By Ambrose Evans Pritchard
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.
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.
Related Reading:
The IMF’s New (old) Plan: Debt-Free Government Issued Money
Most people know that inflation robs us by debaseing our curancy.
This is a transfer of wealth from the saver to the borrower. (Wealth transfer due to inflation)
Some people realize that this is a major source of revenue for our government. (I think the largest source of revenue)
Very few people realize how much of this money goes to the banks.
The above proposal would stop this money from going to the banks and
All of the money would go to the Government.
I can not emphasize enough that no solution will work unless you outlaw derivatives which was the case until 1995.
100 PERCENT RESERVE BANKING
This is an enormous step in the right direction.
Ignoring derivatives, it solves 9/10 of the problem.
With derivatives it solves 1/100 of the problem.
Our monitary system is actually a wealth transfer system it transfers wealth from the saver to the borrower.
Theorm no 1.
In a fractional reserve banking system
the fractional part of the wealth transfer due to inflation which goes to the government
is equal to the fractional reserve requirement.
The remaining goes to the banks.
1/10 federal reserve banking requirement
1/10 for the government
9/10 for the banks
10/10 (100%) federal reserve banking requirement
10/10 (100%) for the government
0 for the banks
Proof:
The fractional FED reserve banking system creates money by loaning it to the government.
The Fractional reserve requirement of our system is 1/10.
The FED member banks can loan out up to 10 times the amount that they have on deposit.
The FED lends 1 million to the government
The gov deposits the 1 million into its bank.
The bank can now lend out 9 million dollars, and they do.
When the Gov and the banks pay back the 10 million the value has been reduced or devalued by inflation.
The gov borrowed 1/10 of the money so it gets 1/10 of the gain caused by inflation.
The banks borrowed 9/10 of the money so they get 9/10 of the gain.
Sincerely
Ron Bennett
I would be curious about how this document fits with the recent report of the club of Rome: Money and Sustainability, The Missing Link by Bernard Lietaer, Christian Arnsperger, Sally Goerner and Stefan Brunnhuber.
The IMF document mention the FED as the solution to replace private banks, but isn’t the FED itself a private institution controled by private banks?
It would be very interesting to hear Lietaer on this subject.
Thank you