Exploring the idea of a financial lottery.
Updated: Jun 30, 2019
In financial economies debt markets are a common method of gaining funds into fund seeking agents. Funds come from various sources including the buying of cooperate debts and government debts. Funds can transfer into financial markets via buybacks, which sets the interest rate and final payment of a bond.
In theory the role of debt is the alignment of cash flows, the going concern and credit availability to set the financial systems in a financial economy. When a country cannot pay back it's loans it can either default on them, print money such as in quantitative easing or simply extend their debt by asking for more loans.
The problem with default is a matter of debate but the problem generally resides in the gross social economic outcomes that may follow such a procedure. If bonds are defaulted the consequences are the uncertainty in global economic trading with relation to financial assets as a result of the loss of value on a bond.
Therefore the question of default is to how a country such as the U.S can successfully integrate a gradual cut down on it's debt obligations if the government is in an overly deficit circumstance. The problem now is not an emphasis on hard economics such as industrial capacity or output but to the question of ownership of relative value in open financial markets.
A bond default would lead to the fall bond prices and therefore the fall of value in the U.S dollar. America would see that it's currency is worth less and global trade would be influenced as a result. Unlike countries which can simply increase government revenue or improve exports to cover their debt, America is an open financial market which is the denominator of global trade.
The United States can't simply default or raise taxes, it has to find a means to which it can access the funds in the global system of financial circulation and hoard it's financial value.
This was seen in the Gold Standard after the Breton Woods conference which sets the U.S dollar to a certain amount of Gold. However if the United States wanted to maintain a gold peg it also has to set the market price of gold and have sufficient quantity of gold to cover it's own shortfall in this market setting mechanism.
Is there other methods to managing a growing national debt then?
One such method is to use shadow banking or financing to direct and control a country's financial agents. A country may use this for example to artificially increase the price of a sanctioned stock in it's own stock market and earn it's spread. Doing this enough times would negate the idea of the financial system being tangibly fair or of substance but however can allow a governmental entity to earn a spread of the financial transactions.
This may be done in under regulated stock markets for example where there are not sufficient financial regulatory supervision.
The shadow banking market in China therefore may be a good example of how to regulate a countries financial systems also with reference to their own stock market crisis in 2015.
The idea of shadow banking is very vague however but the general idea is that the government can improve its financial market positions through information control as opposed to being kept in the dark so to speak.
This government access to superior information therefore allows the government to dictate financial positions of intermediaries in the country at it's own benefit. This may be similar to circumstances that many developing nations are facing. Strong political regimes which have a strong political oversight on the national monetary policy such as in the case of Turkey.
A second method is to use unorthodox financing and banking control. This method was opted by the Bank of Japan under the prime ministership of Shinzo Abe. Under Abenomics the Japanese central bank began implementing an unprecedented system of credit creation and buying of debt. Consequently the Japanese Yen was devalued, while the Nikkei gained from additional credit from financial institutions.
Abenomics is often quoted as being a radical form of monetary and economic stimulation. The basis of which other developed nations could develop their monetary policy on.
A final method that as the author I have never come across is a system of financial lottery. Although debt markets are a game of odds with regard to risk and return , there usually is an economic basis for issuing and using debt. A financial lottery may be simply a method of gaining credit through a pre defined game of odds issue by a government to major financial institutions.
In this theoretical circumstance the government therefore has the house odds to allow institutions to conduct risk reward games. Although this is hypothetical the issue would be on what are the house odds and how can a government be able to fund this initiative. Just like in real casinos therefore except the clients are cooperation, the government can allocate different non monetary rewards i.e property rights.
The idea is that the government can earn it's spread or skim off the game of odds in the terms that the government sees fit. Capital immediacy is the selling point of this idea and instead of waiting for a debt to be payed at maturity, a company can simply use this principle to get a return on capital.
The idea of a national financial lottery is to maximize the turnover to government revenue by fund seeking agents who engage in a game of odds. Just like Casinos which earn a relative stable gross gaming revenue on it's gambling operations, so can a government if it acts upon a system of consistent book making.
Financial institutions who seek a quick return or have a appetite for taking capital risk would therefore fund the demand for a financial lottery system. Just as bitcoin is algorithmic - wise precise when it is mined, so can a government utilize these probabilities to run a consistent probability based cash flow operation on a national level. What would likely occur is that the national economy would see a surge in liquidity.
Debt interest rates would likely be reduced as a result of this process therefore reducing the interest expense on bonds. The odd setting mechanism may be used as a intermediary process between fiscal and monetary policy and allowing the government to dictate economic terms between funding seeking and providing agents.
Is there other methods?
If there are alternative methods for controlling the debt cycle then there are also plenty of different methods then the ones listed. A large part of what comprises different economic or financial stimulus rest upon the issue of opportunity cost and also market collaboration.
If the goal of the United States government is to engage in a circumstance of a budget surplus then there has to be a social costs to some financial and economic intermediaries in order for the government to profit over their loss.
A more elaborate and proactive capital gains tax for example may significantly bolster government revenue but lead financial activities to suffer as a result. The circumstances of real economic practices is to however require a system of flexibility in a government's decisions and priorities which reflect a use of pro government legal and executive authority.
In fact the idea of a duo legal process system which promotes financial system integrity may not at circumstances proof to be the best mode for financial systems during a time of immediate crisis. A national government has to be willing to exercise some economic and financial authority with regard to legal institutions with the matter of immediacy.
These may include ownership control of key banking institutions for example. A large part is to deal with the nature of uncertainty during a financial crisis and this is not only a matter of consideration in monetary systems but with legal and authority of the government executive.