News & Analysis
Rediscovering IMF Working Papers
IMF's epic plan to conjure away debt and dethrone bankers ... 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. The IMF report says the conjuring trick is to replace our system of private bank-created money. – Ambrose Evans-Pritchard/UK Telegraph
Dominant Social Theme: Government should be in charge of money not the market.
Free-Market Analysis: The Telegraph's Ambrose Evans-Pritchard has caught up to a working paper entitled "The Chicago Plan Revisited" issued by IMF staff members Jaromir Benes and Michael Kumhof.
His summary: "Personally, I am a long way from reaching a conclusion in this extraordinary debate. Let it run, and let us all fight until we flush out the arguments."
We're not so sure that it is necessary to straddle the proverbial fence. In early September we wrote about this paper as follows:
"Government" money is a default position of the powers-that-be. If "they" cannot control the money supply directly through facilities like the quasi-public/quasi-private Federal Reserve, they will control it through public facilities and make arguments via their surrogates for this sort of remedy.
We see this trend building once again with "The Chicago Plan Revisited." These two authors, IMF staffers, have rediscovered a plan by Irving Fisher, a monetarist, to strip banks of lending power.
Basically, Fisher's plan has similarities with Stephen Zarlenga's plan that calls for full reserve banking and for the government to spend money into existence via huge public works programs.
This is pretty much a step back from monetary crank Major Douglas of social credit fame – who at least wanted government to give people currency directly. But neither Douglas nor anyone else has a convincing argument for how much money is enough – and how much is too much.
In truth, ONLY the private market can do this via monetary competition and the free circulation of gold and silver. Only the market can set the price for money. Anything else is price-fixing and causes great booms and busts.
See the full article here: "Black Is White, Up Is Down ... If We Want to be Free, Let Government Run Money."
We call Douglas a crank because we don't see how his plan for social credit could be enforced without violence. What Douglas wanted was for society to redistribute "excess income" every year. Presumably this was to be done by government bureaucrats.
Douglas, an engineer by training, claimed there was excess income in society because when he collected data from over a hundred large British businesses, "he found that in every case, except that of companies heading for bankruptcy, the sums paid out in salaries, wages and dividends were always less than the total costs of goods and services produced each week: consumers did not have enough income to buy back what they had made."
The major flaw with this is, of course, that Douglas could not have taken into account gray and black markets that always thrive in economies. In any event, it is impossible to quantify something so complex as a large-scale economy. Sweeping generalizations are impossible. Marx was good at them, too.
Douglas did not especially like another monetary reformer of note, Silvio Gesell, who believed that money ought to be issued by the state in depreciating quantities. Everyone would need to get money stamped at the end of every month to renew it. Douglas believed this concept constituted the most terrible tax ever invented.
Both Douglas and Gesell, though at odds with each other, are said to have published extensively in Fabian journals. One can surmise that the Fabians were interested in them because of their celebration of state power (by default if not rhetorically).
All of this seems to pass Evans-Pritchard by to a certain extent. Or to put it another way, it appeals to the famous journo's more authoritarian instincts. He writes:
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.
Indeed, "legislative commands" do operate "cleanly" – at least to begin with. But Stalin was also a fan of such sterility. "No man, no problem," he famously suggested.
Evans-Pritchard makes some other questionable statements in this article, if we understand him correctly ...
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 ...
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.
Some argue that Rome began to lose its solidarity spirit when it allowed an oligarchy to develop a private silver-based coinage during the Punic Wars. Money slipped control of the Senate. You could call it Rome's shadow banking system. Evidence suggests that it became a machine for elite wealth accumulation.
There are a number of "issues" with these statements, if one examines them logically. Perhaps the most important is that to simply state that lenders helped create systematic defaults is to ignore fundamental points about how economies work.
In fact, the same difficulties affecting debtors would logically have to affect lenders. If one investigates these societies one will certainly find that lenders had created advantages via government power – passed laws, in other words, to facilitate the benefits of mercantilism.
Another statement made by Evans-Pritchard is, "Rome began to lose its solidarity spirit when it allowed an oligarchy to develop a private silver-based coinage during the Punic Wars. Money slipped control of the Senate."
Roman government coinage began around 300 BC but Rome was founded out of seven separate hillside communities around 800 BC. What does Evans-Pritchard believe was used before 300 BC – pure barter?
Of course not. There were surely competing private and public mints. Monopoly government minting was a step toward authoritarianism ... inevitably leading to oligarchy. Evans-Pritchard has confused the cause with the effect.
And then there is this:
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 ...
"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.
Do people advocating these sorts of ideas really believe the United States would do better if Congress fully administered money as opposed to the current diffuse private/public monopoly money system?
To ask the question is to answer it. We are sure the current misery would only be compounded ... if that were possible. We've watched this movement building for a long time and we still have the same question now that we had long ago: Who really benefits?
If one accepts that the goals of the current power elite are to build world government using central banking Money Power, then one should next examine how such power retains its force when challenged by what we call the Internet Reformation.
The best way to retain power is to create various kinds of false flags that seem to oppose one's own self interest but that really do not. Would it really crush Money Power were currency administered fully by the state instead of the public/private system we've got now?
Would it really be any better? We think the problem is too MUCH government, not too little. We think money would benefit by a fuller privatization (and competition) rather than the installation of yet an even larger monetary bureaucracy.
Conclusion: It is interesting that the IMF has chosen to reissue this paper now. The IMF, of course, has an interest in government fiat, after all. Its top officials no doubt fervently hope they will be put in charge of administering it on behalf of "the people."
Posted by mava on 10/23/12 11:15 PM
"Income tax and fractional reserve were initiated due to loans at interest."
Income tax was initiated to force the people to accept fiat currency. Nothing to do with interest. Without taxes, every seller would demand gold and silver.
Fractional reserve was initiated as a way loan out more than was otherwise available for credit. Again, nothing to do with interest.
"If you took a loan without interest with the Worgl criteria, you would still have to pay that money back, therefore you would certainly want to put it to good use. "
And, how am I to determine which use is "good"?
Posted by Summer on 10/23/12 04:39 PM
If you took a loan without interest with the Worgl criteria, you would still have to pay that money back, therefore you would certainly want to put it to good use.
Secondly, if there was a penalty on stored wealth demurrage/zakat, all would be incentivised to spend wealth into the economy, creating productive jobs and a thriving industry.
Posted by Summer on 10/23/12 04:28 PM
DB: As for the Islamic empire, the economic reasons you offer may NOT have have had much to do with its prosperity. Every time we check these assertions we find that history is more complex.
Margit Kennedy has calculated that up 80pc of all wealth is directed to 10pc of the population through interest. This means up to 80pc of the society's wealth was NOT manipulated away from the masses in the Islamic Empire.
Furthermore, as I pointed out, Worgl uses the two main principles of the Islamic economic model (as opposed to the Christian economy where there was the rejection of interest alone); and was dubbed the miracle of Worgl because of the amazing resultant prosperity. This, obviously, cannot be divorced from the success of the Islamic economic system, as, in Worgl these devices had such an overwhelming effect on the economy.
All people against Money Power must be against interest. Usury was initiated by Money Power to serve their ends. Income tax and fractional reserve were initiated due to loans at interest. Autonomy is impossible when one is a borrower. A "free market" with interest is a "free" market for the Money Mafia.
DB: The US did very well before the Civil War using free-market money - mostly gold and silver.
Who in the US did "very well"? Who's gold and silver?
Click to view link Their economic systems, for example the economy of the Iroquois, involved various combinations of hunting and gathering and farming. Native American economies were profoundly altered by the arrival of Europeans and the resulting arrival of new diseases, influx of European goods, business relations with the Europeans regarding the fur trade, acquisition of horses, firearms and alcohol, engagement in wars, loss of land, and confinement to reservations.
Native Americans would certainly disagree with your bold free market assertions from a colonial vantage-point!
Reply from The Daily Bell
"Who in the US did "very well"? Who's gold and silver?"
We wrote "US."
We didn't write "native Americans."
Posted by Rrust on 10/23/12 02:43 PM
--Speaking of silver coins, Hugo Salinas Price has a new article on his site, chiefly about possible use of silver coins in the near future. --Specifically, a one-tenth ounce silver coin for Mexico. He begins speaking about gold coinage; the title of his new article is "On the use of gold coins as money". (this is popular writing for broad circulation.)
Posted by Rrust on 10/23/12 01:57 PM
You distracted me with the "silver coin". The face looks familiar.
Peter Schiff? Rowan Atkinson?
-Is it real? -Doctored a bit?
A thousand pardons, for your site is at the top of my list.
Posted by mava on 10/23/12 10:55 AM
I have heard a lot about 0% interest systems. I can't wait until one is established here.
My plan is then to live on credit. Why bother creating capital, if I can just keep borrowing? And the idea of the jubilees fits right in, as well. Since it's zero interest, I don't really want to be bothered by thinking how to pay back. Better wait for the jubilee and start over again.
The impact on jobs is going to be huge, certainly. I am not going to create any jobs, but I hope many others will. What is better to do with the capital you have produced than to start an enterprise? Since you get zero interest loaning it to those who know how to build an enterprise that is productive (able to create more than it consumes), then build an enterprise of your own! It now doesn't matter that it may not be net producing, - you get zero either way!
Posted by Summer on 10/23/12 06:54 AM
DB: Douglas did not especially like another monetary reformer of note, Silvio Gesell, who believed that money ought to be issued by the state in depreciating quantities. Everyone would need to get money stamped at the end of every month to renew it.
Silvio Gesell is as "statist" as Ron Paul. He looked at the system which *actually* existed and offered a solution within it. The Worgl experiment brilliantly demonstrates what an effective device the depreciating currency was - circulating wealth and stimulating the whole economy during the Great Depression. Gesell argues that no interest on loans results in no inflation through hidden interest:
"It is the same with industrial undertakings. If money is available at 0 %, no employer can extract interest from his enterprise, either in the form of a reduction of wages or in the form of an increase of prices". Gesell's system meant government debt was zero and unemployement was non-existent.
Fixating on the "statist" label for anyone proposing a solution which can be adopted in a governmental scenario is narrow-minded. Gesell's theory was implemented by a local mayor and local people thrived as a result of the system. People prospered. Over one hundred other mayors wanted the system for their towns. The "statist" central bank ended the system.
During the Islamic empire there was widespread prosperity. Zakat, the forerunner of demurrage (Gesell) a levy on unused/un-utilized assets set at 2.5pc per year, ensured that wealth was not hoarded. Capital was readily available in order to oil the wheels of the economy.
A culture of equity and goodwill existed among the the wealthy and the poor, as it was a virtue for those with more to aid the less fortunate without profiting from their predicament. By doing so, society as a whole benefited immensely. Thus, loans not incurring interest and the wealthy being incentivized to make loans through Zakat meant that circulating wealth were the norm.
Click to view link
In Christendom, usury was outlawed. The punishment for its use was equal to that of murder. Cromwell and his Money Power associates initiated the national debt via interest and income tax in order to service that heinous debt. Thus, through interest, Money Power took hold and through its expansion their power is now all-encompassing.
Interestingly, in the west, the first *positive* case FOR usury was made by a laissez-faire economist - Jeremy Bentham. Although he is known better as a utilitarian jurist. Could it be that the free-market movement was the final nail in the coffin for "Christian" economic theory?
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The article hints that the laissez-faire movement advocates gold-backing in order to give a better justification for interest/usury - If the means of exchange would have an intrinsic value it may appear to be more justifiable...
Reply from The Daily Bell
"Douglas believed this concept constituted the most terrible tax ever invented."
His words ... This was Douglas' perception. As for the Islamic empire, the economic reasons you offer may NOT have have had much to do with its prosperity. Every time we check these assertions we find that history is more complex.
The US did very well before the Civil War using free-market money - mostly gold and silver.
Here's an article of ours on tally sticks ...
Click to view link
Posted by Danny B on 10/22/12 09:42 PM
The debt jubilee idea is all over the net.
Click to view link
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A few months ago it was cuckoo;
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In reality, the IMF must be pretty desperate to bing this up. I can't believe that the PTB believe that a jubilee would be predictable. If they want utter chaos,,, then a jubilee is a good idea.
The total permeation of the idea that debt is wealth has brought the West and especially America to a BRINK that can NEVER be unwound peacefully;
Click to view link
The reason that I continue to claim that a crash is unavoidable is because the orientation of our entire society and entire economy is a huge un-natural fraud.
"The GDP of the United States was $300 billion in 1950. Today it is $15.6 trillion, a 5,200% increase in 62 years. Sounds pretty impressive until you realize that 4,500% was due to Federal Reserve scientifically created inflation. But don't worry. Ben Bernanke's assures us inflation is well contained. The 5,200% increase in GDP was blown away by the 9,100% increase in total government spending"
I'll give the link. It includes a lot more information and statistics that are the definition of un-natural and un-sustainable.
Click to view link
If you think that Western society is going to slide through this episode without enormous bloodshed, you are delusional.
Apparently the fiscal cliff is not far off. Reportedly, Lockheed is ready to potentially lay off 123,000.
Click to view link
Think that may have an effect on the stock market?
Back to the main topic. The jubilee was periodic,,, usually 50 years.
If you read about the Kondratief cycle, it too was about 50 years.
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The Kondratief cycle is specifically related to human lifespan so, it has been continuously lengthening.
I suspect that as a jubilee approached, lenders were VERY careful and tight-fisted.
That would tend to deflate credit bubbles every 50 years. The average lifespan may not have been 50 years but, the family memory probably was.
Posted by nithsdale on 10/22/12 07:06 PM
Since governments in all sectors spend the most money, those entitiues always think they are entitled to call the shots when it comes to the economy.
Funny thing... Economy used to mean the best utilyzation of moeny but today just means who gets to spend the most for his private interests, in government and out!
Regards, Alice Maxwell
Posted by navmagdale on 10/22/12 06:36 PM
I am wondering if the hidden plan of IMF is for a single global currency.In other words IMF just paves the way for the acceptance of a united global banking system and a common global currency. It sounds as the precursor of the dream of a world Currency.
Posted by mava on 10/22/12 05:55 PM
The debt isn't payable. It cannot be, - such is it's nature in cases where it was taken for consumption or light-minded investment. So, no, no matter the scheme, it will not be paid. What will ultimately happen is that the creditors will be screwed. Don't be a creditor.
Speaking of this, creditor - debtor distinction, are you certain you are not a creditor? Consider that most of the debt racked up is simply a total of the claims on assets (money) that the FED had counterfeited into circulation. It obviously had a purchasing power, - since we know it was successively spent.
But, the purchasing power can not be created by counterfeiting! So, then, how does this triangle gets resolved?
1 Debt is an evidence of counterfeit money
2 Counterfeit money was spent, thus it had purchasing power
3 Purchasing power can not be counterfeited
Hmmm... Your answer?
The answer is it was stolen from you. The counterfeiting is a process of obtaining a purchasing power as applied to falsified claims on assets through fraudulent use of someone else's existing purchasing power.
Who was that someone? He was the biggest creditor. He will be the one royally screwed.
Posted by Col on 10/22/12 03:05 PM
"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."
Holy crap, this is the third time I've read an article or seen an economist's interview today mentioning Debt Jubiliee.
What the frak is going on!?
I remember back in 08 a similar plan from the beltway was very quietly touted, the idea was to give every man, woman & child in the US a $1 Million "Stimulas Bonus", crazy stuff.
Reply from The Daily Bell
Like a "promotion" of sorts?
Posted by Saffire29979 on 10/22/12 02:44 PM
There will definitely be a full-on police state in America, kapie9969. The Dept of Homeland Security was created to oversee it, and the drones are being repurposed to police our skies. It'll be interesting to see how Austro-libertarians are treated in this dystopian future that awaits.
Posted by kapie9969 on 10/22/12 01:03 PM
I dont see the debt as payable.The future is a downhill slide,put off by running up debt.I beleave society well break down and Government well be replaced by a more powerful police state.
I beleaved even back when started that NAFTA would bring down americans standard of living and raise poorer countrys Click to view links happening.
I tell everyone to get ready for even harder times.Civil unrest and bad inflation.I beleave in having food and other supplys on hand and being able to protect one Click to view linkmon sense stuff.