Ambrose Evans-Pritchard writes in ‘IMF’s epic plan to conjure away debt and dethrone bankers’
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.
Evans-Pritchard refers to “The Chicago Plan Revisited“, which revives the scheme first put forward by professors Henry Simons and Irving Fisher in 1936 during the ferment of creative thinking in the late Depression. This IMF study, by Jaromir Benes and Michael Kumhof, was first published in August and is beginning to be taken seriously.
For example, Business Insider writes:
On Saturday, we wrote that more and more people are starting to wonder if central banks like the Bank of England and The Fed can just “rip up” the debt that they’ve bought via Quantitative Easing, and reduce the national debt of these countries with the stroke of a key.
Asking this question, and thinking about the implications of it, is the equivalent of taking the ‘Red Pill’ of economics. The Red Pill, of course, is what Neo took in the Matrix, and it exposed his mind to an entirely different view of the world that was far less comfortable than the one he inhabited. If you start thinking about the possibility that the central bank could just rip up a government’s debt, with few negative ramifications, then you might start thinking about government finances in a totally new way that makes you uncomfortable.
Funnily enough, these ideas have been out there for a long time but have been ignored and ridiculed over the last 30 years of neoclassical economics, neoliberalism and TINA!
Even Think Left has been writing it; for example What is George Osborne playing at? The worrying aspect to this kite flying is that the IMF, and others in the know, are really frightened by the prospect of another even more mega global meltdown than 2008. It seems that the IMF may think that the ‘austerity’ con used to justify privatisation of public services and cut the benefits bill has been over-played with potentially disastrous consequences.
But you know what they say.. At first they ignore, then they ridicule, then they attack and before you know it, it was their idea all along.
The Matrix clip is too good to leave out.. as the Americans would say ‘enjoy’ and shiver a little.