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Thread: The Chicago Plan - Full Reserve Banking Without Eliminating the Federal Reserve

  1. #1

    Default The Chicago Plan - Full Reserve Banking Without Eliminating the Federal Reserve

    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.
    http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf



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  3. #2

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    There was some discussion in major media circles following the publication of that paper.
    I compiled a "brief" history of events since October 2008 that are defining the global currency war and the role that gold is playing:

    Tin Foil Hats, Economic Reality and the Total Perspective Vortex

    Also, have you contacted your Congressional Rep and asked them co-sponsor Ron Paul's Rep. Paul Broun Jr.'s HR 1098 77: Free Competition in Currencies Act?

  4. #3

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    Don't worry, Bitcoin has this covered.
    My personality type: INTJ - please forgive my weaknesses (Not naturally in tune with others feelings; may be insensitive at times, tend to respond to conflict with logic and reason, tend to believe I'm always right, tend to be unwilling or unable to accept blame )

  5. #4

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    It would be nice to have some chartered full deposit banks with legal tender laws repealed. Gold/silver would instantly become money and people would actually trade said capital for labor. Hello freedom.
    "Like an army falling, one by one by one" - Linkin Park

  6. #5

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    Quote Originally Posted by Bern View Post
    There was some discussion in major media circles following the publication of that paper.
    Yes. I'm waiting for some critiques/responses to be published.

    My hope is that people will see that there are some alternatives we could pursue outside outright FR elimination. I'm not quite convinced that actually ending the institution would be as easy as auditing. Neutering it, however, might be more politically feasible.

  7. #6

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    allowing competition without meddling will allow the proper activities to excel while the inferior will fail
    Insanity should be defined as trusting the government to solve a problem they caused in the first place. Please do not go insane!

  8. #7

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    Quote Originally Posted by LibertyIn08 View Post
    ...
    My hope is that people will see that there are some alternatives we could pursue outside outright FR elimination. I'm not quite convinced that actually ending the institution would be as easy as auditing. Neutering it, however, might be more politically feasible.
    Last I heard, Eric Sprott was trying to open a classical merchant banking bank in Canada:

    http://www.theglobeandmail.com/repor...rticle2204088/
    I compiled a "brief" history of events since October 2008 that are defining the global currency war and the role that gold is playing:

    Tin Foil Hats, Economic Reality and the Total Perspective Vortex

    Also, have you contacted your Congressional Rep and asked them co-sponsor Ron Paul's Rep. Paul Broun Jr.'s HR 1098 77: Free Competition in Currencies Act?

  9. #8

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    As long as there is a deposit insurance, not enough people are going to be interested in Full Reserve Banking, sadly. If you eliminate deposit insurance, the reserves for checking accounts and cash deposits should increase dramatically by market forces alone.

  10. #9

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    Quote Originally Posted by Danan View Post
    As long as there is a deposit insurance, not enough people are going to be interested in Full Reserve Banking, sadly. If you eliminate deposit insurance, the reserves for checking accounts and cash deposits should increase dramatically by market forces alone.
    Under the Chicago plan there would be no scope for banks to have fractional reserve banking. Deposits are mandated to be held as full reserves.

  11. #10

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    Quote Originally Posted by Danan View Post
    As long as there is a deposit insurance, not enough people are going to be interested in Full Reserve Banking, sadly. ....
    As long as people believe the government can cover an insolvent FDIC's obligations when banks fail you mean...
    I compiled a "brief" history of events since October 2008 that are defining the global currency war and the role that gold is playing:

    Tin Foil Hats, Economic Reality and the Total Perspective Vortex

    Also, have you contacted your Congressional Rep and asked them co-sponsor Ron Paul's Rep. Paul Broun Jr.'s HR 1098 77: Free Competition in Currencies Act?

  12. #11

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    Quote Originally Posted by Bern View Post
    As long as people believe the government can cover an insolvent FDIC's obligations when banks fail you mean...
    Bingo. Had the Fed and the FDIC not managed to work the Treasury to auction some banks during the crisis, the FDIC would have lacked the funds to fully cover its obligations. IndyMac had put a large strain on the FDIC and WaMu's potential failure alone threatened to wipe out the rest of the fund.

  13. #12

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    In a way we already have this, because with the lender of last resort there is always a reserve.

    Keep in mind that if this was in place, it would not have a bearing on how much money was printed.

  14. #13

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    Quote Originally Posted by SpreadOfLiberty View Post
    In a way we already have this, because with the lender of last resort there is always a reserve.

    Keep in mind that if this was in place, it would not have a bearing on how much money was printed.
    Yes and no. Under the current system, any credit actions have monetary impacts and vice-versa. The "full reserve" you allude to only works via monetary mechanisms. A full reverse system by mandate doesn't necessitate open market operations or fed lending.

    I'm not quite sure I agree with the second point. All else equal, a 100% reserve system must restrict the number of dollars that are printed (even if only at the replacement rate) as the money stock is reduced via the reduction in the multiplier.

  15. #14

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    Quote Originally Posted by Seraphim View Post
    It would be nice to have some chartered full deposit banks with legal tender laws repealed. Gold/silver would instantly become money and people would actually trade said capital for labor. Hello freedom.
    it would be nice if guns stopped being pointed at my head and my time an my skills were left for my enjoyment.
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  16. #15

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    FDIC DID LACK THE FUNDS. We simply did not audit the Big 5 banks. They tap danced around and instead of marching in a slew of independent auditors the politicians let them "self assess" their own books and give Congress a "stress test" report. They also refused to include the derivative exposure in the solvency investigations.

    Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital!

    There is no way that 16 of the top 19 banks in the US could have survived a true audit.... nor could they now. It is the dirty little secret nobody in Washington wants to talk about. As long as nothing is audited and we don't assess the derivatives you can limp along pretending to be in business forever.... as we are witnessing.

    This is what happens when you let your government run a $1.5 trillion dollar a year deficit to the same bankers they are supposed to regulate, audit and protect us from. Government debt is corruption in its purest form. Our government is a "money junkie" that cannot be trusted in the slightest bit.
    Last edited by adams101; 12-13-2012 at 07:29 PM.

  17. #16

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    Quote Originally Posted by adams101 View Post
    FDIC DID LACK THE FUNDS. We simply did not audit the Big 5 banks. They tap danced around and instead of marching in a slew of independent auditors the politicians let them "self assess" their own books and give Congress a "stress test" report. They also refused to include the derivative exposure in the solvency investigations.

    Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital!

    There is no way that 16 of the top 19 banks in the US could have survived a true audit.... nor could they now. It is the dirty little secret nobody in Washington wants to talk about. As long as nothing is audited and we don't assess the derivatives you can limp along pretending to be in business forever.... as we are witnessing.

    This is what happens when you let your government run a $1.5 trillion dollar a year deficit to the same bankers they are supposed to regulate, audit and protect us from. Government debt is corruption in its purest form. Our government is a "money junkie" that cannot be trusted in the slightest bit.
    Slow down there. The FDIC only lacked the funds if the banks you listed had failed. They didn't. We bailed them out. (I'm not saying this was good policy.)

    The whole point of an insurance pool is that you're betting that very rare long tail risks never occur. If everyone's house suddenly caught on fire, the fire insurers would not be able to cover the loses. Most investors wouldn't consider insurance companies functionally insolvent or short of funds in spite of this.

    Again, whether the policy was good or not is irrelevant to the discussion of whether the FDIC was solvent at this point in time. It was. Could it have handled another large failure? Absolutely not. It didn't have to, in this case.

  18. #17

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    I like the Chicago plan and it deserves serious consideration by the public.

    Personally, if I were to reform the system I would take a slightly different tack. Instead of focusing on forcing banks to keep 100% on hand for demand deposits which is problematic because banks will switch to near-deposits...I would question whether we even need the the bank as we know it now if they aren't lending deposits.

    A good percentage of the monetary base is electronic...but ONLY banks can access this. This gives them an unfair market function that you and I don't have, and they are wasteful middeman. I vote...let us have direct deposits at the Fed (or better yet the treasury) instead of the indirect deposits we have now.

    Without lending...there is no need for a convulated banking system. The treasury could allow you to open direct deposits with them, you could write checks from these accounts and they could issue debit cards that didn't have transaction fees.

    Allowing the public direct access to electronic MB is how we'll get true reform.





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