Early Retirement Extreme Forums

To my understanding, fractional reserve banking allows for up to 10x the initial deposit amount to be newly created in the money system. So a $1k deposit can become a total of $10k, as income from goods sold to people buying on credit are deposited, used to make loans to buy further things on credit, etc...

So, let's pretend I have $30k in a bank. Let's assume that all lending resulting from this deposit is used to create the equivalent of a single, $300k new home. Using Mike Berners-Lee's 2011 version of "How bad are bananas?...", he estimates a brand-new 2 bedroom bungalow with living/dining rooms and a kitchen as 80 tonnes CO2e. Let's assume my theoretical $300k of newly created credit is used to create such a home.

From a carbon perspective, the math therefore works out to be 80 tonnes CO2e * (1000 kg/tonne) / $30k = 2.67 kg CO2e / $ spent.

The book lists the various carbon impact of spending $1. Using $1 on rainforest preservation projects has an impact of -220 kg CO2e/$ and spending $1 on budget flights has an impact of 10 kg CO2e/$.

Spending $1 on a non-budget flights has an estimated impact of 3.1 kg CO2e/$; in other words, nearly the same impact as my hypothetical $30k in savings.

So, my whole point is this: Here on the forums, when we are thinking of ecological impact, we typically think in terms of annual spending and the 1 JAFI metric. This idea has come up in other places, too; for example, Jim Merkel's 2003 book Radical Simplicity explains how his annual budget of $5k/year was calculated by taking world GNP/world pop and correcting for overconsumption. This is a good rough approximation. But what about the money we aren't spending? What is it doing?

It seems we are missing a huge piece of the puzzle here, by keeping massive quantities of money in bank accounts, allowing up to 10x their value to be created in credit, especially when the projects funded by those loans are almost certainly not going to be sustainable (i.e. they will be houses in suburban sprawl, industrial developments, business investments, etc.)?

With how little interest rates are for savings accounts these days, it seems that, from a carbon perspective as well as a financial perspective, you would be much better off to keep your money in some kind of safe box somewhere, or else in a physical safe, than allowing it to continue to drive environmental destruction fueled by consumer credit.

Am I off the mark here? I mean, we sweat and scrimp and scrape to knock off $1k from our yearly budget to get closer to that coveted 1 JAFI, and I get that it's not purely about money or carbon -- it's about being a renaissance fellow and upping your Wheaton score and preparing for collapse and whatnot. But still, if we were consistent and serious, at least about minimizing emissions from how we use our money, wouldn't it seem that we would be preventing essentially 1 suburban sprawl of a house being built for every ~$30 we pull out of a bank and stick in a safe somewhere?

Don't worry. You're not causing the creation of a $300k house every time you put $30k in the bank. In reality, construction (and consumption) is driven by supply and demand setting the prices. Fractional reserve banking is a clever way to dial the total money supply up or down but by itself it only determines which banks can hold how much in which accounts.

Insofar you put $30k into stocks, what's really happening is that you buy the shares from someone else. They have the cash, you have the stocks. It did not cause $30k of factory to be built.

However, that $30k eventually does or did get spent somewhere and by that action there was some primary extraction and ultimately some "primary consumption". In a closed loop, those two numbers are the same lest stock (in the flow sense, not the financial sense) build up. Therefore, you can measure at either end (and/or also anywhere in between if your accounting is good).

As a consumer, I think it's easier to measure at the consumption end. Hence, I go with $7000/year using the exact same calculation as Merkel. I made mine in 2001. There must have been something in the water back then. Probably because Wackernagel's book had just come out. OTOH, I do own investments that produce more than $7k in economic output. If you measure it from the production side, my footprint is thus larger ... I plow it all back into investments which defacto means I'm producing for someone else or useless factories are piling up somewhere. It's just that I retain control of the money. The way to think of this is that "a billionaire" is actually not "someone who spends a billion dollars" but rather someone who "controls something with a market value of 1B" while themselves spending far less (although in most cases still 2-50x the normal person ... but not 1000000x more). This control allows one to direct $1B worth of productive facilities towards minimizing emissions should one choose so. There are many ways to do so.

Okay, I will trust that. I know little of economics. But wouldn't a bank run have a pretty negative effect on the ability of banks to generate loans and therefore finance new construction?

And I suppose this means that, for all intents and purposes, I should treat investment purchases as spending, from an impact perspective.

1) No. Reserve requirements only apply to checking accounts these days. New construction are typically financed by commercial certificates of deposit which require zero reserve requirements. See https://www.hussmanfunds.com/html/fedirrel.htm

2) That's one way, but what are you going to do about investment growth then? E.g. you spend $30k on an investment and 20 years from now, it's worth $60k. How much impact would it then have/had had?

If I can become a successful trader rather than investor, i.e. make more money than I would have buying & holding a traditional portfolio for the long term, then effectively I will be taking money from other investors and traders over time. At the end of our lives, I will have more wealth to spend as I see fit, and they will have less. If I spend more to benefit the environment (or at least harm it less) than they would have, then my involvement in trading is potentially a better impact to the world than if I just held bonds/cash/gold with little growth.

Similarly, trying to get better interest rates, investment returns, etc. can benefit the planet in the end if that's what you intend to do with your winnings. I wouldn't worry about my little contribution to money/banking while it's invested vs. what could be done when it's eventually put to good use outside of financial markets.

On the other hand, if I fail to beat the average investor, they will accumulate more wealth than me over time and I'm guessing will not use it in as environmentally-friendly ways as I would. So it's up to me to outcompete other investors/traders as well as I can, not for my own consumption or scorekeeping, but for the good of the planet! That's the way I see it over the long term anyway.

I think Jacob’s focus on consumption as ecological impact is the right one for most people. If one wants to go a step further, then you could read into what Rob Greenfield says about money. Basically he is aiming to not only spend little money, but also to not make a lot of money or possess a lot of money in savings. I won’t try to speculate Wheaton Levels other than that he’s on a different level than me.

@jacob, thank you for that link! I will now go dig up my treasure chest and reopen my bank account...LOL.

Isn't your wealth a potential claim to influence a small percentage of GDP, whether that be labor or capital? So by pulling it out entirely (say holding physical gold) you are deferring that decision. Where as if you decide to fund a strip mining operation, you are acting on it?

Society then rewards you based upon how much they like that use of wealth. Strip mining good? You get more wealth to make decisions of larger influence. Feeding the homeless bad? Congratulations, you've lost your claim to future influence.

I think for the ecologically minded, the challenge is figuring out how to allocate your wealth aligned with your values, in a way that makes society reward you with more influence. Clean energy companies, maybe? Running a non profit that makes others feel good about letting you direct their influence?


It's a hard problem. I see index style investing as opting out, accepting things are ok as is.

Ultimately, the dichotomy between production and consumption is false. It just marks the juncture where a series of transformations involves an exchange of money in Econ 101. For instance, when I consume cookies I also produce lower body fat. When I produce festive wooden yard ornaments I also consume trees. Some objective measure of complexity might be best way to value transformation. However, humans themselves are quite complex organisms, so desire to survive and reproduce as manifested in free market exchange actually might not be worst proxy.

Which to me indicates that it's easier just to pick a point of transformation. The easiest from the point of the individual being the point of consumption.

7Wannabe5 wrote: ↑

Tue Feb 02, 2021 4:16 pm

For instance, when I consume cookies I also produce lower body fat.

If only