It follows then that what enables banks to create credit and hence money is their exemption from the Client Money Rules. Thanks to this exemption they are allowed to keep customer deposits on their own balance sheet. This means that depositors who deposit their money with a bank are no longer the legal owners of this money. Instead, they are just one of the general creditors of the bank whom it owes money to. It also means that the bank is able to access the records of the customer deposits held with it and invent a new ‘customer deposit’ that had not actually been paid in, but instead is a re-classified accounts payable liability of the bank arising from a loan contract.
Whether the Client Money Rules were designed for this purpose, and whether it is indeed lawful for banks to reclassify general ‘accounts payable’ items as specific liabilities defined as ‘customer deposits’, without the act of depositing having been undertaken by anyone, is a matter that requires further legal scrutiny, beyond the scope of this paper.
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.
“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.
Η λύση της χρεοκοπίας
Στην προκειμένη περίπτωση, αυτό που φοβίζει την Ευρώπη είναι ο συνδυασμός της πτώχευσης της Ελλάδας, με την καταναγκαστική έξοδο της από την Ευρωζώνη, για την οποία δεν υπάρχει ούτε νομικό πλαίσιο, ούτε εμπειρία – η οποία όμως θα οδηγούσε στην αλυσιδωτή αντίδραση της κατάρρευσης του ευρώ, της ραγδαίας αύξησης των επιτοκίων δανεισμού των υπολοίπων χωρών της περιφέρειας, στην αδυναμία εξόφλησης των υποχρεώσεων εκ μέρους της Ιταλίας, της Ισπανίας κοκ., σε μεγάλα τραπεζικά προβλήματα και στη διάλυση της Ευρωζώνης.
Υπάρχουν βέβαια και άλλες απόψεις,σύμφωνα με τις οποίες δεν είναι απαραίτητο να συμβεί το παραπάνω τρομακτικό σενάριο,εάν η Ελλάδα δεν μπορέσει πράγματι να εξυπηρετήσει τις υποχρεώσεις της.
Από την άλλη πλευρά, η πτώχευση μίας χώρας δεν είναι ανάλογη με τη χρεοκοπία μίας επιχείρησης – η οποία εξαφανίζεται, σε αντίθεση με τη χώρα που συνεχίζει να υπάρχει. Ειδικότερα,τα αποτελέσματα μίας κρατικής χρεοκοπίας είναι οδυνηρά μεν για τους δανειστές της, αλλά «ανακουφιστικά» ουσιαστικά για την ίδια και τους Πολίτες της – αφού παρέλθει το πρώτο μεγάλο σοκ, το οποίο διαρκεί περί τους έξι μήνες.
Αυτό που απαιτείται βέβαια είναι η δραστηριοποίηση, αμέσως μετά, σύσσωμου του ανθρώπινου δυναμικού της – το οποίο, στην περίπτωση της Ελλάδας, είναι υπαρκτό και εξαιρετικά ικανό, υπό την προϋπόθεση πως δεν θα εμποδίζεται πια από την Πολιτική ή/και δεν θα καθοδηγείται προς τη λανθασμένη κατεύθυνση.
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
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 definition of full reserve banking can be a source of much confusion and consternation. The confusion revolves around the definition of “reserve ratio”. Normally, the reserve ratio is defined approximately as follows:
Reserve ratio =
|The money held by the bank
The money deposited in the bank by its customers
It is easy to see that the higher the reserve ratio, the smaller the risk of a bank run. With a ratio of 100% this means that even if every single customer demanded to take out their money, the bank will have it all available. This is clearly a very safe form of banking, but as described so far, the bank would simply be acting like a safe deposit box. It would not be able to make any loans. It appears that banks can not act as financial intermediaries between savers and borrowers. Indeed there are some economists that have pronounced that full reserve banking is useless for precisely this reason… but they are mistaken and here’s why:In the context of a full reserve banking system, we need to be slightly more precise about the meaning of the reserve ratio.
Reserve ratio =
|The money held by the bank
The money that the customers currently
have the legal right to withdraw
IMF Working Paper, Research Department
Prepared by Jaromir Benes and Michael Kumhof, August 2012
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%, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.