At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher’s claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.
… Η κεντρική τράπεζα μπορεί να αυξήσει την ποσότητα του χρήματος στην οικονομία όποτε θέλει χωρίς κάποιο όριο, με την αγορά τίτλων από τον ιδιωτικό τομέα και πληρώνοντας με την έκδοση νέου χρήματος. Η Τράπεζα της Ιαπωνίας θα μπορούσε για παράδειγμα να είχε αγοράσει εκτάσεις γης και να τις μετατρέψει σε πάρκα. Και εδώ έχουμε μιά ευκαιρία να λύσουμε τρία προβλήματα μαζί. Η οικονομία χρειάζεται νέο χρήμα, οι τράπεζες έχουν ανάγκη να ξεφορτωθούν τα επισφαλή δάνεια και ο τομέας των ακινήτων χρειάζεται κάποιες συναλλαγές. Αυτό που μπορεί να γίνει είναι να τυπώσει η κεντρική τράπεζα χρήματα, να αγοράσει γη από τις τράπεζες, να την κάνει πάρκα και έτσι να λύσει ακόμα ένα πρόβλημα, την ποιότητα της ζωής στην Ιαπωνία. Ακόμη και αν η Τράπεζα της Ιαπωνίας πουλούσε τα πάρκα αυτά με ένα πολύ μικρό τίμημα, πάλι θα κέρδιζε χρήματα, γιατί δεν κοστίζει τίποτα σε μία κεντρική τράπεζα να δημιουργήσει νέο χρήμα. …
Από την ταινία “Princes of the Yen“
“Because under the Chicago Plan banks have to borrow reserves from the treasury to fully back liabilities, the government acquires a very large asset vis-à-vis banks. Our analysis finds that the government is left with a much lower, in fact negative, net debt burden.”
The IMF paper says total liabilities of the US financial system – including shadow banking – are about 200pc of GDP. The new reserve rule would create a windfall. This would be used for a “potentially a very large, buy-back of private debt”, perhaps 100pc of GDP.
First: It incorporate the Federal Reserve banks into the U.S. Treasury where money will be created by the government as money, not as private interest-bearing debt; and will be spent into circulation to promote the general welfare and monitored to be neither inflationary nor deflationary.
Second: It removes the banks privilege to create purchasing media through the fractional reserve system. Fractional reserves are elegantly ended by the U.S. government initially loaning banks enough money at interest to bring reserves to 100%, converting all the past monetized credit, into U.S. government money. Banks then act as intermediaries accepting deposits and loaning them out to borrowers, what people think they do now. Some variations of the plan had the U.S. Government lending banks all or part of newly printed cash needed to achieve 100% reserves. This was a crucial part of the plan, because depositors were going to the banks and withdrawing their accounts, deflating the system.
Third: It Spends newly created money into circulation on infrastructure, including education and healthcare needed for a growing society, starting with the $1.5 trillion that the American Society of Civil Engineers estimate is needed for infrastructure repair; creating good jobs across our nation, re-invigorating local economies and re-funding all levels of government.
While The American Monetary Institute is responsible for its present form, the Act is based on Aristotelian monetary concepts in existence since at least the 4th century BC and employed successfully in a variety of monetary systems since then, ranging from democratic Athens to republican Rome. It is not merely a theory – its main elements have a long history of successful implementation in major societies around the world, including the American Colonies and the United States. These concepts enabled us to first establish the U.S. and then to maintain it as one nation.
The following brief summary: The Need for Monetary Reform serves as a preface to the American Monetary Act. (It was written before the banks brought down the world economy!)
A steady state economy is an economy with stable or mildly fluctuating size. The term typically refers to a national economy, but it can also be applied to a local, regional, or global economy. An economy can reach a steady state after a period of growth or after a period of downsizing or degrowth. To be sustainable, a steady state economy may not exceed ecological limits.
Watch a short film: Enough is Enough
or read more: Center for the Advancement of the Steady State Economy
The same banks that caused the financial crisis currently have the power to create 97% of the UK’s money. They’ve used this power recklessly, putting most of the money they create into property bubbles and financial markets. And now they’re back to their old ways.
We need a change. The power to create money should only be used in the public interest, in a democratic, transparent and accountable way. The 1844 law that makes it illegal for anyone other than the Bank of England to create paper money should be updated to apply to the electronic money currently created by banks.
When new money is created, it should be used to fund vital public services or provide finance to businesses, creating jobs where they’re needed, instead of being used to push up house prices or speculate on the financial markets.
Having in mind that:
i. Despite of the increasing number of national and international financial institutions, the increasing amount of the available statistical data and computing power, economic crises are not predicted by governments, central banks and the academic community.
ii. The effectiveness of fiscal and monetary policy tools in an economy decreases over time. Just like in the human body, over time the same dose of a medicine or a drug has a diminishing effect.
iii. The complexity of the economic environment (of the theoretical models, of the institutions, of the financial products and of the attempts to regulate them) has led to an increasing level of national and private debt in almost every country and in increasing the concentration of wealth of the top 1% of the population.
iv. To simplify economic environment would be of great value to the society and the policy maker.
It is proposed that a sovereign currency*, public debt repayment with sovereign currency** and full reserve banking***, followed by balanced budgets in the public sector would be beneficial to the Greek, the European and the world economy.
The debt that Greece is expected to pay is equivalent to 175% of annual national wealth, and is an intolerable burden for the Greek people.
What would happen if a greek government decided to apply, to the letter, Article 7 of a regulation adopted by the European Union in May 2013 “on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability”, concerning countries subject to a structural adjustment plan, including in particular Greece, Portugal and Cyprus.
Paragraph 9 of Article 7 maintains that States subject to structural adjustment should carry out a complete order of public debt in order to explain why indebtedness increased so sharply and to identify any irregularities. Here is the text in full: “A Member State subject to a macroeconomic adjustment programme shall carry out a comprehensive audit of its public finances in order, inter alia, to assess the reasons that led to the building up of excessive levels of debt as well as to track any possible irregularity”.