The Tree Metaphor

Why does our global financial system tempt us to invest short-term rather than long-term? 

To explain this, we use a simple thought experiment:

The Tree Metaphore:  Pine vs. Oak

Imagine you want to invest in trees. (For simplicity, we'll ignore inflation and other risks.)

You have two options:

• The Pine (short-term): It is fully grown after 10 years and yields $100 at that point.

• The Oak (long-term): It grows much more slowly, only reaching full maturity after 100 years,
    but then yields $1,000.

At first glance, both investments seem equally attractive. Why? Because over 100 years, you could plant and harvest a pine tree ten times in succession (10 × $100 = $1,000). Result: The total return would ultimately be the same as with the oak. (Remark: to compare investment PERFORMANCE AND RANKING (for investment decision making) with npv calculators, they have to be equally like the Pine vs Oak example)

The Catch: Interest Rates (s. WACC)

Now the financial world enters the picture. Once you factor in interest (in this example, +5%), the calculation changes completely: If you deposit $61.39 into an account today earning +5% interest, you will automatically have $100 after exactly 10 years. This means for the pine: the $100 you receive in 10 years is, in today's terms, actually worth only $61.39.

With the oak example, the effect of interest becomes especially striking: the two investments, which were equivalent without interest (rate = 0%), now differ significantly — in favor of the pine investment — due to its much shorter investment horizon. Because $1,000 in 100 years, discounted back to today (at +5%), is worth only $7.60.

Result: Every rational investor will (must) choose the comparable investment with the highest positive NPV (Net Present Value). The pine investment thus emerges as the clear winner with $61.39. 

A massiv downsite in reality:
However, this has massive negative consequences for forestry and therefore for large parts eg. of Central European forest`s, etc. If only fast-growing timber species are replanted (because of faster & higher returns, etc), the essential tree diversity of forests suffers — yet that diversity is absolutely necessary for a healthy, sustainable forest and in general the existence of all ecosystems on this planet.

Conclusion 01: Nature enforces balanced diversity in all known ecosystems. Ignoring this always leads to severe corrective consequences and thus massive financial losses.

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Solution approach by the M.I.C.E.- FORMULA Project:

F.D.S.-Financial Diversity Strategy

If the same experiment is conducted with an interest rate of -5% (demurrage), the entire picture flips in favor of the longer-term oak investment. It is therefore very easy to see, through financial mathematics
(like NPV Calculations), the enormous influence of the interest rate in use (e.g. WACC) — including its sign — whether positive or negative. Therefore FDS striktly recomments additional demurrage currencies on a local & global scale. 

This will have several significant advantages:

a) more investment freedom & investment choises for investors worldwide
b) a more stable global financial system
c) much better risk mitigation of invested funds
d) more stable & sustainable eco & ökosystems

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Conclusion 02: To ensure permanently sustainable ecosystems within a stable biosphere, a well-balanced global financial system is needed. This is very easy & fast achievable by introducing additional demurrage currencies and, where appropriate, other currencies in parallel, integrated within the tax systems of their countries. The resulting competition between currencies defuses and regulates overly one-sided, system-driven monetary influences on investment decisions for more Overall Human Sustainability (OHS) in the end.
As we have to mitigate the enormous globale challenges of the global overshoot NOW!, we have to act bold & and fast by economic reasoning, rather then by other much more difficult & time consuming solutions.

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