> IMF's epic plan to conjure away debt and dethrone bankers > By Ambrose Evans-Pritchard > Daily Telegraph > October 21 2012 > > 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....< It should be noted that the institution of deposit insurance is supposed to deal with the problems of allowing banks to hold less than 100% of deposits as reserves. The issue of whether or not it does so is another question. > 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.< now there's a good idea! > ... 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 "debt-free" coinage.< Jubilee! I guess this what happens when the needs of the creditors conflicts with the need to maintain the legitimacy of the state and the social system. Nowadays, those in power don't seem to care about the latter.... yet. > ... 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 sterling today...< > 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.< I doubt that the monetary system had very much to deal with encouraging technical and social change in the real production system. Easy credit does encourage speculation on new technologies, but it also encourages popping bubbles. > 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 economic > dynamism. > 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 IMF paper. > "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 private money.< It's always been ironic that the MF was such a statist when it came to monetary issues. In any event, even if the Fed controlled the money supply exactly, it would not control the velocity of that money supply. New forms of credit can be developed, minimizing the role of money in transactions, while those new forms of credit can be cut off suddenly. > 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.< DSGE is crap. Those models (almost?) always do not treat money as an asset. It's only a means of exchange in that view. > 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 [damn > you, Werner!] -- 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.< but the supply of credit could be increased to compensate for those effects. > 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.< the massive outstanding consumer debts and the low price of the housing stock have nothing to do with it? > "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.< again, the supply of credit can be expanded. > Arguably, it would smother freedom and enthrone a Leviathan state. It might > be even more irksome in the long run than rule by bankers.< how about the current system, rule by the amalgam of bankers and the state? > 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.< do we need to keep the City of London? -- Jim Devine / If you're going to support the lesser of two evils, at the very least you should know the nature of that evil. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
