fiduciary instruments deposited with a friendly nation meant to serve as an inter-temporal counterweight that stabilizes the nation's PV economy from international currency market-, trade- and economic- perturberances). Beyond these assurances, the CC-Business  leverages its access to the Lower House to ensure certain favorable legislative outcomes on the floor of the House; it exploits the Parliamentary Opposition to communicate with regulators and obtains their tacit agreement concerning competition, prices/terms of trade and such regulatory issues as exit, labor compensations, etc; it  anticipates judicial and regulatory challenges triggered by (nominally) 'unpatriotic (cause-)enemies', by leveraging the access the Upper House has to the Supreme Court, to pre-negotiate 'sector-sustainable administrative compacts' with the school of Judges (that implicitly enforces a 'Dionysus I Pareto') in return for supporting their EO-Causes. Together, these strategies, that account for a significant share of 'transactions costs' borne by the group of firms, sector or the mercantilist nation, obtain a degree of market- and inter-temporal certainty for CC-Business that permit it to commit to, and undertake massive and multi-decadal investments in a foreign nation.
The dominance of extant technology over the yet-unborn future technology by such means as subsidies, and the delay or suppression of superior technologies, is evident in PV-Capital markets, that, ever in search of expanded profits, incentivize the intensive exploitation of existing, low private-cost technologies that reduce the futures of a dispersed group. To relate an example,  dam-building and hydro-power generation capability is being exploited along the Mekong river to secure profits for owners of conventional technology while reducing natural assets, and undercutting the support provided to its people by intergenerational natural resources of the region. (Unsustainable PV-hastening, by reducing the future of a large group, breaks into the personal intergenerational wealth spheres of members belonging to future generations, especially if that hastening involves the Commons and Natural resources. Incidentally, one would expect that the nature of capital employed by the firm PV-hastening its profits at the bourses, or via an IPO, would also matter. Firms with EO/Social capital, whose revenues and gains are distributed broadly in the public, likely cause less damage to the Social-FV than firms with ZS-Competition capital that would rather enrich themselves albeit for the price of a smaller and unbalanced societal future. One could further assert that should an unsustainable hastening enrich the EO-capital endowed Government, it triggers vice and slavery obligations to restore social sustainability; else if that hastening is enriching to ZS-capitalists, it enforces an FV-reducing zero-sum on the society, even its customers, in a time-horizon not uncorrelated with the unattained EPS growth projected for the PV-hastening. Thus, IPOs for CC-ZS capital are best priced at lower than market PE multiples for the same EPS-growth, else limited to the low-growth, low-margin, sub-aural sectors of the economy).
It is pertinent to make two additional points. First, the hastening of a future stream of profits to the present engenders PV-Externalities and FV-Damages, the extent of which depends on the nature of production and consumption technology. Should technology be safe, efficient and closed-cycle, the hastening is likely to cause minimal impacts, and  the future translated to the present in about as-is condition; else, the hastening could substantially reduce the quality of life bestowed a future generation (the former represents a low-discount rate regime; the latter a high, implying that PV-hastening protects and captures most of the potential future in the case of the former, and reduces it significantly in the latter). Second, and whereas theoretically, the full costs and benefits of regulations are social, MNCs, domestic businesses and commercial interests (and political parties ahead of electoral duels) have an incentive to pursue only those opportunities associated with concentrated private profits; the same is noticeably lacking among members of the public who face a very real, if distributed regulatory impact across space and time, but are individually oblivious to it. (This incentive externality that owes its origins to under- or misperceived impacts, and to individually-insurmountable transactions costs shrinks to the extent such causes are taken up by environmental organizations and NGOs.) Further, and since private costs and benefits perceived by the industry/niche-polarized political parties do not dovetail with social costs and benefits, the same will not be internalized in their strategies and decisions, thus engendering potential externalities in various spheres of the society – ESH, social, monetary, governance, gender, even ethical and moral. This is particularly true in a Populist-PV-Nominal society with term- and regime-limited memories, responsibilities and payoffs. In such contexts, those stakeholders with access to resources, power and authority, who might benefit in a concentrated manner, have an asymmetric incentive to strategize, conspire/collude, deal or otherwise obfuscate/offer largesse and obtain their PV-hastened benefits to the detriment of the present and future society.

Beyond these externalities, the confluence of the Populist-PV-Nominal regime, and PV-centered monetary policies and financial markets dominated by '(Mars ZS) CC Competition' capital imply there exist (even for MNCs) large economic rents from policy intervention, such as legislating rules and regulations involving restraint of competition, strategic amendments to/ timing of innovation, taxes, government-protected subsidized markets, etc. One is not entirely amiss to claim that it is with these motivations that MNCs and foreign trade entities seek parleys with the government of the day, or anticipate electoral contributions with. Infact, political parties backed by electoral mandate from indiligent citizens, and opportunistic businesses with deep, globally-sourced pockets, are perversely empowered to seek loopholes, exceptions, and amendments to existing rules and proposed regulations that dovetail in to their capabilities, niche, opportunistic business plans, and that leverage their global political-, financial-, economic reach and technological prowess. Regulatory reform, at its worst, could then well be a systematic and repetitive exploitation of societal FV-wealth by the very governments and businesses supposed to sustain and grow it. It is in this context that one seeks an answer as to how political parties, the government or other regulatory stakeholders, distinguish the honest reform proposals made by (foreign) entrepreneurs leveraging  their expertise and foresight, and understandably ‘patriotic’ national trade interests, from those backed by technology newts and strategy experts conspiring with shady offshore financial entities who buy their way in to political parties and platforms, leverage their subscription to the global net of academic experts and professional consultants, exploit their political and financial influence and strategically manipulate rule-making and regulations that serve their private ends and very partisan interests? Wouldn’t these grey-entities exploit coalition politics, and competition for foreign investments across jurisdictions, to scoop-away the PV ice-cream of economic rents by their strategic introduction of unproven technology, albeit camouflaged in regulatory reform? And, more to the point, how should  public institutions anticipate such manipulative intents? Is Regulatory Reform merely the legal fig-leaf to hide behind-the-scenes consultations and negotiations – some regulatory, some political, some ostensibly patriotic and others, strategic diplomacy - that open the door to FV-compromising PV-aggrandizement by members of ruling party? If so, how would one with a long-social perspective internalize the perverse incentives that pervade in these interactions? To recognize that a problem – geographically-dispersed, politically-managed, overt, yet camouflaged and less-perceptible – exists, is but a beginning; one must persevere to find a credible and transparent solution to it.
Let us frame the issue as an outcome from the confluence of PV-enriching incentives on both sides, ie, on one side the Populist-PV-Nominal Party/Government answerable to its electoral mandate, and on the other, Businesses competing in the PV-ZS capitalist markets. On one hand, it is arguably a case of Agency problem - one in which a government ostensibly elected 'by the people, of the people, for the people' camouflages its corrupt-intentions in the impatience of the public for a fulfilling PV-lifestyle, to compartmentalize and appease them in the present albeit reducing their group-future. Simultaneously, and on the other, businesses must inevitably answer to investor- and shareholder pressures in Capital-markets (the return threshold), and that implies a preference for PV-profit maximizing strategies. Further, the Ruling realize that reform-seeking MNCs have alternative investment destinations should the nation cold-shoulder their reform initiatives (ie, the CC-Opportunity cost) and could well re-direct its not-insignificant capital to more receptive and accommodating nations. These incentives converge to induce both sides to meet half-way, albeit with strategic, if not unethical intents.
While there could potentially be many answers to the conundrum - social and political, in particular - this column seeks a solution in the very instruments that serve as the medium of PV-aggrandizement, ie, Finance and capital markets. The challenge is to devise measures that indicate the extent to which potential social FV-gains are reduced, hastened and PV-concentrated in private hands, and parallely, costs distributed amongst the masses across space and time. Within adversarial and corrupt-cooperative contexts, and given the conflicts of interests that are inherent to regulatory reform, it is best a neutral entity, with as much concern for the present as for the future, such as (in India), the 'CAG-RBI-Rajya Sabha-Niti Ayog'  (CRRSNA), anticipate such mal-incentives and impacts, and design objective and foresighted instruments to negate them, cover for residual pecuniary and non-pecuniary impacts, and improve upon reform proposals continually. Additionally, the CRRSNA would like to design appropriate hedges that, both inure the long-run future of the nation and position it strategically in subsequent rounds of regulatory reform. Toward the first objective, the CRRSNA anticipates regulatory moves by the two entities: the Government/Ruling Party representing citizens and endowed with EO capital and property rights to natural resources and the Commons, and technology-empowered Businesses, with CC- or Trade-capital. It pre-supposes the Ruling party will seek to aggrandize from PV-enriching pareto-, or perverse- regulatory reforms that are in consonance with its Populist-PV-Nominal agenda, and that it could legislate through its Government in cooperation or connivance with domestic businesses and MNCs. It also rationally expects the Ruling party to prefer reforms that attract lower capital-cost FDI, and those that are likely to aggrandize it discreetly post it's tenure. Further, it also presumes Businesses, fearing outflow of capital from other sectors into the 'reformed' sector, would only permit reforms in periods of loose monetary policy regimes and during  equity-bull runs when broad-based capital inflow pre-empts lop-sided, or zero-sum gains in sectoral equity valuation. Toward the second objective, the CRRSNA seeks a long monetary strategy that  anticipates and pre-empts significant losses to the nation's future.

Toward fulfilling these objectives, CRRSNA anticipates successful reform-hastened short-run profits, or failed reform-triggered losses in the regulated sector by recommending the Sovereign Wealth Fund, SWF, and the Ruling party, RP, simultaneously execute CRRSNA-sponsored, paired, Buy- and Sell- 'polar Half-options' in the Sectoral ETF. These paired, mirror-options permit opposite bets upon the post-reform SETF NAV, thus facilitating the SWF and RP to 'square' the option-facilitated trades post reform negotiations. This strategy forces a post-reform and post-term, CRRSNA-monitored reconciliation, enabling the 'permanent' SWF to 'compensate' the 'temporary' Government discretely for its role in the reform process (such as in the cover of 'cricket frenzy', 'border skirmishes' or various orchestrated agitations). Simultaneously, and while yet in the midst of reform negotiations, it recommends hedging potential negative FX-reactions to regulatory negotiations from the global CC-Business, such as a swift and broad-based withdrawal from capital markets of the nation, and in to other alternatives such as dollar-denominated GETFs and/or more inviting global destinations, by suggesting an internal arrangement between the SWF and the Ruling party. This arrangement pre-supposes the SWF and the Ruling party have opposite regulatory stakes: the SWF focused on the Long, specifically, the strength of the Rupee and the health of the capital market, and the Ruling party, with dual stakes as apparent in its preference for Sectoral-ETFs in the short, and on the $ in the Long.

Costs of Unsuccessful- and Benefits of Successful Regulatory Reform


Capital flight, Squandered SR reform rents
Weaker Currency, Social Inequity, Economic inefficiency
Gain in Sectoral efficiency; Stronger capital market
Stronger Currency
Ruling Party
Lobbying costs, Electoral contributions
Lost credibility
Stronger Equity market
CC Efficiency rents
CC Business

In the short-run, CRRSNA endowed with a $IPN exchanged for a RIPN, anticipates a knee-jerk reaction by a disappointed global-CC industry that takes the form of a coordinated and broad-based, if not surprise withdrawal from the nation's capital markets causing it to crash and the R to falter. It monetizes a tranche of $IPNs into two currencies R and $, and two gold-backed capital, RGETF and $GETF (the former hedges against the $, and the latter against the R), endows the SWF with R and $GETF, and the RP with an equivalent sum of $ and RGETFs, such that the internal exchange rate between the two currencies is equal the external SR FX. Pre-crisis and consistent with its anticipation and strategies, the SWF sells $-GETFs to its partner, in return for $, a Buy option on a weak $, and a Sell option on a strong R. The RP, on its part, promptly converts a part of the $GETF to R. This conversion obtains it a '$-Equal-MNC A' benchmark that it leverages to re-convert R back to $ and its CC-R equivalent, RSETF (thus, and in a sense, forcing the regulatory reform to be par-international, or limiting the re-conversion to the extent it is). Into the crisis, the SWF sells its $ to shore up the R at its weakest while the Ruling party exchanges its residual holdings of the R post the RSETF purchase. It holds on to its residual $-GETFs that appreciate both for reasons of gold being a safe haven, and the appreciating $ (The R-GETFs barely hold their own due counter movements between the currency and the asset class). Post-crisis, the SWF reverses its pre-crisis move by selling R upon the triggering of the Buy on the weak $, and/or, the Sell on the strong R, to buy into $-GETFs, while the Ruling party finds it opportune to harvest the gains in its residual holdings of $-GETFs and moves out into $ that it may, at its convenience, convert to R with its Sell and Buy options. Thus conceived, the two entities anticipate, hedge and overcome collusive regulatory strategies of the global CC Business, inure regulatory negotiations, force a global efficiency benchmark on the regulatory process, and bring stability to the Nation's capital market and currency in the short-run.

Option-based hedging to anticipate collusive regulatory strategist

CRRSNA leverages $IPN and issues SWF with (R, $GETFs)
SWFR:RP$ FX at SR market equilibrium
CRRSNA leverages $IPN and issues Ruling Party with (RGETFs, $)
SWFR:RP$ FX at SR market equilibrium
Endowment @t0
Convert $GETFs to $ (plus Buy option on weak $ and Sell on strong R) until SWFR:RP$ FX equilibrates with Long FX between two IPN-exchanging nations.
Sell $ for $GETFs (plus Buy option on weak R and Sell option on strong $). Convert $GETF to R (plus '$ Equal-MNC A' investment benchmark). Exploit benchmark marginally to partially convert R to $ and RSETFs.
Pre- crisis
Shore up R upon the triggering of the Sell on strong $.
Sell crisis-weakened Rupee for strong $
Into the crisis
Sell R for $ upon triggering of the Buy option on weak $;
Convert $ to $GETFs until FX volatility subsides and a new SR FX equilibrium is established.
Trigger Buy on strong R from SWF for $;  Convert exchanged R to RGETFs or $ consistent with position in polar SETFs.

These short-run option-hedges do not anticipate the long-run impacts of PV-ZS-FV regulatory reform that are injurious to the nation. The long hedges must cover for the expected weakening of the nation's currency due dubious reform intents, inefficient technology- and policy-environment. (When the PV-FV imbalance is caused by a large IPO entering the capital market, an 'IPO Perpetuity Line-FV Sustainability key', offered the new entrant in lieu of its IPO proceeds, might attenuate the FV-impacts of PV-hastening, as might supporting a 'Gold-opposite-House Perpetuity pyramid' flanked by Commons Bonds and Infrastructure/Safety-Health, ISH, Bonds that obtain the necessary PV-counterweight to the FV-reducing impacts of PV-hastening). But that would necessitate a simple and credible measure of long FX that reflects the impact of FV-reducing 'regulatory reform'. Toward such an instrument, consider Currency Long-Forwards (positioned opposite long Bonds?) upon CRRSNA-sponsored International Promissory Note, IPNs. The FV, nominal face-value of the IPN implies a reference FX for currency long-forwards; it must be pegged to a defensible measure of the FV-financial/economic state of the IPN-issuing nation. To avoid issuing IPNs exclusively linked to a PV-Nominal construct such as is the GDP, one could issue and calibrate them to the projected appreciation of, or decrement to an index (LGDPBND) that is a weighted average of projected annual average growth rate of nominal Long GDP and nominal annual returns to long Bonds of the same 'tenure', with expected average long-term inflation rate as the weight, such that higher the inflation rate, the more weight assigned to Bonds in the computation of the index, lower its value, lower the expected IPN worth, and weaker the currency long-forward; the presumption being that high inflation rates, despite their correlation with GDP growth, are FV-reducing (Figure). A LGDPBND-indexed IPN-validation construct would measure and benchmark the impacts of current policy/reform decisions on the future. So designed, the long-FX-forward, linked to real time IPN FV-valuation, would rise with the expectation of a sustainable expansion in the nation's future, and fall otherwise, thus offering an effective, market-anticipated, readily-observable and regularly-updated, public instrument to measure regulatory reform proposals potentially associated with irreversible, inter-temporal impacts. The CRRSNA would leverage this instrument to evaluate and calibrate competing proposals for regulatory reform and suggest to the SWF and RP, both, a cardinal ranking and inter-temporal spacing of the reform proposals, and appropriate instruments to secure gains and hedge losses.

Endowed with an appropriate instrument to price the long FX, consider an inter-temporal (t0-t1), half-pareto currency hedge between two friendly nations, A and B, the latter evaluating policy- and reform proposals involving entry of foreign technology. Country-B hedges its R by offering a R-IPN in exchange for a $1B IPN from Country-A. The issued terminal-value of the R-IPN, implies a significantly weaker currency than what its current FX@t0 would indicate (Country-A might interpret the  implicit FX@t1 differently from Country-B, thus causing into existence a Long FX-Band), and permits Country-A to issue bonds, if not $ currency on it. Emboldened with the $1B IPN hedge, Country-B accepts certain reform-facilitated foreign technologies. Should the technology and the reform enhance efficiency and grow the nation, the R would appreciate over the period t0 - t1, the LGDPBND index and the long FX holds its ground, and the R-IPN invalidated by the SWF for the return of $1B IPN. However, should the technology and the policy-reform fail, reduce the nation's future, and consequently, the nation's currency plunge to beyond the FX for which the R-IPN was issued, Country-B permits Country-A its rights to the R-IPN  and monetizes the $-IPN to $ (even prematurely, ie, before t1), and thus averts a dramatic loss to the nation's future.
To illustrate with an example, consider armaments offered a nation at what seems a beneficial deal with 'kickbacks' and commissions, and even a PV-aggrandizing bull-run in the market, but that might yet engender a war in a not-too-distant future period opaque to the stock markets and beyond the term of the present government. This dastardly PV-ZS-FV strategy, from beyond the shores, might not be unacceptable to political parties hedged for border disputes with neighbouring nations, and with the investor constituency in the capital market. It would seemingly bring prosperity in the short-run as measured by conventional PV-measures of economic activity and wealth, but the same would set off alarms in the upper echelons of the planners and long-investors by projecting a significantly weaker currency in the long, due the physical or financial internalization of the probability of a debilitating war reflected in lower expected IPN worth. Thus, a nation such as India, hedged in an IPN-exchange with the US for an FX of 80:1 in 2025, might default on it should an Arms deal spark a war with a neighbouring nation, due which the equity markets crash and its currency slip to 120. In such a context, the  nation, responding to a weakening of the long FX post executing the Arms deal, might well seek to pre-empt that future by hedging between peace and diplomacy. Further, the CRRSNA might anticipate and strategize around reform-engendered appreciation and depreciation to the nation's currency. Thus, it might recommend that an expected FV-gain be secured in Realty sectoral-ETFs, and that a feared loss be anticipatorily hedged and reduced in FX volatility prior to t1 – volatility that offers the opportunity to partially monetize the $-IPN, and which transitions the FX-market to a new equilibrium representing a 'permanently' weaker domestic currency.
Between the SETF-cum-GETF R-$ hedges in the short-run, and the IPN-hedge-exchange in the Long, an independent entity, such as the CRRSNA, would have sufficient data and variables to construct measures that indicate the extent to which a Government or a Ruling Party 'lurches' and/or 'stoops' - the former representing the extent it would lean to the right to aggrandize a few, and the latter the extent to which it would compromise the nation toward its private enrichment. Let us delve on those measures.
The PV-concentration of reform-rents, representing a primary objective of reform efforts, could be measured by expected gains to the regulated-sector ETF relative the gains (losses) in the broader market - an easy to measure ratio - whereas the CSTS distribution of costs associated with the reform - macro-impacts such as employment, income and FX effects, or policy-delay, pecuniary impacts, mass-, involuntary social disenfranchisement and dislocation - must  be characterized by its magnitude, the size of the domain across which it is distributed, and the length of the interval over which the costs have been spread (and gains 'hastened'). Thus, if private benefits in the form of expected sectoral gains, incremental to baseline 'no-reform' returns, were x%, incremental broader market gains or losses, Y%, so that x/Y indicated the incremental concentration of private 'benefits' from 'alpha-conducive reform' ; if inter-temporal social costs were C, the breadth of the domain, D, (as measured by the fraction of  population affected, and/or the cumulative percent/percentile impacted) and interval I, so that the CSTS-distributed costs took the form C/(D*I) - a variable that'd correlate with public perception and cognizance of that impact, then the 'Regulatory Lurch Factor', RLF, an indicator of private gain/alpha-concentration relative cost distribution and obfuscation, would, tentatively, be expressed as x/Y / C/(D*I), or x*(D*I)/Y*C. In the general case, an increase in the RLF ratio above, sought by reform-sponsors, would imply a lurch to the Right that aggrandizes a few, against the distributed, but imperceptible and hence cognizance/salience-escaping pain/loss suffered by masses across space and time.
As concerns the Regulatory Stoop Factor, RSF, the same may be obtained as the ratio of gains that accrue the Government and the Ruling party in the near term, to the losses that burden the nation in the Long. Denoting GRPGAIN as the dollar-equivalent of short-term gains accruing to the RP and the SWF post-settlement of the SETF Buy and Sell trades initiated with option-bets, the incremental weakening of the nation's long FX due inefficient PV-hastening by (-ve)DLTAFX, and the decremental loss to the nation's long GDP by (-ve)DLTAGDP, the RSF may be expressed simply as GRPGAIN/-(DLTAFX*DLTAGDP), such that the more FV-reducing the PV-hastening, the more negative would be the computed RSF ratio. Unethical Ruling Parties as well as alpha-seeking capitalists would seek their objectives and ends by maximizing RLF and minimizing the RSF. Between the Lurch factor and the  Stoop factor, independent entities, in particular the CRRSNA, would be endowed with the means to evaluate the extent of political bias in the incessant waves of regulatory reforms, and guide the nation thru a path of mutual PV-accommodation and FV-social sustainability, to bring about a more equitable and efficient innovation- and technology-conducive society.
Having outlined issues that stem from the confluence of PV-capitalism and populist paradigms, it is noteworthy that as populations rise, subsidies turn more unsustainable, the pressures to pursue a Populist-PV-Nominal paradigm become more urgent. PV-hastening, within such context, could force subsequent generations and governments to necessarily follow the Nominal-Right path, lest there be an exacerbation of social inequity and inter-temporal monetary stability, in the process, irreversibly changing the character of the society and the futures of its people. Thus, regulatory-reform engendered PV-hastening must be tempered with prudent FV-PV balancing that goes beyond financial options and hedges to the protection of social and natural support systems. Further, policies that identify and counter the  camouflaged CSTS-distribution of costs associated with perverse reforms, and incentivize institutions that take pro-active cognizance of such CSTS-cost obfuscation are indicated, as are financing mechanisms for their public activities. A final thought: Democracy is ostensibly the rule of the people by representatives elected to further the interests of the society. And while it does obtain a quasi-stable society for households to grow, and businesses to expand in, it is fraught with significant risks of economic and financial exploitation by concentrated political, financial and technological interests - some friendly, others not - that transcend the understanding of the financially-constrained common man deceived into accepting a nominal-PV-populist government for his survival and livelihood, thus potentially subverting a  fundamental goal of democracy. It is in the interest of the regulatory community, political leaders and representatives of the civic society to take cognizance of the perverse incentives  arising from the interaction of 'democratic', Populist-PV-Nominal politics, and the ZS-capital-endowed global CC-business, and pro-actively & publicly confront them, nip the larger social irreversibilities while yet incipient, and assure the society of a sustainable future.

Wednesday, December 31, 2014

The Indexation Curse…..err, I mean Bounty ! (plus an Introduction to Macro-Monetary-Financial design)

The Indexation Curse…..err, I mean Bounty !  (plus an Introduction to Macro-Monetary-Financial design)
Ganga Prasad Rao
Energy, Environmental, and Mineral Economist  
Evernote: gprao

The design broached in this blog is a proposal to the global community of economists, policy-makers and finance professionals. The author does not guarantee the outcomes indicated, or vouch for its financial robustness.


Inflation is, simultaneously, a layman's topic of conversation, the subject of many mundane government reports, and the focus of innumerate macro-economic researchers who seek to model, if not tame the wild animal with myriad econometric techniques, volumes of data and computing power. But the majority of such studies treat inflation at a national or sub-sectoral level. The few that consider cross-country inflation limit it to impacts from trade, and to foreign exchange disequilibria. There is little in the formal or informal literature that examines inflation from an integrated, global monetary systems-perspective. Given the widespread resort to Populist-Nominal-PV regimes across nations and the inflation it induces, given there exist gains to business-, political-, private and government entities from pursuing/supporting nominal, inflation-stoking policies, and given the transmission of the same through the various sectors of macro-economy, and through trade to other nations in a globalized economy, it is even necessary that we seek a solution that anticipates the phenomenon with a holistic design. This blog takes a hostile stance against inflation, examines the propagation of inflation by indexation, takes a larger than life, macro-economic - global macro financial perspective, and offers a radically different design to manage it at sustainable and defensible levels.

Indexation and Inflation

Indexation, as commonly understood, is the anchoring of, or pegging either the cost of primary- or intermediate-inputs, or the pricing of outputs to an internationally-benchmarked commodity, variably-priced fuel or raw-material contract, cost-of-living index, a spot-price, even a wage rate (Indexation of working capital and other business loans to such benchmarks as LIBOR is common, but not discussed here). Indexation could be of the input-to-input type, input-to-output, or the output-output type. The first stresses cost parity/input price-correlation, the second is contingent on production function- and market elasticities, while the third is suggestive of collusion in an open, global market. Indexation is most common in supply-contracts, but could extend to contexts as diverse as pricing subsidized goods and services, pricing of intermediate goods, and transfer-pricing across vertically- or horizontally-integrated units. Despite these instances, indexation-triggered inflation is largely a domestic phenomenon that flourishes by negating price competition characteristic of export markets.

The international anchor for cost-indexation, theoretically, represents an opportunity cost for critical production inputs in an 'open' nation. This implies domestic equivalents and substitutes are either less-standardised, less-well known, or less-widespread in their use. From a micro-economic perspective, the degree of fungibility of an input with other inputs within the factor-class, and substitutability with other factors of production, determines the potential for indexation-related inflation in production costs that are passed on, to varying extents as determined by supply and demand factors, in to product prices. Indexation of production costs to benchmark input prices negates this substitution, essentially maintaining a short-run, zero-substitution cost function. Thus, indexation of production cost to benchmark input prices over-estimates true costs and understates profits.

A Market-economy, both creates, and anticipates volatility in input prices. In fact, various mechanisms exist - from long-term contracts, hedging in the currency Forward and Commodity Futures markets, and vertical/horizontal integration - to manage uncertainty in input prices. The firm that better anticipates and actively hedges input cost-risks wins over competitors (and turns a Monopsonist!). Indexation could be driven by either legitimate or illegal reasons. Indexation would be legitimate in various contexts such as those involving international accounting parity issues, due transactions costs associated with computing transfer pricing of intermediate products, or even in contexts of input-inelastic production and output-inelastic demand that transmit all input price shocks to the output. Indexation is appropriate in certain other circumstances, such as the expedient estimation of costs, when the product is standardised, quality-invariant, when a benchmark is necessary to compare input/product bundles, and indeed, to enhance credibility and ease of verification of accounting costs. Indexation of cost and contract prices is not inappropriate when the good or service competes in the global marketplace, or when input prices vary for reasons beyond human control, such as weather, climate and natural disasters, but the same borders on the unethical when the intention is to obfuscate costs in legal filings to influence regulations, rules, policy decisions, and pad the bottom line with anti-competitive practices to hoodwink competition watchdogs. But what was a convenient instrument to pass on legitimate costs in long-term contracts that could not anticipate the distant future, has transformed in to a more-than-convenient ruse to pass on indexed, inflated output prices to consumers. Thus, indexation is as much a strategic choice motivated by collusive & competitive business strategy, and regulatory obfuscation, as it is a macro-strategy resorted to by Populist-Nominal-PV regimes in an inflationary, subsidy-infested and import-reliant nation. Such incentives are likely more pronounced in inflation-friendly regimes in nations with high interest rates, and in regulated/subsidized sectors, goods and services. The unravelling of the legitimate and the defensible instances of indexation-linked inflation from the unethical and strategically-motivated is a task for monetary- and competition watchdogs, accounting professionals, production economists, and perhaps, even inflation detectives.

Indexation, Subsidies and Regulated Prices

In socialist nations with a large Public-sector supplying the Government-subsidised poor, indexation of subsidized inputs and outputs to global benchmarks exacerbates damage from pre-existing incentives rampant across political parties to offer populist subsidies that enlarge their voter base and/or lengthen office tenure. Besides, recipients do not mind a continuation or an expansion of the subsidy. These incentives dovetail and reinforce each other, thus enlarging the subsidy-base exponentially. Accommodating the enlargement of subsidies by loosening monetary strings causes domino impacts on the macro-economy. In subsidy-ridden nations, the automatic pass-through of indexed costs to output prices guarantees inflation, affects monetary balances, the budget deficit, the FX, and even the terms of trade, albeit bilaterally (the impact is less evident if indexation is adopted by all trading partners). In fact, subsidies that have a tendency to enlarge and cause inflation on their own, are likely to balloon under a regime that permits indexation of prices to costs of regulated (and subsidized) inputs. And, should the money supply policy be indexed to the subsidy budget and FX, the damage done by indexation could further exacerbate and enlarge, reducing the future of the nation and the society.

Perversely, the largest threat to competition originates within the government itself - in the realm of regulated utility prices. Since the concerned industries often happen to be monopolistic utilities, the triggering of indexation-induced inflation due exercise of monopoly power from regulatory price hikes is a particular concern. Indexation-induced inflation in input prices is a strong possibility when subsidized or regulated output prices are linked back to 'Netback' input prices. In a nominal economic regime, the upward revision of regulated output prices, for defensible reasons or otherwise, propagates as higher netback input (imported) prices. Given the lack of competition in regulated output markets, Netback pricing exacerbates inflation in input prices, which could have further reinforcing impacts in the economy due cross-sectional indexation of input prices across sectors.

Indexation and Competition

To a lay person, the link between indexation of input- and output- prices and competition is not apparent. And yet, one of the primary reasons beyond the legitimate indexation of costs for accounting purposes, is the covert and illegal avoidance of price competition by tying output prices to an input price benchmark or another output. Indexation is tantamount to the pervasiveness or the essentiality of the anchor input, and an implicit acknowledgment of the market-boundaries for the anchor...or, the lack of it (This explains the rents that accrue the  benchmarked anchor good). Thus, indexation anchors from beyond national boundaries imply the extension of global markets and their influence upon domestic supply and demand, as well as competition within the nation. The point here is that should domestic goods and services be indexed to an international anchor, the same must apply as much for a fall as it does to a rise in price of the anchor. Lack of 2-way reversibility in input cost and output price variations, due legitimate reasons or otherwise, causes step-function-like rise in costs and prices that trigger downstream inflation. In fact, firms may well have an incentive to adopt imperfectly-reversible cost- and price-indexation. Lack of 2-way reversibility, volatility in benchmark costs and prices implies either a pseudo-monotonous increase in prices, or a flat/cushioned fall, thus and eventually enlarging the wedge between indexed costs and partially-reversible prices.

In the context of the above, it is not inconceivable that domestic firms in an open economy collude beyond national borders to exacerbate volatility in benchmark commodities at exchanges abroad, and simultaneously pad their indexed accounting costs at home, hold back output to raise prices and harvest monopolistic rents in the domestic market under the cover of international price parity. This subtle ruse involves, on one hand, supporting volatility at the international commodity exchange (such as the Brent Spot/Futures) with an FX-line, choosing a particularly volatile price series as the indexation benchmark on the other, and exploiting the cover provided by volatile rising international benchmark input prices to, collusively, irreversibly and/or disproportionately, raise output prices while concomitantly holding back domestic output to less than would otherwise be the case. In such instances, indexation furthers hard-to-detect illegal collusion among domestic producers. And though reduction of externalities from collusion in the provision of environmentally-damaging goods and services doesn't hurt, the price-rise that accompanies a collusive game exacerbates general inflation in the economy, reduces retail competition, and shrinks consumer welfare. It isn't an unfair exaggeration to claim indexation as a nominal strategy pursued by an oligopolistic industry that causes pecuniary externalities upon the economy and 'real' impacts on society.

Indexation and the Environment

Indexation of inputs and outputs to international benchmark price series is not always environmentally-benign. Consider prices for two similar benchmark anchors produced in two different nations that are nominally of the same quality. While one internalizes its production- and social externalities and prices-in stringent ESH standards (even equity-related taxes), the other is notably free from such government-enforced obligations. Thus, and beyond the mere arithmetic linkage, indexation implicitly endorses the various non-market attributes and claims inherent in the benchmark series. ESH-internalized commodity prices from a nation with stringent ESH benchmarks, when applied by firms to index output prices in a third nation with lax ESH standards, raises questions of environmental- and business ethics.

Indexation and Macro-strategy

Indexation to a global benchmark, since it inflates economies around the world and weakens their currencies to various extents, has a discernible effect on national monetary balances, on FX, and indeed on the macro-economy as well. Specifically, chronic indexation-linked inflation causes a nation's currency to weaken (irreversibly). Consequently, indexation-induced inflation, when unilateral and limited to one nation, almost stimulates exports; an 'indexed economy' is better off as an export-intensive economy. Conversely, economies that lack an international competitive advantage are better off not pursuing an indexed, inflationary economic paradigm.

When numerous large and small entities, in various nations and economies around the world, choose to index their costs and output prices, the aggregate of their reliance upon the input benchmark index bestows upon the producer/supplier/marketer of that indexed benchmark commodity, a strategic power that far exceeds his immediate economic priorities. In fact, such entities may rationally be expected to exercise their economic influence both, for their own commercial purpose, and strategically, to sub-serve the interests of the jurisdiction to which they belong. Thus, a nation may test the monetary (and trade) fundamentals of its economic competitors merely by inducing volatility in a 'global anchor'. Indexation may hence be associated with strategic, inter-temporal impacts of concern to nations that are import-reliant.

On a tangent, one may also claim indexation to be largely a B2C phenomenon meant to exact higher prices from a gullible consumer in a 'nominal society'. If all firms practise indexation, then the same is likely acknowledged, if not suppressed, in transfer prices charged B2B for intermediate goods. One may even go on a limb and claim indexation to be an exploitative counter-policy to nominal monetary policies pursued by the government that rob businesses of real returns on their investments. Inflation is also as much a strategy as it is an impact of an economy characterized by innovation-led product-quality enhancements. The disentangling of price rises due product-quality enhancements from product-quality camouflaged inflation is a task for the inflation-economist-detective.

A Monetary Strategy to Counter Inflation

Since inflation often involves essential primary goods characterized by low-elasticity in production that are critical inputs to the production process in any economy, it is not surprising firms and government agencies maintain private and public inventories. In fact, a group of nations could well build geographically-distributed, public inventories with potentially-shared control to enhance national security. In the context of the global reach of indexation, and its potential to exacerbate economic woes in Populist-Nominal-PV regimes, and cognizant of the sensitivity of commodity prices to such inventories, it is opportune to conceive of a novel ‘attrite-attenuate-decompose-balance-accommodate’ global, macro-monetary strategy that encircles inflation, banks it when a social gain, decomposes, milks and distributes its excesses, offers balancing monetary hedges when unjustified but inevitable, and 'nixes' it where appropriate or opportune, thus and eventually reducing it to sustainable and defensible levels. The design presented below is predicated upon a 'Quantity Theory of Money' framework within the context of global monetary institutions and financial markets, two opposing Causes - Resources and Innovation, and two opposing economic paradigms - Real and Nominal, to examine the monetary roots of the phenomenon. The exploration starts with FV Cause Pots that serve as the origins of monetary units and adopts an unconventional ‘purposes and lines’ strategy to trace monetary flows across various ‘constituencies’ in the global society.

The essence of the 'Quantity Theory of Money' is that the quantity of money in the economy is a scaled multiple of the aggregate value of transactions within. Thus, if P represents the price level, Q, the aggregate transactions in the economy, then, their product, PQ, the aggregate value of transactions, equals M, the quantity of money, scaled by the ‘velocity of  money’, V; ie, PQ=MV. Under this paradigm, heightened activity in an open economy obtained by stimulation with Keynesian fiscal policies (a rise in Q), and that results in upward pressure on prices, necessitates an upward adjustment in the stock of Money to the extent Velocity holds constant. Inflation, from this perspective, could be held at bay by fine-tuning the issue of money and adjusting the strength of the currency through market-determined FX-readjustments. Keynesian stimulation with monetary instruments, such as additional infusion of liquidity, and which causes a precipitous reduction in interest rates, induces a short-run rise in inflation until economic activity returns to its long-run potential, forcing a policy-reversal on interest rates. An exogenous disturbance to the nation's monetary balances, such as due rise in a global price benchmark of an imported primary input, would induce domestic inflation to the extent the economy was dependent on the benchmarked good/product, to the extent of energy/-material-intensity of its output, the efficiency of energy/material consumption in use, on the extent of competition/collusion - whether horizontal or vertical, to the extent of its terms of trade (import/export taxes), and the extent to which its foreign exchange does not adjust to changes in prices of essential imports and trade balances. That inflation would express as indexed cross-sectional cost (and price) increases in upstream sectors, and reverberate to varying extents in downstream sectors. It'd be mirrored in other economies around the world depending on the pervasiveness of the indexed commodity/input, as well as their monetary, competition, and trade policies.

The Policy Corrective

One must, in the context of concentrated gains that accrue to businesses, banks, and politicians in a Populist-Nominal-PV economy, devise a policy response that anticipates inflation-reinforcing indexation strategies at its source, and provides for an efficient resolution. Since inflation originates in primary commodities, and since it is a monetary phenomenon characteristic of nominal economic regimes, one may seek a solution within the monetary system focussing upon global commodity exchanges (although, other solutions such as domestic supply-side and competition policies, inventory policies, FX interventions and countervailing trade-policies too could be relevant, as complements or substitutes to the monetary policy).

Toward this goal, consider an integrated Bond-centric monetary strategy fed by 2 Cause-FV pots and mediated by Commodity markets, fiduciary, monetary and prudential institutions. The strategy envisages socially-credible and environmentally-defensible sinks for ‘monetary inflation froth’ that originates in commodity markets and energy-exchanges; further it reveals how inflation may be decomposed in to its constituents and distributed functionally. The strategy is exemplified around crude oil, a primary energy form from which obtain the various fuels input in to manufacturing, that is traded globally in large volumes and whose price is set internationally, and which fuels inflation to differing extents across global economies. Due its global nature, the design exploits the nature of different currencies (which, in turn, derives from the primary characteristic of the jurisdiction and its society) to signify, convey or transmit Cause FV-Intent lines, PV Monetary lines, and 'Signal/Criteria/Purpose lines’. But first, the Cause FV Pots.

Cause FV Pots and PV-Hastening

Cause FV pots are monetary entities that have a Future Value, FV, constructed upon the values and goals people have at large for, or toward fundamental causes in the society, or upon the potential gain from the exploitation/transformation/application of natural endowments and human ingenuity. Because they represent societal values, such pots, whether real or virtual, may be leveraged to create FV and PV currencies, and support various PV lines essential to achieving the Cause in the future. Such exploitation of FV pots to issue currencies, liquidity and cause-lines in the PV-economy may be termed ‘PV-Hastening’. Because currencies, liquidity and lines are directed at achieving a widely-supported Cause of the future, Cause FV pots and their PV-hastening represent a means for an entire people to live off the future, albeit with some restrictions, enforces and horse-blinds.

In Figure 1, the FV-Sphere, equivalently, the FV pot is distinct from the PV-Sphere. A slice of the FV Sphere is captured as an FV-Currency line and optionally hastened to the present as PV (Gold-ETF) liquidity through 'multiple-monetization'. The FV Slice hastened to the Present-PV is constituted of the ‘PV Cause’, its 'Opposite Compliment', PV, ie, a Cause-Partner, and the 'Opposite Bakey', PV-OB. The PV-Cause expresses in targeted economic/social/financial/institutional/regulatory entities and instruments that expand the size of the FV pot. PV entities such as Banks, and the CC-universe that can be bankrolled with PV-Gold ETFs, constitute the PV-OC, while the PV-OB anticipates, resolves and/or accommodates obstructions, negative externalities, extremes and enemies by leveraging instruments such as Cause Bonds, Cause-filters/criteria and related R&D entities, The size of the PV-OB represents the Cause burden, and that of the Cause-bonds within, the cost of Cause-capital. Put another way, the PV-OB is the price in excess returns or ‘Cause-rents’ that are drained to the margin of its opportunity cost by its detractors and remedial instruments. Thus, the PV-OB is a reflection not only of the polarization of views within the society, but also of the support for, and the difficulty of the task entrusted with Cause-remedial instruments.

The essence of the design is in juxtaposing two opposite, albeit real Causes, and the creation of two perpendicular FV-monetary entities that represent them: the perpendicular Land-Resource FV pot that seeks to maximize returns from the sustainable exploitation of land and resources, and the perpendicular Innovation-IPR FV Pot that represents the potential from the strategic optimization of innovation, R&D and technology in the Lifestyle society. Both FV Pots are created on real, global assets – Land, Commons, Biodiversity, Resources, and Realty in the case of the former, and Innovation, Research and IPR Banks, the latter. It is convenient in the context of the two perpendicular FV Cause pots to face-off the PV Cause domain against its PV OB entities, and force the two PV-OC domains to interact within a Real-Nominal paradigm across domestic and global-trade economies. These FV pots, aggregated from across nations, serve as the 'Mother glacier' to be 'Exploit-Monetize-Discount, EMD-hastened' as PV fund streams in to the Present-PV pot where it funds various entities in the Cause, OC and OB portions of the PV sphere. Whereas the Exploit- and the Discount- operations occur as rare, one-time, large dis-equilibrium events, the multiple-monetization of FV-lines represents a frequent, if irregular operation that hastens the future to the present. This hastening of the FV pot yields many generic FV-, PV-,  BV- and EV entities, namely: a monetary 'FV benchmark-exchange' unit, ie, an FV currency (line), that, when embedded in Gold, serves as the basis and source of PV Multiple-monetization, and whose level reveals the marginal variations in the size of the FV-pot, an 'I key-cum-I line’ offered a Royal-Judge or an Expert-Administrator to guide the path to the Cause, a ‘Real Oo FV-Hasten Boo PV- Nominal Oo BV’ mixed economic paradigm that results due production inefficiencies, financial impatience, environmental externalities and socially-tolerated ills in the pursuit of the Cause and which permits various macro-economic strategies, a PV-pot from which issue multiple, hedged, contingent, outcome-conditional PV-currencies/-liquidity/-lines (whose aggregate value indicates the size  of the PV Cause economy), a 'U Strictures-Reboot line' that forces cognizance of wrongs, their remediation and alternatives, an 'Oo-Benchmarks-Tangents line' that implies a 'Compromise-Trade-off-Optimization' between the Cause goal, its alternatives/opportunity cost, and ensuing negative impacts, an 'O line' to incentivise global excellence, a 'Cause Sow Cause Kar A' line to sow the Cause goals in the Real-Nominal PV-economy, an 'Aural B' (Trade/Retire-Protege) line, an E-line for imperfections, lapses and ir-resolutions, an 'Extremes-MD-Enemy' OB/BV/EV line, a 'Serve-key / Enjoy line' to enforce/incentivize the progress to the Cause, and indeed, an ‘End PV’ coupled with a ‘Start Foo FV’ key to incentive the cycling of the new over the old.

In order to elicit the size of the FV-slice to carve out from the FV-pot, the PV-OB and the PV-OC, one resorts to an admittedly creative, but plausible strategy. Pre-supposing the existence of multiple-monetization of gold, and that indexed, formula-driven Cause bonds, if eventually, transform in to FV instruments, or obtain a 100% Mirror FV, one carves an FV-slice of size equal the PV-size of indexed Cause bonds issued; the Cause bonds themselves issued to the marginal equilibrium at which their expected return equals that of an zero-inflation, FV-static instrument, ie, PV-GETFs, plus the premium for liening capital for the long, ie, Bond Term Yield Differential, TYD. The logic here is that the social return to pursuing the Cause should exceed the sum of returns from ‘banking’ the future in gold and the incremental yield to long investing. With the size of the Cause Bonds and the FV-slice determines, the focus moves to the PV-OC. Since the issue of Cause bonds shrinks PV-liquidity in the nominal economy, and the same is revealed in lower returns to PV-GETFs that participate in the Cause PV-OC, in stronger PV$, and in the reduction of Bond TYD, and that together move the marginal equilibrium point, one may, ingeniously, obtain the optimum size of the PV-OC by merely issuing as much PV$ and PV-GETFs as is necessary to weaken the PV$ and reverse the loss in Gold-returns and Bond TYD, thus returning the equilibrium point back to its original. (This involves the ‘Monetize-Match-De-monetization’ of ‘impure’ PV-GETFs obtained in the multiple-monetization of FV-endowed Gold designed with less-than-perfect intentions, with existing ‘pure’ PV-GETFs to obtain two forms of ‘impure’ physical gold and indeed, PV-‘I’$ and PV-GETFs. Figure 2). From this perspective, the PV-OC is merely the return of liquidity associated with a ‘positive opportunity-cost’ that was drained from the nominal economy in the creation of Cause bonds. With the magnitudes of the PV-OB and the PV-OC determined, the PV-Cause portion is obtained as the residual FV-slice evaluated at the market multiple for PV-gold monetization.

PV-Hastening and EMD-operations

To elaborate upon the PV-hastening of an FV-pot, consider the Land-Resources FV pot. The FV Pot represents the potential social gain from exploitation of Land, Commons and commercial realty, on one hand, and (above- and underground) natural resources on the other. Whereas the Commons and government-owned land may be aggregated across jurisdictions in to the global Land-Resources FV-pot, PV-monetized Realty offers, what is an arguably safe 'Mirror Keycopy 100% FV', to aggregate in to the same pot. (An FV-aggregator is a concept that pools the potential gain, expectations, shadow-value and rationally-expected future profits associated with resources, endowments and innovations, even the ETV of and positive externalities associated with FV-creating investments, in to an FV pot. Given a distant FV pot, only a slice of which can be sustainably PV-hastened and monetized, reasonable approximations and rational expectations serve to initialize it. Conflicts in this issue are best handled in the framework of two perpendicular FV Cause pots that permit the elicitation of verifiable FV-FV exchange rate and FV-PV discount rates.) It is this globally-aggregated land-resource FV pot that may be 'Exploit-Monetize-Discount', EMD-operated upon to hasten and obtain various PV-monetary streams to fund the achievement of the Cause.

An expansion of the FV pot for reasons as varied as expected demand growth, WTP gains, or goal-dedicated government/environmental programs, may be 'EMD'-operated in to different FV-, PV-, BV- and EV streams. In the design presented above (Figure 3), an ‘Exploit’ triggers upon the receipt of an 'Exploit FV' signal-key from the RC Bond Administrator, a Monetize PV from the Sovereign Fund, and a ‘Discount BV’ with an 'Inflation BV Discount key' from the Commodity market. These signals transmit the sense of the Land-Resource FV sphere in the context of the current state of the market and global economic activity to suggest the type of PV-hastening appropriate to that context.

An Exploit-operation on the Land FV Pot combines a ‘Resource A’ and other lines to fund Nominal Sustainability (Cause) Bonds, NSB, opposite -Resource Curse (RC) Cause Bonds that are arbitraged against the FX market. (Nominal Sustainability Bonds are the politician's measure of prosperity and political support in the masses. Meant to expand the lifestyle and security of the masses, the NSB, administered by the ruling political party, is NAV-indexed to indicators of nominal sustainability such as income, employment, inflation, (subsidies) and other PV-utility-maximizing needs, wants and desires that are the focus of Populist-PV-Nominal’ regimes; the NAV of these indexed bonds rise with PV-fulfillment among the masses. 'Real RC Bonds’, on the other hand, represent a long-run ‘hedge’ - 'real hedge' Bakey bonds that hedge for a 'resource curse' by leveraging a material-intensive lifestyle benchmark and pricing the indexed bond NAV in the gap to that benchmark. RC Bonds are indexed to per-capita consumption of various materials and material-intensive lifestyle durables and consumables. Positioned opposite nominal, social sustainability bonds, and benchmarked to lifestyles in resource- and technology-rich, high income nations, RC bonds expand in periods of recession and contract in periods of economic boom, thus providing a material-focussed hedge to CC Equities. The NAV arbitrage between NS Bonds and RC Bonds expands in good times, and vice versa.  The arbitrage between the two contra bonds across macro-cycles represents a compromise between, on one hand, short-term, populist social sustainability policies and a capitalist, material-intensive lifestyle economy, and on the other, long-term sustainability.) The Exploit operation on the Resource OC continues until there are no arbitraging gains in Sustainability-RC Bonds and until there are no FX arbitrage gains. In essence, this Exploit strategy shaves FV-slices from an expanding Land-Resource FV sphere to fund the defensible PV-expansion of the NSB and RC bonds.

The ‘Monetization-operation’ on a stable Land-Resource FV pot leverages the inter-temporal horizon of Long Bonds, the global reach of Insurance firms, and the Cause Bond-Gold ‘net’, to obtain the issue of ‘Land-SDR-Resource’ FV Currency line. The LSDR FV line endowed with a 'Land I – Innovation O -- Resource Oo' purpose, instils in the currency the goal of optimal exploitation of land and resources. Ceteris paribus, the issue of this PV-monetizable FV-currency may proceed at a pace, and up to the margin, that equates the differential in prospective returns to Cause Bonds over Gold, to the Term Yield Differential, TYD; the Cause bond denominated in ‘Land Ookey 2 BV-Resource Oo FV-Innovation Sue PV’ currency). The more widespread the support for the Cause, and more the impatience for achieving it, the higher would be the 'real interest-return' for pursuing the Cause, and the larger would be the attached FV-PV currency pot. Thus, it’d be opportune to issue more FV LSDRs/enlarge their ‘value’, the PV-hastening thru multiple-monetization of which by the IMF, obtains PV-currencies that, when subsequently applied to the Cause, achieves the FV-purpose. The monetization churns out PV lines from the confluence of the 'Real Oo' and the 'Nominal Oo' toward the Cause (NSB-RC sub-aggregate), the OB (the PQ-ESH sub-aggregate) and the OC (Banks, Realty, CC Equities), a ‘Resource I’ - a key that a Royal-Judge or an Expert could rule the sector with, and indeed, a social 'Serve B key'.

Finally, a Discount-operation on the Land-Resource FV Pot, with an 'Innovation Delay Ook –Commodity Discount Oo' from the Commodity-Oil market, channels that portion of the FV Pot as 'PV Discount Roubles' to the Sovereign Fund which would potentially remain un-exploited due perceived future economic unviability of the resource.

Thus, while an 'Exploit' operation benefits Sustainability-RC Bonds, and its ‘dependent constituencies’ - namely Subsidies, PSUs and Realty, the 'Monetize' endows, on one hand, the IMF with FV- and PV-liquidity to support and participate in the global energy and mineral supply, and on the other, fund the Resource PV-Cause, OC and OB portions to support the CC- and the Trade- economy. The 'Discount' operation on the FV pot benefits Sovereign funds and its operations.

A similar logic holds for the hastening of the Innovation-Lifestyle FV-PV pot - a global aggregate of unmonetized IPRs and CC R&D potential, from which could be nurtured a Lifestyle-centered society. The Global Innovation FV-PV Lifestyle pot, fed by a hypothetical ‘IPR FV Aggregator’ yields, beyond the Exploit-, and the Discount- operations, an Innovation $ (Inn$) FV currency line upon a Monetize-operation. The Monetize-operation engenders a ‘Product Quality U-Resource E-Innovation Oo’ FV purpose-line that underwrites the creation of FV Inn$ currency line, vested with the World Bank. While the Exploit on the FV-pot favours Insurance (‘Innovation Lira A Exploit Bakey PV’), the Discount lines, ‘Inflation Bakey PV-Innovation Discount BV-ESH Ookey 2 FV-PQ Boo EV’ and ‘Innovation Aural Delay Perpetuity Innovation Bakey PV', support the IIB-PQ-ESH-GETF sub-aggregate to cover for ‘CC-Strategic plays’, as well as environmental- and product-quality fall-outs from Utility- and PV-centric innovation. (ESH Bonds are divisia-indexed, formula-driven, globally-administered, nation-specific Cause Bonds whose ‘Fair NAV’ increments with enhancement in the level, quality, or measure of pre-defined environmental, safety and health indicators. Evaluated with a single, common global formula, the nation-specific bonds have a common ETV, but different initial values that translate to different ‘aural-trends’ and indicated returns. A two-part NAV that reveals the measured ESH bond value against its ‘aural-trend value’ for any intermediate time, t, indicates deviations from, and the probability of achieving the ETV. Symmetrical to the Land-Resource FV pot, the ‘IIB-PQ:ESH Bonds-GETF’ sub-aggregate, fed by the Innovation FV pot, in turn supports its various constituencies, namely, CC-/ESH-R&D, Public Infrastructure, ESH Compensation and Remediation, Insurance, and indeed, CC Equities. The ‘Lira Exploit A Bakey’ line from the Innovation-Lifestyle FV pot, and which favours Insurance, is returned with a ‘Sustainable Innovation Pace Oo’ key (the measure for the optimum pace of innovation, ie, the pace of innovation at which the marginal cost of innovation capital equals the prospective marginal return on GETFs). The PV-hastening of the Innovation FV pot also signals a re-organisation in the CC Industry (Merge Boo - Bankruptcy Eew – CC U – Innovation Opportunity’) that triggers, beyond CC M&A/Reorganization, an inflation-conducive 'Delist 2' and an Inflation-abating 'Competition Akey Line') and offers an 'Enjoy-Exploit B : Release-Monetize : Deny-Discount' to (nominally) Slaves over-extended in the pursuit of FV Innovation.

FV Currency and Gold Monetization : Gold ETFs, Dime-a-Dozen

The LSDRs and Inn$ FV currency lines obtained from monetization of the two perpendicular FV pots are FV monetary units that may not be transacted against in conventional PV markets. It is necessary to convert them to PV monetary units for use in the Nominal PV economy. This is facilitated by merging the virtual FV Currency lines with physical Gold bricks to create FV LSDR Gold and FV Innovation Gold. Physical Gold may be partitioned three-fold: Temple-Tribal-Church, TTC Gold, from the Bullion market, PV-Monetization gold from the Mint, and Jewellery, J-Gold from the Gold Refinery. (PV Gold ETFs represent free-floating, liquid and high-quality capital, and that hedge against various global sustainability risks. TTC Gold is the store of physical gold ‘sponsored’ by religious entities. Such Gold, beyond representing an inter-temporal store of monetary value, doubles as the counterweight-repository to wrongs excused by religious entities, such as social/family/personal sins. Purchase of TTC Gold entitles the owner to secure the FV-opportunity (opposite EV-sins) embedded in it. Jewellery Gold, J-Gold, on the other hand, represents a cross-sectional repository of business wrongs (to the exclusion of ESH and the legally-cognizable). Owners of J-Gold may claim the cross-sectional PV opportunity offered by the industry in lieu of their ‘acts of commission and omission’ registered in the gold. The TTC-J Gold fractal-net may be likened to an inter-temporal - cross-sectional net of PV- and FV- opportunities that are stored, distributed, and resolved against various FV-life and PV-economic equivalents. The opposition of the Sustainability bonds paired with Resource Curse Bonds against the TTC-J Gold provides a convenient means to benchmark and inter-temporally/cross-sectionally resolve the inefficiency and social costs (including, potential recourse to vice and slavery ‘serve keys’) associated with unjustifiably raising the PV-lifestyles of the (subsidized) masses with nominal policies. Thus, the TTC-J Gold paired entity is, both, an opportunity and a risk that accommodates the FV- and PV-ills engendered by the potential exacerbation of nominal policies pursued by a Government of the Right. Given both Gold are owned by members of society, their exchange reveals, in a sense, both the societal rate of trade-off between inter-temporal and cross-sectional WTP to reduce real FV for nominal PV sustenance and lifestyle, and the degree of religious rigidity and business flexibility.)

The multiple monetization of FV Gold to PV Gold-ETFs by the Central Banks of various nations occurs by placing Mint gold in lien with the IMF/WB, and issuing PV-Gold ETFs at a market-determined multiple for the FV line embedded in it. The PV-GETFs issued in the monetization are embedded with a ‘Land I BV – (‘ESH Bakey Inflate 2-PQ 100% FV’) – Lifestyle I PV’ key that imbue it with universal validity and the ‘power’ enforce higher ‘diligence’. The Central Banks, plus the Sovereign and Capitalist Banks that obtain FV Gold against sale of Oil to the IEA-SPR, exchange the same for PV-equivalent Gold ETFs that serve as a global FX-hedge. The conversion of FV Gold to PV Gold ETFs, under the supervision of IMF and the WB, and participation by the various Central Banks (on behalf democratically-elected governments) and FIIs (representing global business interests), occurs at a multiple determined by economic and monetary market conditions. (It is apposite to note that the multiple monetization of FV-line embedded Gold to PV Gold ETFs requires both an FV- and a PV-counterweight to withstand instability to the FV- and PV-pot should the monetization be of a large magnitude). These PV GETFs underwrite the PV-pots created in the EMD-operation upon the FV-pots, and fund PV-lines directed at domains that constitute the 'Real Oo-Trade Ku-Nominal Oo' economy.

As indicated earlier, one could systematically relate the equilibrium monetization multiple (the intersection of the supply of FV-Gold and the demand for PV-Gold ETFs) to the sum of prospective Gold returns and the Term yield differential, TYD, in the Bond market. In recessions, when the demand for Gold ETFs is high, the expected TYD in the Bond market shrinks (and vice versa for Booms), thus suggesting a positive relationship between the Monetization multiple and a variable that is a ratio of the expected return on Gold ETFs to the expected TYD in the Bond market. This positive correlation could be leveraged by the Central Bank and FIIs in making FV to PV Currency Monetization decisions (Figure 4). FV gold bricks may then be (liened to the IMF and WB, and) monetized in to Nominal-PV Gold ETFs at the equilibrium multiple.  In the context of variations the condition of the economy that determines the Gold monetization multiple, the Sovereign and the Capitalists may choose to time the sale of ‘their’ oil, vary its magnitude, and simultaneously, vary the number of FV SDR/Innovation Gold bricks (obtained in exchange for oil) to monetize. The Central Bank anticipates these moves by adjusting its monetary policy, in particular M2dot and interest rates, to influence the gold monetization multiple.

Commodity-LME:IEA-Oil -- Private FV Inventory-Public PV SPR

This paired 'Private FV-Public PV' entity serves as a material store of value that fulfills raw material and fuel input requirements of the global PV economy that transforms it to produce Durables, Consumables, Infrastructure and Services. These inventories are a primary determinant of prices in the downstream PV economy and their management a critical influence on commodity/consumer inflation. A large product inventory relative sales, an early re-stocking, and a frequent-cum-liberal inventory release policy, are conducive to low inflation.

While the Public SPR serves as the PV Mirror-Counterweight to the FV SDR/Innovation currency in Gold Monetization, the Private Commodity inventories offer a Commodity-sourced Working-capital FV line directed to Commodity-using producer-firms via Banks. Beyond the Monetary transactions, the trade involves the exchange of 'Value Added 2-PQ Oo' from the LME-IEA for 'Wage Bakey-Material Aakey' from/with producer firms, and 'WTP Data Bakey-PQ Sense Boo-Commodity Information BV' from the currency market. These are routed appropriately to the EMD operations upon the FV pots, and to influence critical business decisions.

The WTO-‘Resource-Innovation FVX’, the EV-FV Kroners, and the FV-FV RI$

Whereas the SPR is in the physical and financial control of the IEA, the WTO-sponsored FVX serves as an FV-Exchange that permits the equilibration of LSDRs and Inn$ - both against each other and vis-a-vis the PV$ thru Commodity and SPR transactions. (Figure 5) Whereas FV to FV equilibration informs upon the future scarcity of resources in the context of latent/potential innovation, the two FV to PV currency equilibrations offer valuable information as regard the real interest rates pertaining to Land, and to Innovation FV pots. Thus, the WTO obtains, thru its role as both a physical and an FV-PV monetary intermediary, crucial information as regards resource scarcity and inter-temporal interest/discount rates involving two antagonistic entities: resources and innovation.

Upon the successful execution of a resource purchase-sale cycle thru the SPR and Commodity markets, the WTO obtains a positive Trade externality, a social gain expressed as 'Commodity (Working capital) FV SPR Mirror 100% (PV counterweight)'. The WTO leverages this line, in times of rising FV, to issue a dynamic, 2-faced EV-FV Currency: 'End -2 Close - Green EV Kroners' and 'Start - 2 Foo - Blue FV Kroners' in the opposite of the merged RI$ and against equal amounts of LSDRs and Inn$. (Since a higher multiple at the Gold monetization implies a demand for PV-Gold ETFs in recessionary/unsustainable times, the same may be leveraged to pace the issue of 'Green EV-End Kroners and 'Blue FV-Start Kroners' by the WTO as well. Given the FV-line endowed Gold monetizes in to PV-GETFs with an ‘I-I key’, these Kroners represent the backward-looking and the forward-looking complements to that monetization. These ‘Trade-Innovation-CC’ currencies may be distributed among/assigned to CC-Equities via the ‘Central Bank-GEF-Capitalist Banks’ at a pace that correlates with the Gold monetization multiple, so that recessionary periods are supplied with sufficient Kroners to churn capital from old to new businesses (the logic being that new businesses that seek loans from Banks must seek and deposit these transferable FV Start Kroners with the global CC Equity market in advance to compete for an IPO placement, and exiting businesses tender the End-Kroners to the IMF for a 'TTC-J Gold End–ESH Bakey Inflation 2-CC Bankruptcy Ookey'. Tangentially, the issue of the dynamic, 2-faced EV-FV Kroners against multiple monetization of FV Gold in to PV Gold ETFs, ensures the ‘Mo Alien Monetization 100% Mirror FV’ complements the WTO in the issue a ‘Start Foo 2 FV’ to the CC IPO market. The Central Bank and the Government may further vary business conditions to influence the entry and exit of Capital by modifying interest rates and capital taxes until the marginal shadow value for the two Kroners equilibrate, signifying a return to dynamic Schumpeterian equilibrium.) These Trade Kroners serve the Schumpeterian purpose of closing out the 'Old' and sparking the 'New' within an economy, thus countering 'real' tendencies to extend dated technology and obstruct new efficiency-enhancing innovations. They also serve as a ‘FV-EV balance’ to counter FV-PV instability from PV-hastening large FV-slices. An 'ESH Sustainability Pace Oo- Inflation Intertemporal MD 2 Monetize-Innovation Pace Ookey- ' line separates the two Kroners, ensuring a quantum jump in ESH performance between the Old and the New, and the jump-starting of new technology (firms). (Given Kroners are issued as the residual post the multiple-monetization of FV-endowed Gold in to PV GETFs that are endowed with an universally-valid, standardized ‘I-I’ key; they resemble ‘polarized FV-EV half-currencies’ that concentrate, respectively, FV-opportunity and EV-lapses. Firms exiting the CC-universe with an End-2 must pay off these EV-lapses.)

The FV LSDR and the FV Inn$, do not 'trade' directly against each other; they are negotiated thru the RI-FVX. While the two may be multiple-monetized separately in to standardized, uniform PV-GETFs and unique EV-FV kroners, it is advantageous to conceive of a merged FV currency, ie, the Land-Resource – Innovation-Lifestyle FV currency, RI$. This FV-FV currency symbolizes the near-perfect and long-pareto merger of the two conflicting FV causes. The RI$ are issued by the WTO to Central Bank on behalf the Sovereign and the Capitalists against equal value FV LSDRs and Inn$ they obtain in exchange for their oil.  Denominated in 'LSDR Equal Blue-Commodity Opposite FV-Innovation Pareto Green' dollars, the RI$ are issued opposite Kroners in periods of contracting FV as evidenced by shrinking LSDR and Inn$ (and lower multiples of monetization). The RI$ take the role of a merged FV-counterweight opposite large, risky, and potentially unbalanced PV contracts in the Commodity-Oil market (the SPR serving as the PV-counterweight). Whereas the Blue and Green Kroners quicken the Schumpeterian cycle and hasten the expansion of the PV pot in times of expanding FV, RI$, serve as a 'Forevision-cum-Pareto' currency and reveal pareto FV-opportunities in a slowing economy that are issued to protect an imperilled FV. RI$ are allocated at irregular intervals by the Sovereign/Central Banker and Capitalist Banks to priority (domestic) entities that apply them to gauge time-specific pareto opportunities. In the opposite of the market-equilibrated FV-PV GETF monetization multiple, RI$-assignees may, post ascertaining their pareto-opportunities, self-monetize RI$ at a negotiated multiple against their transactions with those lower in the value chain, thus revealing their priorities and focus, and simultaneously transfer the RI$ to the next lower value-added layer in the economy. As these FV RI$ permeate down layers of the economy, they trade lower, and are eventually returned at PV (=FV) face-value to the Sovereign/Central Bank/Capitalist Bank. The Sovereign and the Capitalists, privy to Pareto-opportunities in the value-chain revealed by the RI$, issue a 'Start FV 2' to the CC-Equities and the IPO underwriters, who in turn issue it to select CC Growth equities and to firms possessing FV Kroners, thus facilitating the realization of those RI$-revealed FV-pareto opportunities. (Simultaneously, the TTC-J Gold and ESH Bonds break the ‘End key’ issued by the Sovereign Fund and the NCESHPEI aggregate in to an 'End EV 2 Bakey' issued to each other, and an 'End EV 2' that is forwarded to Central Bank for assignment by the IMF to firms with EV Kroners.)

PV Pots, Contingent Currency Strategies and Monetary Transfers

The creation of a Cause PV pot from the Monetize operation on an FV pot obtains an FV Currency, an ‘I-line-cum-I key’, a ‘Real (Investment) Oo FV : Hasten (Wealth) Boo PV : Nominal (Consumption) Oo BV’ economic paradigm. The ‘I line-I key’, entrusted with a ‘Royal-Judge’, or an ‘Expert-Administrator’ endows him/her with authority to design, fund, manage and implement pro-active, mitigatory, and remedial policies that achieve the Cause. As indicated above, the Cause PV-pots engender an FV-PV-BV paradigm that accommodates various economic constituencies, entities, domains and strategies. Within this context, currencies represent certain fundamental national FV endowments/stakes while financial and market institutions are entities meant to further a financial/monetary/market purpose. Monetary transfers by Cause stakeholders across currencies, institutions (and jurisdictions) then represent a shift in position, stake or intent within the context of the macro-economic cycle and the Nominal-Real economic paradigm.

Consider first, the PV-lines that populate the ‘OpenCycle, OC Resource Economy – PerCapita, PC-PV Economy - ClosedCycle, CC Technology Economy’ and 'CC Global Innovation Economy - Resource Trade Economy – Lifestyle Technology Economy' from the confluence of the Real and Nominal paradigms. Whereas the Land-Resource PV Pot hedges for three outcomes of the CC-Resource Economy - Consolidate, Compromise, and Dissolve - with three currencies, A$, Shekel, and R$ that favour distinct PV-entities and markets, the Innovation-Lifestyle FV-PV pot hedges in the three outcomes of the OC-PC-CC Economy: Boom, Compromise and Recession, by favouring three contrasting entities – Gold, Cause Bonds and CC R&D, with lines denominated in US$. Parallely, the Land-Resource PV pot provides for three outcomes of the Innovation-Trade-Technology economy (Beneficial, Ambiguous, and Injurious) by exchanging S$, Shekel, and Chilean Peso in to PV lines denominated in, respectively, Q.Rials, Mexican Peso, and Ariary that favour NS Bonds, ESH C&R, ESH R&D, and the Nature EV pot (Figure 3). Finally, the Innovation PV pot hedges the Flourish-Stagnate-Shrink outcomes of the Innovation-Technology-Trade economy by placing US$ respectively, in Realty, Sovereign Fund, and FX. Thus conceived, the Expert-Administrator achieves the goals of the hedged FV-Cause pot while sustaining a monetarily flow-balanced and hedged, global PV economy that addresses both Real and Nominal pursuits.

The PV-Decomposition of Inflation

The PV-inflation generated in the primary commodity markets, and which serves as the basis of indexation that perpetuates inflation in to the secondary and tertiary sectors of the global economy, may itself be imagined to be a ‘confluence’ of several underlying streams. Such conception permits the decomposition of those underlying ‘contributors’ to inflation and so manage them separately, that the phenomenon attenuates to monetarily-defensible and socially-sustainable levels. In addition to the FV-inflation due Realty 100% FV (that is attenuated by feeding it through/against an FD alternative), the TTC-J Gold cross-sectional – inter-temporal inflation source-sink, and the disinflation-inflation due the issue of Start-End kroners, the anti-inflation strategy relies on a four-way dis-aggregation of PV inflationary gains in to a) a real (Price arbitrage-Transaction volume-secured) Sovereign-Private Wealth-hasten, b) a real (Product-quality-sourced) Social gain, c) a Nominal ‘FX-Global Trade-Sustainable Lifestyle Inflation’ line that varies in the ZS of, d) a nominal, unsustainable domestic inflation constituency, namely, Subsidies. Thus, Inflation from the Commodity-Oil markets distributes in to:

a) an 'FV-Reduce-PV Hasten Kroner ESHX - Commodity A 2 FV - Inflation Intertemporal Arbitrage ZS FX - SPR Wealth Monetize PV 2' line to CB-GEF-Banks, where it decomposes and re-mixes to favour i) the CB-Banks with the 'Commodity A 2 FV-SPR Wealth Monetize PV 2' line, and a 'Commodity-Inventory FV' to existing resource firms, and ii) the FX-GETF-FX hedge-pair with an (contingent) 'FX 2 PV' and an 'ESHX BV', and an 'ESHX Oo 2 PV'; the line favouring FX market adds volatility around the Sustainability-RC bonds, while the GETF line contingently buttresses the NAV of IIB-ESH Bond sub-aggregates. These PV, BV and FV lines may be interpreted as splitting the inter-temporally-hastened core of nominal inflation in a ratio representing the degree of its global and domestic impact. Should the economy be aural and globally significant, the re-shuffle disproportionately favours volatility in FX-market and realigns currencies globally; should it be infra-aural and largely domestic, the reshuffle-distribute enlarges ESH bonds on its way to PV-GETFs. The supra-aural expansion of the ESH bonds are milked away to fund various public infrastructure projects, (subsidies, underwriting/forgiving user fees, dividends, accelerated depreciation and loans. Essentially, the ESH Pass/Fail criterion distances a per-capita lifestyle economy from a public infrastructure-based society). Post this two-way stripping and the FV-Distribute, the ‘Commodity A 2' favours Realty as an ‘Invest I-Realty FD’ line (where it contributes to a latent 100% FV appreciation), while the ‘SPR Wealth Monetize PV 2’ transfers to CC Equities as an ‘Invest O’ opposite ‘GEF U’.
b) an ‘Inflation Gain PV-Commodity Opposite Bakey-PQ FV’ line to 'IIB-RSPQ:ESH-GETF’ sub-aggregate that distributes the line to the extent of, respectively, sub-aural PQ-price-rise-induced general inflation (via IIBs), sustainable PQ-derived societal gain (to CC-Equities) and PQ-Aural Sink perpetuity (PV-GETFs). (Downstream constituencies, particularly, inflation-abating CC- and ESH- R&D are benefited to the extent RSPQ transaction NAV is deficient of the supra-PQ point.),
c) a ‘Commodity OC - Commodity U opposite FX-Volatility Exploit Arbitrage’ 2-way line that ‘shakes’ the Nominal Sustainability-RC Bonds against the FX within the sub-aggregate, thus apportioning the line between NAV gains for NS bonds in the opposite of sustainable gains in RC Hedge Bonds and realigned currency values (FX). Interpreted another  way, the 2-way line enlarges the arbitrage between NS Bonds against Lifestyle RC Bonds, re-aligns FX to what is 'defensible', and transmits any indefensible, irrational FX-volatility back to the Commodity market, thus and indirectly obtaining FX-mediated equilibration of domestic commodity markets against foreign markets, and,
d) a ‘Commodity B-Inflate O FV’ line to Public Subsidies that nurtures a resource-consuming constituency albeit at the cost of unsustainable reinforcement of inflation with consequent impacts on FX. This double-edged booby inflates the Subsidy budget in some relation to the gain in Commodity prices, thus crowding out the 'FX E' - often an admission of inefficient policies and governance errors by a foreign nation - that is offered to the Subsidy budget from the FX market.

Thus, the inflation ‘distribute-and-decompose’ strategy facilitates the sifting of real causes of inflation from nominal, banks the gain from real causes post filters, criteria and arbitraging in NSB-RC, PQ-ESH-, and FX-GETF-FXH contexts, thus ensuring the exploitation of inflation for larger, social-FV purposes.

Inflation Sinks I - The Compensate and Exploit Bonds

Beyond the above FV- and EV- inflation counter-sinks, and the 4 PV-Inflation distributaries, the design relies on additional monetary sinks that soak up inflation. These take the form of the ‘IIB-RSPQ-ESH-GETFs Compensate-Exploit’ cause-bond sub-aggregate and the ‘FX-NSB-TTC-J Gold-RC bond Exploit-Upgrade sub-aggregate’. These domestic-global concatenated agglomerates receive lines from the PV-hastening of the Land-Resource and Innovation pots, the Commodity market, the Sovereign Fund and the Insurance Houses. As alluded to, it is expedient to exploit the two Cause Bond agglomerates to apply the gains from, and the excesses of inflation toward public, FV and PV causes and compensate for the negative impacts of inflation. Thus, and post internal filters, logic and equilibration, these agglomerates feed the Subsidy budget, the ESH-/CC-R&D, the ESH Compensate & Remediation (C&R), CC Equities and Public Infrastructure, and discharge the role as additional sinks that soak up inflation-causing excess monetary liquidity in the economy while persevering toward a social-FV purpose.

The ‘OC Regulatory Standards - CC Product Quality Bonds’ RSPQ (and ESH) Bonds are administered by the duo of Regulatory- (and Innovation) Judges. Conceived as the quality-analogue of Resource-curse (quantity) bonds that focus on quality-contingent prices of Commodities and Oil, these commodity-specific indexed-bonds are simple distance functions in the hedonic price-quality space. They benchmark quality in the Price-Quality (hedonic) space and trace producer and consumer 'price iso-quals'. That space is occupied by three relationships: the Producer/Supplier PQ 'supply' schedule that expresses what the producer would like to price his quality-varying raw materials at, the Consumer/Buyer PQ 'demand schedule' that reflects the view long-term Consumer and the Innovation Administrator hold as regards what sustainable prices would be for Commodities of various qualities, and indeed the market-determined, hedonic price-quality schedule (Figure 6). While the hedonic curve, re-traced every period, may shift up or down to reflect demand - and supply shifts, it’d rotate anti-clockwise due (expected) incremental tightening of regulatory stringency and vice versa. The RSPQ-‘supra PQ’ benchmark – the point representing the transaction with the highest quality at lowest price in all transactional history - would however remain unmoved by these shifts. RSPQ Bonds are benchmarked in the distance to 'superior-PQ' benchmark-outcome (although they should be priced in the shortest distance to the ‘isoqual’ passing through the superior point). Essentially, the RSPQ ‘Transaction NAV’, expressed in percent terms, would enlarge as the distance to the RSPQ-superior point (lying to the lower right quadrant in the RSPQ space of cumulative commodity transactions) shrank (the fund flow would reverse toward RSPQ Bonds when a transaction created a new RSPQ-supra data-point). Thus, RSPQ Bonds would vary in NAV as a percent relative the Supra-outcome; the closer the current outcome to the supra-outcome, the closer would be its NAV to 100(%). RSPQ Bonds would be of potential interest to Commodity, Regulatory and Innovation stakeholders who'd like to keep apace of the implications of current regulatory- and innovation developments on long-run prices.

The ‘(Boom) Inflation Gain-(Stagnate) Commodity OB-(Recession) PQ FV’ line favours RSPQ bonds, in the IIB-RSPQ-ESH-GETF ‘Compensate-Exploit’ sub-aggregate where it distributes conditionally on the basis of the built-in logic and filters of the agglomerate-constituents. Though not an inflation sink, RSPQ Bonds, play an important role in evaluating it, and sifting genuine PQ-justified price gains from other, potentially unjustified gains, and permit the latter to pay away its inflation sins. Transaction proceeds from the Commodity market, representing the ‘Commodity OB’, if they pass the global RSPQ Bond ‘supra-PQ Challenge’, raise the ‘supra-PQ’ benchmark by attracting an ‘Innovation Aural Cache’ from the global GETFs to signal a ‘PQ upgrade’. Such an OB-stream would channel to CC Equities with an ‘RS Pass PQ Capital Appreciation key’, or in ESH supra-aural nations, to GETFs with a ‘PQ Pass ESH Aural Trade 2’. Should a commodity transaction register close to the PQ-superior point (a transaction-NAV of near 100%) as much of the PQ FV line would pass either directly to CC Equities; the smaller the PQ-Transaction NAV relative the supra-PQ point, the more of the the PQ FV line that must be shared as Compensate A(key) thru the IIBs. In other words, an inflated commodity OB stream, when it does not pass the ‘CC-PQ Aural test’, as for example in an economic boom, must first pass the Inflation-indexed Bonds, IIBs. The IIB filter triggers not only a ‘Compensate A(key)’ to the Subsidy budget, but also a ‘Due Pay’ in favour of CC-/ESH R&D before the OB-stream reaches CC-Equities. In recessionary times, when commodity prices fall, a ‘supra-PQ’ commodity transaction triggers a ‘PQ FV-Bonus-Aural recognition’ from the RSPQ bonds to CC-Equities. This strategy ensures commodity transactions, both, compensate for the pecuniary 'inflation externality' they cause and trigger payments to inflation-abating R&D before the proceeds are invested in CC Equities.

Parallely, the ‘Resource OB’ line from the Land-Resource FV pot specifically feeds the ESH Bonds constituency. The ESH Bond Regulator seeks to exploit the OB line to enlarge the ESH Bond NAV above its indicated aural trend while incoming Resource OB streams would rather avoid the obligation. The ‘adversarial-logic’ forces the ‘Resource OB’ stream to cycle back in to CC-Equities in ESH-supra-nations to support a Lifestyle economy, while the same finds its way to GETFs in ESH-infra nations post triggering a ‘Public-infrastructure Due pay key’ and an ‘Commodity ESHX Passurance Commons End’ that forces the ESH Bond Regulator to part with NAV gains and favour a public-infrastructure economy.

The global FX:TTC-J Gold-bounded domestic NSB-RC Bond ‘Exploit-Upgrade’ pair is a recipient of fund (lines) from various sources: an Exploit-OBC line from the PV-hastening of the Land-Resource FV pot, a U-Bakey-EV line from the Sovereign fund, and a ‘Comm OC- Comm U’ line from the Commodity market. Unlike its counterpart, the NSB-RC Bond sub-aggregate, administered by the democratically-elected political party in power, functions to sustainably expand the inter-bond-differential, and minimise arbitrage in both the FX-GETF and within the TTC-J-Gold pair. The ‘Exploit-Upgrade’ arbitraged-bond sub-aggregate skims unsustainable commodity-sourced gains to the NSB-RC NAV-differential, splits them in to Sustainable FV-, PV- and BV- streams, banks the ‘Sustainable Oo RC PV’ in the Sovereign Fund, routes the RC-FV as an upgrade line to Realty, and the ‘RC BV-Sustainability BV’ line to the Subsidy domain, and feeds FX-volatility with the, unsustainable residual. The Administrator of the indexed NSB-RC bond sub-aggregate supports Competition by re-directing a Competition Akey line in return for the ‘Serve A’ he enforces upon firms participating in, and entities dependent upon the CC Equity market, and the TTC-J Gold. (A ‘RC-Subsidy Axe Resource End’ is issued the CC-Equities.) The Administrator also enforces a 'Serve B' on Commerce that accompanies the 'Livelihood Kar' issued by NSB-RC Bond sub-aggregate. Thus, the political party, in its role as the NSB-RC Administrator, implicitly determines how much of commodity-inflation to bank in the Sovereign fund, how much to defer/smooth out in realty lifestyle upgrade, how much to tolerate in subsidies, and how much to abate in Competition-induced long-run price reductions (within constraints imposed by the FX market and the TTC-J Gold). Between the RC-Bond Upgrade-, NSB Sustain-, IIB Compensate-  Commodity Inflate-line and the FX-market Booby-Balance, the Subsidy budget is supported, hedged and even booby-trapped, thus providing the right incentives to policy-/budget-makers in periodically re-aligning subsidies to exploit domestic and global opportunities, balance social equity pressures of a PV-nominal regime, and indeed, monetary constraints and priorities. (Incidentally, the Innovation Administrator offers a 'CC Innovation Compensate Ookey' line to the NSB Administrator to compensate for the impact of labour-saving innovation that might de-stabilize the nominal economy. In turn, the NSB-RC Administrator supports NS bonds with the line in recessionary times, and in other times, feeds the Subsidy budget to placate the masses for the loss.)

The two R&D pots, beyond serving the CC- and the ESH cause, represent inflation sinks to the extent they divert liquidity lines from other constituencies, to inherently outcome-uncertain pursuits. The logic here is that inflated money is best applied to risky and low-probability activities that further a social cause so that infructuous efforts exact a lesser damage on real societal resources. Public Infrastructure and ESH Compensation-Remediation represent two other competing public causes that are downstream, and recipients of monies from the IIB-RSPQ:ESH-GETF' aggregate. Public infrastructure, representing the PV-exploitation of FV resources for the distributed, common good of the public, is unique for its various confounding elements – from its capital intensiveness and financing, re-zoning and land-compensation issues, uncertainties in the level of services demanded and its impact upon the pricing of tolls/user fees, ownership structure, free-ridership, and subsidies, to name a few. While these issues are weighty on their own, the public benefits and positive externalities associated with public infrastructure justify an ‘ESH-infra aural Milk Oo’ – a line that triggers from the sub-aggregate every time a Commodity OB/Resource Gold PV-Perpetuity line passes through a nation with an infra-aural ESH trend. The ‘Milk Oo’ contributes toward user fees and loan subsidies, dividends, and potentially, underwrites loss of tax-receipts due accelerated depreciation of infrastructural assets.

Inflation Sinks II - The Central Bank-GEF-Banks Vs the CRBN Pot

The Commons FV-Realty PV-(Biodiversity BV)-Nature EV, CRBN aggregate underlies the Land-Resources FV pot; it represents an aggregate of FV-, PV-, BV-, and EV- entities that exploits the use- and non-use values associated with land and its above-/underground resources, supports various lines, and accepts damages to those entities. Beyond the economic and social potential from surface and underground natural resources, the aggregate comprises of Biodiversity values, values for national parks and biomes. It is convenient to align this aggregate opposite the ‘Central Bank-GEF-Capitalist Banks’ sub-aggregate that serves as the nerve-center of the FV-exploiting PV-economy. Whereas the Central Bank influences inflation by its kroner-creating, global FV-PV monetary operations, and the GEF by serving as a sink for inflation-abating Start-kroners and BV/EV lines, the Capitalist banks fund various inflation-abating activities beyond forcing a global equilibration of inflationary impacts. In particular, the various GEF lines to Commons (GEF O), Sovereign Fund (GEF A), CC Equities (GEF U), ESHI Passurance and ESH Bonds (GEF Pay Oo/Oo Bakey) and ESH R&D (GEF Invest Akey), whether directly, or indirectly, favour domains that enhance sustainability by displacing inflation-inducing monetary lines and supporting inflation-abating constituencies. 

Figure 7, for example, indicates the various lines that emanate from GEF-Banks and favour the CRBN agglomerate. These lines, post a ‘Resource Opportunity Cost filter’, classify Land in to those favoured with a 'Resource Endow FV' and those reduced to/with a ‘Land Bakey-Resource Nix 2 PV-Realty Opportunity’, and 'Resource Nix Bakey/BV'. The Nix lines are meant to be PV-liquidity-nixing, non-monetary transactions that add to the stock of Commons, Biodiversity and Nature, thus abating inflation in loose-monetary regimes. Given their 'priceless' nature, increments to CRBN pot – such as the return of zoned land back to forest/nature, or the de-allocation of prospecting/exploration tracts, are paid for by shrinking PV-liquidity (tantamount to the conversion of PV$/GETFs back in to FV-Gold). Such reductions in the stock of PV-money for fixed natural assets obtain a social gain in the form of lower inflation while preserving opportunities for the future. Thus, the Resource Opportunity-cost filter effectively determines the extent to which the ‘FX 2 ESHX PV’, obtained with every transaction from the LME-SPR, is divided between the FX-GETF-FXH (if the filter triggers a ‘Resource-Endow FV’) and a ‘Natural Endowment B FV-CC Resource Nix Bakey PV' (if not) - thus reducing the stock of volatility- and inflation-stoking, commodity-sourced PV liquidity in the economy. (Incidentally, the spread between the return on NS-RC bond pair and RSPQ-ESH Bond return is analogous to/would correlate with the spread between short and long bond returns. An equalization of the two returns might well signify the attainment of dynamic equilibrium around inflation.)

Beyond the above, the nixing of efficiency-enhancing, inflation-abating Kroners - whether of the Start (Blue) variety, or the End (Green) type - as an alternative to their allocation to firms, moves non-allocated resources in to, respectively, Realty PV and Nature EV pot, that rise sustainably to absorb inflation due the interruption of Schumpeterian cycling. Concomitantly, the residual from Kroner allocation: Green Kroner Bakey and Blue Kroner BV - are re-cycled as ‘GEF Bankruptcy BV’-‘CC Delist EV’ that favour the exiting, inefficient firm, thus providing an alternative monetary sink that reduces the inefficient producer, enhances efficiency and abates inflation in the long-run.

Insure the Sovereign ?! The Sovereign Fund and the Global Social Insurance

In the context of the two perpendicular FV Causes and the antipodal Real- and Nominal-Oo paradigms, it is expedient that there be avenues to bank gains, and hedge losses. The Central Bank, the GEF and conglomerate of private Banks represent the former. The Sovereign Fund and the Insurance Houses serve as loss hedges. These Loss-Hedge entities monetize and hold Discounted Land-Resource FV, and delayed/shelved/unsuccessful Innovation-Lifestyle PV. Whereas the Sovereign Fund is the recipient of a ‘Bakey-U-Rouble’ line from the Land-Resources FV pot, a ‘SPR OB-Comm End’ from the LME, and a repository for closing transactions in the Resource economy (‘Resource B – Pound I O -  GEF A’), its Insurance counterpart - a sub-aggregate of Nature Damage Pot-Trust, Commons Assurance , ESH 'Passurance', and Property-Equity Insurance (NCESHPEI) - is fed with lines from the LME-IEA, the Realty and CC Equities. The ESH 'Passurance', an insurance sub-entity that seeks to level the 'RSPQ-ESH-Inflation charge’ (not unlike a quarterly rolling charge levied on global liquidity to balance its premiums against pay-outs) levied against Commodity-Oil contracts toward potentially irreversible RSPQ-tripping and ESH-related damages forced upon the global PV society, is the infrequent recipient of 'Lira A Exploit Bakey PV', and charges the rest of damage-compensation to the national-global IIB-PQRS-ESH-GETF sub-aggregate with an 'RSPQ-ESH-I Due Pay', (the ‘due pay’ substitutes for an ‘I-Sa’ that would otherwise be levied upon parties to a commodity transaction). The Due Pay from 'ESH Passurance' intimated to the LME-SPR, ‘harvests’ the NAV of nation-specific, indexed ESH Bonds marginally (a portion of the due-pay recovery may be directed in balance or zero-sum to ESH C&R and NS Bonds, thus ensuring a focussed, public resolution in the opposite of a less public, global monetary Passurance operation.), and induces global GETFs to compensate ESH Bonds of different nations to varying extents for their underperformance relative indicated trend, albeit with a different rationale (It is in the interest of GETF to ensure long-run sustainability that obtains from robustly-performing ESH Bonds). A nation-specific Regulatory Standards ‘RS Lobby'  line, co-funded by pro- and anti-regulatory interests, and that operates in the opposite of the 'Passurance Due Pay', induces volatility in the RSPQ Bonds to obtain 'Lobby Rights-Lobby Keys' for stakeholders to seek an incremental tightening or relaxation of ESH standards. Thus, large 'Due Pay raids' in to ESH Bond NAV would trigger GETF-induced FX-volatility and prompt the Regulatory Administrator in to issuing signals and lines to CC R&D and ESH R&D to innovate purposefully, while significant, incessant volatility in RSPQ Bonds would trigger the issue of Lobby keys and pre-inform stakeholders of intent to modify regulatory standards.

FV Currencies, Inventories and Real Interest Rates

There are umpteen models describing the optimal operations - stock ups and drawdowns - of SPRs. However, they all pertain to the PV-economy, even the Nominal economic regime. Here, the emphasis is not as much on quantitative models that indicate optimal timing and stock-up-drawdown decisions as it is on the integration of the global (Commodity-) SPR inventories with FV monetization, and the elicitation of real interest rates. Toward this goal, first partition oil potentially available to the geographically-distributed SPR into Sovereign Oil and Capitalist Oil (The distinction is more than perfunctory and derives from the leanings of the political party democratically elected to govern the nation. The assertion is that the citizens of the nation entrust the inventories of resources common to them with the government they elect. Should they choose a Right party, the Government would be akin a Capitalist governing entity, and the repositories of resources, passed down to it from the previous government, may well be deemed Capitalist (and vice versa). Given different nations have differing endowments of oil, and given they have different domestic priorities and trade-related factor advantages, and in the context of PV-monetization-differentials between the two FV currencies, it'd be rational of citizens to vote opportunistically.

The IEA, as the SPR Administrator, buys Oil either from the Sovereign, or from Capitalists (Figure 8). While the former must be paid for in FV LSDR gold, the latter exchanges against FV Innovation Gold. The when and how much of that decision is guided by the two FV currency-PV$ price ratios. These ratios, LSDR/PV$ and Inn$/PV$, may be re-expressed to obtain two real discount rates: a 'Resource-r' (R-r) and an 'Innovation-r' (I-r). The ratio of the FV-FV exchange rate between the two FV-currencies – an FV analogue of resource-scarcity rent, and equivalently the ratio of two FV-PV interest rates, R-r and I-r, represents a cross-sectional exchange rate, literally between the two futures. When the global Land-Resources FV pot enlarges relative the global Innovation-Lifestyle FV Pot, and consequently, the LSDR, whose value, by construct, reflects changes in the size of the former, rises relative Inn$ to reflect the same, the globally-valid, cross-sectional 'Resource-Innovation' exchange rate, R/I-r, defined here as the ratio of (R-r) to (I-r), rises to signal the prospective gain from innovation-using resource exploitation. In FV-PV terms,  an expansion of the Resources pot relative the PV$ implies that R-r, the Resources-specific interest-rate increases relative I-r, the Innovation-specific interest rate, thus drawing more PV funds toward securing the larger potential in the Resources FV pot.

When the Land-Resources FV pot enlarges relative the Innovation-Lifestyle FV pot, the gain in the value of SDRs effectively reduces the LSDR price of Sovereign oil and makes it attractive to the IEA. Therefore, the IEA rationally chooses to stock up with Sovereign Oil until the two FV prices for oil re-equilibrate. From another perspective, the ratio of the 'Resource-r' to the 'Innovation-r', R/I, denoting the FV-importance of Resources relative Innovation, forms the basis of the SPR Stock-Release decisions. Denoting purchases in to the SPR along the positive y-axis, and releases/sales from the SPR along the negative, and the R/I-r exchange rate along the x-axis, the IEA would follow a downward, possibly cubic-sloping relationship between the ratio and its stock/release decisions (Figure 8). In periods of strong economic growth, slow innovation and/or a fall in efficiency, the Resources FV rises relative the Innovation FV, and the R/I ratio rises from an increase in the R-r, thus inducing the IEA to release oil in anticipation of an inflationary PV economy. In periods of economic recession either accompanied by faster innovation and/or higher efficiency in resource-use, the R/I-r ratio would fall from an enlargement of the Innovation FV, a strengthening of the Inn$, an increase in 'I-r', and a fall in R/I-r, and thus induce the IEA to stock up. The SPR stock-up decision is guided by the FV-price of oil; the IEA choosing to buy and stock oil from that entity - Sovereign or Capitalist - that offers oil at a lower FV price, and selling it in the open market when PV price of oil rises (Stock-up from entity with FV-Strong currency and sell when PV-Currency is weak). (ie, stock-up with oil denominated in FV-strong currency and draw-down when PV$ weakens.) Rephrasing and equivalently, the IEA, in periods of rising economic activity and rising PV-oil prices, buys oil from the Sovereign with stronger FV currency, LSDRs. Should the PV-price of oil fall anticipating, or in a recession, the IEA buys oil from Capitalists with its reserve of stronger FV Inn$ and stocks up the SPR with replenishments from the open-market as well.

Strategies that turn the PV currency stronger against Oil, and thus reduce the price of Oil are also anti-inflationary. Thus, exchange of PV$-liquidity and GETFs for physical TTC-J PV-Gold, and/or reconversion of the GETFs back to FV Gold, both aid in abating nominal inflation. This rationale anticipates PV economic activity at the stage of raw material inventories and leverages FV rationale to optimally manage inventories in the context of PV-monetary policy and the real-nominal economic paradigm. Given Commodity markets, specifically Oil, are extremely sensitive to the levels and drawdowns of reserves and inventories, the above strategy is likely to obtain anticipatory if not pre-emptive control of oil prices, thus averting indexation-induced inflation in downstream markets and economies.

A Recap…..and some Salient Observations

The design proposed above might seem too expansive and contrived at, but it is even appropriate in the context of multi-lateral trade and finance that characterizes our globalised society, the fundamental role played by resources and technology in production and consumption worldwide, and consequently, the significance of monetary flows and financial policies around it.

The proposed global monetary design recognizes the various entities - natural-resources and IPR-endowments, the CC- and the Green constituencies, domestic equity vs international efficiency trade-offs, political influence and decision-making, as well as prudential and fiduciary entities - that weigh in on the global monetary system and influence inflation directly or indirectly. It integrates Innovation and Resources FV spheres, with global energy and commodity markets, global liquidity policy, and indeed political equity, public infrastructure, Realty and Capital markets, thus obtaining reasonable, if not comprehensive monetary breadth. The derivation of an FV-currency from an FV-pot, the elicitation of an FV currency that reveals the size of the FV pot, its conversion to PV-GETFs in market monetary operations, the consequent derivation of two FV-PV interest rates and FV-FV Cause-exchange rate that influence inventories and commodity price-formation, as well as the conception of the two-pronged Kroner - merged RI$ that, both, support the Schumpeterian cycle of innovation and reveal FV-Cause pareto-opportunities are salient aspects of the design. The subsequent placement of RI$ permits a focused elicitation of opportunities, the funding of which with Kroners obtains a reduction in inflation within a pareto-Cause focussed PV-economy. The design exemplifies how a Cause-strategy may be leveraged around existing PV-entities, and how the additional constructs, lines, filters and triggers ensure a balanced outcome that hedge for cause enemies and for various mutually-exclusive economic outcomes. It paces increments in technology/innovation and facilitates efficient land-use decisions to obtain enhancements in the living standards of the masses, remedies and adds to environmental commons, and supports public infrastructure, while balancing exchange rates and abating indexation-triggered inflation across global economies.

The design departs from the conventional approach and examines inflation in a broader context that begins with the issue of PV monetary entities and traces its flow through the various economic and financial domains, leveraging a functional/intent logic to apportion fund flows. By tying inflation to the exploitation of natural resources and innovation, the design ensures a compromise between the goals of resource owners - whether sovereigns or private entities, and those of the CC Manufacturing economy-Lifestyle society. It creates a defensible, market-centered and balanced monetary scheme to track, anticipate and exploit inflation in a manner that enhances the lifestyles of the masses, creates fixed public assets and provides for resources to remedy and compensate for the environmental wrongs caused by the nominal CC Consumer economy while promoting optimal resource exploitation and the advance of technology. It exemplifies the conceptualization and the monetary operations necessary to exploit the otherwise unmonetizable FV assets in to PV currency lines, and how the same may be applied toward inventory control of essential raw material and energy inputs to, both, control its price and the consequent indexation-engendered inflation. By balancing land-consuming and environmentally-damaging resource exploitation against resource-saving and efficiency-enhancing innovation and, further, exploiting the proceeds of currency-monetization of Resource- and Innovation-FV spheres to 'populate' equity- and environmentally-directed Cause bonds within a real-nominal paradigm, the design achieves the just-funding of various social, equity and environmental causes.

Adopting the above design obtains a balance between real and nominal economies so important to PV politicians and the populist society, between a resource-oriented economy and an innovation-oriented society, between expansion of the PV-economy and preservation of the FV sphere, between domestic subsidies and international realities, between Government and Capitalist-economies, and between a ‘Private-Per capita-Lifestyle’ society and ‘Public-Commons-Infrastructure’ society. Such balance is crucial to the elicitation of various equilibria and rates that drive monetary and financial allocations in government budgets and corporate decisions, as well as global FDI flows. It makes apparent the trade-offs inherent in systems with multiple goals and constraints and reveals how they might be addressed in a democratic political-cum-social framework. In particular, the provision for overt political control of NS-RC bonds and their juxtaposition against the inter-temporal - cross-sectional, social-counterweight in TTC-J Gold, represents a radical departure from conventional economic modeling that replicates the political control and social pressures ambient in the PV-nominal economy.

Having eulogized the design, it is apt to caution that it cannot and does not claim to be all-inclusive antidote to inflation. Many other short- monetary and long-term fiscal measures and policies will generally be necessary. These accompaniments will be contingent upon each nation's economic, political and monetary context. However, such measures are likely limited in time and scope, and bear lesser relevance in the context of the globalisation of economic activity and capital flows. The proposed solution to inflation is prospective, and will not correct for the cumulative lapses in monetary policies that have occurred across nations over the decades. There is also a real and ever-present danger that the design is manipulated to exacerbate inflation. Such perverse outcome is possible for reasons the flexibility and breadth of design and the existence of various balances, hedges and dynamic instruments. Thus, the timing and extent of PV-multiple monetization, the timing and allocation of Kroners between firms and the CRBN entity, the political manipulation of the TTC-J Gold cross-sectional inter-temporal’ ‘social-resolution-inefficiency net’ to get away with an inflationary nominal regime, the choice of ESH ETV-benchmarks, the delay and redux of efficiency-enhancing innovations, and the manipulation of Bond-filters and -triggers, are an incomplete list of strategies that could exacerbate, rather than abate the monetary phenomenon.