Posted on October 21, 2012
I’m thinking that this is
close to what Ellen Brown has advocated for years, only I think her
ideas go further and are more honest. It’s a simple process, but
everyone lives in such fear of the ‘banksters’, who have no regard for
human life, and the banksters keep telling us the world will collapse
should we do away with the central bankers of the world. Not so! Look at
Iceland and Argentina! . . . I’ll be looking to see if she has a
response to the ideas in this post of Evens-Pritchard. Kennedy signed a
Presidential Directive, still in effect, that outlawed the Federal
Reserve, and thus the fiat banking system. Everyone knows it is there,
but no one will dare to do anything about it. ~J
So there is a magic wand after all. A revolutionary paper by the
International Monetary Fund claims that one could eliminate the net
public debt of the US at a stroke, and by implication do the same for
Britain, Germany, Italy, or Japan.
The IMF reports says the conjuring trick is to replace our system of private bank-created money. Photo: Reuters
By Ambrose Evans-Pritchard
2:31PM BST 21 Oct 2012
The Telegraph, UK
One could slash private debt by
100pc of GDP, boost growth, stabilize prices, and dethrone bankers all
at the same time. It could be done cleanly and painlessly, by
legislative command, far more quickly than anybody imagined.
The conjuring trick is to
replace our system of private bank-created money — roughly 97pc of the
money supply — with state-created money. We return to the historical
norm, before Charles II placed control of the money supply in private
hands with the English Free Coinage Act of 1666.
Specifically, it means an
assault on “fractional reserve banking”. If lenders are forced to put up
100pc reserve backing for deposits, they lose the exorbitant privilege
of creating money out of thin air.
The nation regains sovereign
control over the money supply. There are no more banks runs, and fewer
boom-bust credit cycles. Accounting legerdemain will do the rest. That
at least is the argument.
Some readers may already have
seen the IMF study, by Jaromir Benes and Michael Kumhof, which came out
in August and has begun to acquire a cult following around the world.
- Spain elections could mark step toward bail-out21 Oct 2012
- Ease off on austerity, IMF warns Chancellor George Osborne14 Oct 2012
- Why the IMF has got it so hopelessly wrong on the euro crisis10 Oct 2012
- IMF calls for action to avert global catastrophe10 Oct 2012
- IMF sees ‘alarmingly high’ risk of fresh global slump08 Oct 2012
- Monetary easing causes rift at IMF meeting14 Oct 2012
Entitled “The Chicago Plan Revisited“,
it revives the scheme first put forward by professors Henry Simons and
Irving Fisher in 1936 during the ferment of creative thinking in the
Irving Fisher thought credit cycles led to an unhealthy concentration
of wealth. He saw it with his own eyes in the early 1930s as creditors
foreclosed on destitute farmers, seizing their land or buying it for a
pittance at the bottom of the cycle.
The farmers found a way of defending themselves in the end. They
muscled together at “one dollar auctions”, buying each other’s property
back for almost nothing. Any carpet-bagger who tried to bid higher was
beaten to a pulp.
Benes and Kumhof argue that credit-cycle trauma – caused by private
money creation – dates deep into history and lies at the root of debt
jubilees in the ancient religions of Mesopotian and the Middle East.
Harvest cycles led to systemic defaults thousands of years ago, with
forfeiture of collateral, and concentration of wealth in the hands of
lenders. These episodes were not just caused by weather, as long
thought. They were amplified by the effects of credit.
The Athenian leader Solon implemented the first known Chicago
Plan/New Deal in 599 BC to relieve farmers in hock to oligarchs enjoying
private coinage. He cancelled debts, restituted lands seized by
creditors, set floor-prices for commodities (much like Franklin
Roosevelt), and consciously flooded the money supply with state-issued
The Romans sent a delegation to study Solon’s reforms 150 years later
and copied the ideas, setting up their own fiat money system under Lex
Aternia in 454 BC.
It is a myth – innocently propagated by the great Adam Smith – that
money developed as a commodity-based or gold-linked means of exchange.
Gold was always highly valued, but that is another story. Metal-lovers
often conflate the two issues.
Anthropological studies show that social fiat currencies began with
the dawn of time. The Spartans banned gold coins, replacing them with
iron disks of little intrinsic value. The early Romans used bronze
tablets. Their worth was entirely determined by law – a doctrine made
explicit by Aristotle in his Ethics – like the dollar, the euro, or
Some argue that Rome began to lose its solidarity spirit when it
allowed an oligarchy to develop a private silver-based coinage during
the Punic Wars. Money slipped control of the Senate. You could call it
Rome’s shadow banking system. Evidence suggests that it became a machine
for elite wealth accumulation.
Unchallenged sovereign or Papal control over currencies persisted
through the Middle Ages until England broke the mould in 1666. Benes and
Kumhof say this was the start of the boom-bust era.
One might equally say that this opened the way to England’s
agricultural revolution in the early 18th Century, the industrial
revolution soon after, and the greatest economic and technological leap
ever seen. But let us not quibble.
The original authors of the Chicago Plan were responding to the Great
Depression. They believed it was possible to prevent the social havoc
caused by wild swings from boom to bust, and to do so without crimping
The benign side-effect of their proposals would be a switch from
national debt to national surplus, as if by magic. “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.
While Washington would issue much more fiat money, this would not be
redeemable. It would be an equity of the commonwealth, not debt.
The key of the Chicago Plan was to separate the “monetary and credit
functions” of the banking system. “The quantity of money and the
quantity of credit would become completely independent of each other.”
Private lenders would no longer be able to create new deposits “ex
nihilo”. New bank credit would have to be financed by retained earnings.
“The control of credit growth would become much more straightforward
because banks would no longer be able, as they are today, to generate
their own funding, deposits, in the act of lending, an extraordinary
privilege that is not enjoyed by any other type of business,” says the
“Rather, banks would become what many erroneously believe them to be
today, pure intermediaries that depend on obtaining outside funding
before being able to lend.”
The US Federal
Reserve would take real control over the money supply for the first
time, making it easier to manage inflation. It was precisely for this
reason that Milton Friedman called for 100pc reserve backing in 1967.
Even the great free marketeer implicitly favoured a clamp-down on
The switch would engender a 10pc boost to long-arm economic output.
“None of these benefits come at the expense of diminishing the core
useful functions of a private financial system.”
Simons and Fisher were flying blind in the 1930s. They lacked the
modern instruments needed to crunch the numbers, so the IMF team has now
done it for them — using the `DSGE’ stochastic model now de rigueur in
high economics, loved and hated in equal measure.
The finding is startling. Simons and Fisher understated their claims.
It is perhaps possible to confront the banking plutocracy head without
endangering the economy.
Benes and Kumhof make large claims. They leave me baffled, to be
honest. Readers who want the technical details can make their own
judgement by studying the text here.
The IMF duo have supporters. Professor Richard Werner from
Southampton University – who coined the term quantitative easing (QE) in
the 1990s — testified to Britain’s Vickers Commission that a switch to
state-money would have major welfare gains. He was backed by the
campaign group Positive Money and the New Economics Foundation.
The theory also has strong critics. Tim Congdon from International
Monetary Research says banks are in a sense already being forced to
increase reserves by EU rules, Basel III rules, and gold-plated variants
in the UK. The effect has been to choke lending to the private sector.
He argues that is the chief reason why the world economy remains
stuck in near-slump, and why central banks are having to cushion the
shock with QE.
“If you enacted this plan, it would devastate bank profits and cause a
massive deflationary disaster. There would have to do `QE squared’ to
offset it,” he said.
The result would be a huge shift in bank balance sheets from private
lending to government securities. This happened during World War Two,
but that was the anomalous cost of defeating Fascism.
To do this on a permanent basis in peace-time would be to change in
the nature of western capitalism. “People wouldn’t be able to get money
from banks. There would be huge damage to the efficiency of the
economy,” he said.
Arguably, it would smother freedom and enthrone a Leviathan state. It
might be even more irksome in the long run than rule by bankers.
Personally, I am a long way from reaching an conclusion in this
extraordinary debate. Let it run, and let us all fight until we flush
out the arguments.
One thing is sure. The City of London will have great trouble earning
its keep if any variant of the Chicago Plan ever gains wide support.
Thanks to: http://jhaines6.wordpress.com