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dida's picture

This would be a good thing if it happens and I hoe that the situation will be ok in a short while. Asigurari de viata

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matte1975's picture

You can find a similar proposal at Chapter 9 of Money, Bank Credit and Economic Cycles of Huerta De Soto

http://mises.org/books/desoto.pdf

Fishhawk's picture

Rocky has come the closest to recognizing that this proposal is just rearranging the mysticism.  When his (Fisher's) proposal is all done, we still have debt being used as money.  ThirdCoastSurfer states two errors in bold face, and nobody caught them: 1) 100% money would preclude capital formation...  Capital is formed from saving some of current revenues for future use (ie, not spending all you make), and thus capital formation would proceed under 100% money as it always has.  True, interest rates would be much higher, ie, capital would not be free, as it purports to be under Bernanke's printing press.  People would have to be compensated for the time value of their saved money.   2) ... that money itself is worthless.  Money is the most widely accepted commodity; it is not worthless.  Further, one of the main requirements of money is that it be a store of value, since the purpose of capital is to invest in the future, ie, defer spending today.  TCS is clearly confusing today's currency, which is clearly recognized as (soon-to-be) worthless, with money.  Gold is money; debt cannot be money, because, as you see, bankers can contract debt endlessly, and thus create 'money' out of promises.  Fisher would take this further, centralizing the power to create 'money' out of nothing and entrust that power (to make endless promises) to politicians.  Rocky is right:  phuck this.  What we need is free gold, which we almost have now (you can still turn in FRN's for gold, but we have to get the taxes removed so gold can actually circulate as money).  The bankers will resist this use of real money, since it thwarts all their plans to loot the productive capacity of the worlds industry by creating massive unpayable debts and then creaming off the interest forever.  

indio007's picture

"cash" is just the piece of paper from a different issuer. The fact hat some will trade John Doe's promise to pay for the Federal Reserve's is just more of the same paper chase. The article is fundamentally flawed insomuch as it's understanding of the nature of paper money versus hard money, executory contract versus and executed one, and a debt in personam and a debt in rem.

Adding another layer of paper does nothing.

GoldSilverDoc's picture

Exactly correct, indio.

The truly sinister result of this system would be to completely centralize all fractional reserve banking in one institution, which has already proven its incompetence dozens of times over.  Banks would issue more loans, then sell those to the Fed at par for cash, to maintain their "100% reserve". 

Nothing at all would change.

This is another attempt to con the public that "the experts"  (at the Fed, of course) can do it "right", if only they are given the power to do so.

Irving Fisher was, charitably, poorly schooled in the history of money and central banking. More directly, he was a fool and a moron.

If you must have a paper "currency", a 100% money-backed currency (backed by the best money the market has found over 10,000 years or so, probably gold), is the ONLY thing that will keep the banksters at bay.  Remember that fractional reserve banking used to be punishable by death, then by penury; only since the decisions of the English "courts" in the early 1800's (by judges bought and paid for by bankers) have this group of parasites been able to propagate this con successfully, this long.

 

AR15AU's picture

"issue this money, and, with it, buy some of the bonds, notes, or other assets of the bank or lend it to the banks on those assets as security."

So basically monetize every garbage loan in existance at par value?  I fail to see how that would be a wise idea..

essence's picture

Interesting proposal. Certainly we need these sort of ideas being floated and debated today. Alas, that isn't happening becasue the intent by the Powers That Be is to preserve the status quo, not rectifiy it.

Dispensing with fractional reserve banking (only in part according to this proposal) and bringing about a more robust and transparent banking system are laudable intentions. Don't know about that government "Currency commission" though, I cringe at the thought of how that would be gamed in todays corrupt world.

All in all, I'm more inclined to go with proposals such as Ron Pauls and get the government out of this area and let a free market have a crack at it. Government should grant no monoplies, ensure only seek to ensure a relatively fair playing field. Let the market vie for providing society "money" & credit. Gold,Silver, Bank notes, bills of credit, let private institutions offer a bevy of choices and in time standards will form organically.

Although it might sould like anarchy, I counter that the history of Government/private Central Banks controlling the money & credit supply has proven to be an abysmal failure. A corruption filled failure.

 

 

 

Shineola's picture

When the Fed dies, let's not resuscitate!

ThirdCoastSurfer's picture

The existence of debt is a very complex subject to explain. It is as necessary an evil as poverty because we live in a world that has finite resources. A world that operated strictly on a cash only basis would preclude capital investment. A banking system required to maintain a 100% reserve  fails to account for the fact that money itself is worthless, it is only a easier means of exchange for goods & services than bartering -a system the absence of debt would produce. 

We need to accept and embrace the fact that in good times debt is to be exploited to the benefit of humanity in such a way that two steps forward does not lead to 3 or more steps back when the bust of boom-bust arrives and this, like most other things, means extending the life-cycle for as long as possible and not like a candle burning at both ends. 

 

ElTerco's picture

I had no idea that Irving Fisher took credit for being the inventor of the economic system known as the Banana Republic.

Mr. Magniloquent's picture

Spoken concisely, Fractional Reserve Banking (FRB) is not only a form of fraud, but responsible for The Business Cycle. For every reason a 100% reserve system should be adopted, a commodity backed system satisfies and more. This is why Gold is money.

While I dream of a world without FRB, it remains at the heart of why Gold is so desperately reviled by The Elite.

As a point of interest, I did not read any mention of the effect on interest rates this would incur. Naturally, they would be far higher than now. Before equillibrium would be met, massive deflation would occur. Keynesians cannot co-exist with such a reality, and would invoke the central bank to print. Therefore, a 100% reserve status is muted without a commodity backed currency, or a total aboliton of a country's central bank.

tomeuchre's picture

WAAAYYYY too cimplistic.  You might as well say "Let's have congress (and IMF, et al) declare that all banks are non-profit entities. See how that will work?

 

Right. It won't.

 

Bring on the revolution.

PulauHantu29's picture

Bankers prefer to borrow from the Fed at Zero Rate and rake in 3.5% interest on reserves held at the Fed....Free, Riskless and Fat!

Then, every quarter hand the Bank CEO $30 Million Bonus!

Sun Tsu's picture

-the "Extraction" Bankers free to retire their private urban or south sea islands.

cranky-old-geezer's picture

 

 

This article is completely worthless. 

Why?  Because no way in hell would it ever happen.

 

Double down's picture

Netting, one hell of a drug!

Species8472's picture

Seems to me a little deflation now and then would be good. I am tired of getting screwed, how about enough deflation to undo the inflation of the last 10 years. See, I'm not greedy, if I was I would ask to undo the inflation of the last 40 yrs.

 

tictawk's picture

Now that we are engulfed in DEBT which is nothing but money borrowed from the FUTURE, we start seeing ideas like this to MONETIZE the debt.  This will have the effect of making the dollar confettii (of course its with good intent, like all liberal ideas). It is crystal clear that we will be unable to pay off this debt and what remains on the horizon is default.  It is still a DEFAULT WHEN YOU STOP PAYMENT OR WHEN YOU DESTROY THE CURRENCY BY MONETIZING THE DEBT.  

This is another scheme that should be thrown into the dustbin of crappy ideas.

disabledvet's picture

you have to factor in "the information age." that's why cash is king and the checkbook is dead. debit and credit cards are the banks' "golden geese." more important than that of course is the media itself which insinuates itself into our daily lives and makes even more money. "the all knowing/all seeing eye" as it were. in that sense "the money is worthless" because the information gleaned from the use of said money is so valuable as to render the "saved money" pretty much de-minimus. There is a question arising i think now about the true profitability of said "wholesale invasion of the very idea of privacy" however. even "programming people" has its limitations of course but "seeing what they see" as seen as some type of advantage...once seen by many is no longer such. Indeed at some point it can be seen for exactly as it is...a sign of a sick society on it's last legs and never really capabable of original or creative thought to begin with but nothing more than "plagiarism incorporated" since the information advantage is lost due to the open-ness of it all. to me the key is decentralizing media--basically breaking up the entire complex--and to a large extent the market is already doing it via pricing out "annihilation risk" of a financial system without privacy (which equals no financial system.) trust me when i tell you: "this does not lead to the end of wars." Indeed it appears to be a starting point for them. I know i wouldn't want to be held responsible for blowing up the US financial system.

Hannibal's picture

Too man twists and turns. Keep it SIMPLE wiseguy!

RockyRacoon's picture

Amazing isn't it?   What lengths must be gone to in order to reset the system to what it originally was.  This is pie-in-the-sky stuff here folks.   The system is going to have to burn to the ground in order to revert to the original concepts.   Backing out all the rules and regulations would be a statistical nightmare.  You can't make wheat from spaghetti.   Just scrap it and start over.   The re-birth of banking would look a lot like the old banking.   Ripe for the rape as well.   What's the use?   Burn it.

Shineola's picture

It is Amazing!   And it also reminds me that I may as well hold a much higher percentage of my bank balance in green physical cash.  My bank pays me no more interest than my gun safe does. 

Catullus's picture

The Proposal that Fisher is giving is to basically monetize all the debt created by banks in the fractional reserve banking process.  It is akin to what has already gone on in the US.  The Treasury was supposed to have purchased "troubled" assets under TARP, but rather took equity positions in the banks until the run subsided (a complete lie to the American public in late September 2008 to which apologists are still justifying).  The Fed has been purchasing bonds or "assets" off the books of the banks and in doing so is converting what was M3 into M1 or M0.  This is of course has massively inflationary potential since there banks are not but compelled to take excess reserves and eventually loan them out. 

It would be interesting to see what year Fisher wrote this since the Federal Reserve in the mid-1930s began to raise the reserve ratio in an attempt to add greater stability to the banks.  The reserve ratio increase was well within what banks had already held in excess reserves in the aftermath of 1933.  Friedman and Schwartz blamed the Depression of 1937-38 on the increase in this reserve requirements by the Fed, but this was in contrast to the increase in commercial loan activity leading up to 1937 with knowledge by the banks that the Fed was increasing the reserve requirement.  The decrease in the money supply during the 1937 depression was the result of a new wave of loans defaulting in the commerical lending space rather than a forced liquidation or deleveraging from the Fed.

The 100% reserve requirement for on-demand depository accounts is very interesting.  If that were the case, we should be able to get rid of FDIC and immidiately declare bankruptcy for banks that can not meet a withdrawl from these accounts. Everyone other account at the bank can be said to be on its own and is subject to investment loss.  The way banks can entice money out of the checking accounts and into investment savings accounts would be to pay higher interest rates on savings, CDs, limited withdrawl accounts.  Back those checking accounts with an amount of gold, and we have the return of the gold standard. 

aaronb17's picture

Really don't understand how this author concludes we can let the banks lend out "savings" account funds willy-nilly and just lock down checking account funds.  The whole idea of "interest" being paid on "savings" is what screws everything up, causing heightened risk-taking, inflation, etc.  What's really going on there is that the banks are borrowing our money and then lending it out -- this is the same thing with "savings" as with "checking" accounts.  It shouldn't be called "savings" but rather the purchase of a bond from the bank, because that's all you're getting -- the bank's word that they'll pay you back.  A bond.

It's a huge fraud that the bank is holding tight to your money and your money is somehow magically earning "interest."  Bull-pucky.  You're giving your money to the bank, and the bank is playing with it at the casino of life.  Eventually, things will go bad, and you won't get your money back -- either that, or there's going to be inflation to vaporize your "gains" by making the money worth less than it was when you deposited it. 

There's no such thing as "savings" or "deposits" that earn interest.  Anyone who tells you different wants to scam you into turning over your money for their mere promise of re-payment.  They are not holding your money, they are gambling with it. 

Catullus's picture

The first condition of the proposal was for 100% reserves on the checking accounts.  Though it no longer means anything, there used to be a significant difference between savings and checking accounts.  Checking accounts never used to be free, but they had a definite cost associated with storing money for someone.  People would understand that if their savings account is paying them interest, then the bank is loaning the money out in order to profitable pay interest to the customer.  Savings account techinically could pay out withdrawls until the end of the month.  Checking accounts are on-demand accounts.  CDs charge big penalties for calling money before the term.

Savings can absolutely earn interest.  But if you tell someone from the outset that they have a chance of losing the principle, might the customer make a different decision or require a higher interest rate for allowing someone to "gamble" with their savings as you say?

The creation of the money market fund (which has become what most people actually refer to their savings account now) is one of the newest developments over the past 20 years in banking. The run in late 2008 was actually a run on these money market funds.

MichaelG's picture

 

The savings depositor has simply bought an investment like an interest-bearing bond, and this investment would not re¬quire 100% cash behind it, any more than any other investment such as a bond or share of stock.

A Lunatic's picture

It would definitely make armed robbery more profitable. There's nothing worse than investing a shitload of time and planning only to end up with a small bag of IOU's.

infiniti's picture

You could have saved everybody a lot of time by just saying that we should increase the reserve ratio on checkable deposits to 100%.

AmCockerSpaniel's picture

"The Proposal

Let the Government, through an especially cre¬ated “Currency Commission,” turn into cash enough of the assets of every commercial bank". Commercial bank/ TBTF! Were going to buy/ print more money to buy ALL the Toxic debt/ junk loans they got as part of there CDO's???  Just how many times are you people going to say YES to them picking our pockets?

Downtoolong's picture

I'm pissed that I had to read this entire post just to come to the same conclusion.

11b40's picture

A newly installed (and enforced) Glass-Stegall act would be a good start.

disabledvet's picture

exactly. interestingly for all the "safety and soundness" talk no one really talks about why the government doesn't just do that. of course when it comes to gold and silver it's PAY UP PHUCKER! The irony of "PAY UP PHUCKER" not working should be noted as well. I find it hard to believe a government run bank would be any better (say if BofA is nationalized.) Without failure--we're just a planet of unpayable debts.

Steroid's picture

You can bet your ass that there would be a difference if, after nationalization, the previous management, say top 10, were publicly executed.

I wouldn't say it would be more efficient though just the looting would stop (for a while).

disabledvet's picture

Would that include the bond holders. I hate them too...

Moe Howard's picture

A bankster's nightmare.

MichaelG's picture

Did Irving Fisher have a fatal heart-attack in his bathtub shortly after writing this?

zorba THE GREEK's picture

To make the money system full proof, why not have said currency commission

back the currency issued to banks by gold. That way currency would not be

created out of thin air and would keep the commission on the up and up.