Very interesting paper. The disclaimer on the first page was not surprising:

"This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate."

I suspect that we both would love to be a fly on the wall during that debate...

Another international organization, the UN, is trying to slow down the rise in corn prices due to the drought.

It is asking the US to stop using corn to produce ethanol for motor fuels. So far, the request has not been acted upon.

I suppose the reason this "Chicago Plan" is not being acted on is the same reason the cease-corn-ethanol request is not being acted on - the lobby organizations have not approved such a radical change.

It will take enormous crises (plural intended) before the banksters loose their controls on Congress.

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We do not have to put up with this outrageous activity by private firms; we have the right, and the power, to put a stop to it under the United States Constitution, and stop it we must if our economy is to clear and improve.

We will have to continue to put up with it as long as the same crooked scumbags at the top stay there.

Until we resort to mass decapitations of these vermin scum, nothing will change. And we know that's not going to happen; hence, nothing will change.......

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....that is exactly what unbacked credit creation empowers a bank with -- the ability to take everything you have by debasing your purchasing power to the point that you are forced to hock, or even sell and abandon, any asset you possess.

This is what has happened to your standard of living. ........

Pardon this ramble by an old guy who's just trying to grasp all this.
I have to put this into terms i'm familiar with. ( Gen if it's just crazy talk, feel free to delete it - a.)

Sigh -- If only the basics of "Control Systems" were taught in political science and economics curricula.

I sorta knew something wasn't right when the credit cards exploded onto scene in 70's , creating a few hundreds or thousands of dollars for anybody who'd "just sign the paper.."".
That violated the one principle i understood from Economics class , which was that reserve ratio set the banks' money multiplier (amplification factor?) which is how FED controls the number of dollars out there. Or did in 60's, anyway...
Unsecured credit bypasses that control mechanism leaving the "money amplifier" without feedback, which is called 'open loop' in amplifier parlance. That makes the money amplifier capable of radical multiplication and guarantees the stability problems that accompany any unrestrained amplifier.

Well - when i finally understood CDS's and derivatives, which are basically unlimited multiplication, my poor brain went looking for an analogy. Note my handle..
It sunk in yesterday. What we have in finance industry is a monetary Tesla Coil.
A small amount of real energy(our life savings?) is shuttled rapidly back and forth between balance sheets, cycling between kinetic energy of velocity(cash flow) and potential energy of pressure(amount of credit & debt stored in overnight ledgers), making a pyrotechnic display that's all out of proportion to the modest energies (country's actual productive capacity) available.

The resonance in a Tesla Coil gives the illusion of tremedous power because of its amplifications of velocity and pressure . Power is after all the product of the two... but in a resonant system maximum pressure and velocity never coincide so it's an illusion, their product is always smaller than the product of their maxima; the actual stored energy is constant and much smaller than it looks.

Further , outtake of energy from a Tesla Coin equals input to it and though it looks impressive it's a small fraction of what's shuttling back and forth. That's because what is shuttling was saved up gradually. Wall Street profits and bonuses look impressive but are a small fraction of the sum total of all our life savings, and in fact probably equal about what is contributed by 401's .


so if TPTB do the right thing and reset the amplification factor, detuning the Tesal Coil and collapsing all that counterfeit money, will today's actual cash in the bank (not CDS's or equities) become worth something again?

I'm not holding my breath.

and that's my oversimplistic understanding of the state of affairs.

a.

This paper was validated academically? Sorry, that has no place in today's world; we only have time and energy to devote to purely theoretical ideas that have never been tested or vetted by others. The more theoretical and abstract, the better.

Someone should send this to Krugman.

watching this election process unfold must be real depressing for you, TG....

seeing sooo many people get excited about their candidate who is bought in some manner thru the unregulated privilge of 10 to 1 counterfitting. it must amaze you how people can work so hard for their candidate and cheer loudly not knowing how they are stabbing themselves in their own back.

i have wondered if this privildge was revoked how that would effect law enforcement.

with-out fractional lending there would be a need for consumers to seek loans from people,ordinary people.

consider for example, 100's of thousands of auto loans made by private individuals that have gone bad and the process of the lender thru courts and law enforcement trying to retrieve their collateral.

without a 10 to 1 priviledge by banks we would need high schools to teach contract law because at some point in time many of us will be asked to loan money for homes,autos,educations,farms,and business equipment/supplies.

does this unregulated fractional privilge suck the soul out of people at an early age as the need to develope and exhibit responsibility and integrity to those around you,family and friends, as you may be at their mercy for a loan in your early adult life, i have wondered.

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without a 10 to 1 priviledge by banks we would need high schools to teach contract law because at some point in time many of us will be asked to loan money for homes,autos,educations,farms,and business equipment/supplies.

Or the prices of these things fall to a level that people can afford to buy by saving their money over a period of time.

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It is asking the US to stop using corn to produce ethanol for motor fuels. So far, the request has not been acted upon.

In Iowa here, on the front lines of this...

We can't just "stop" using corn to produce ethanol...it would bankrupt the industry and severely damage the corn-ethanol conversion to Cellulosic ethanol.

The industry is in the process of converting to Cellulosic ethanol with DuPont opening it's first (industrial duty) plant in Tennessee. Other plants in Iowa are in the process of converting and Cellulosic ethanol is the future for the (very) cheap production of ethanol from 100% renewable sources that we don't eat..the stuff actually grows wild...the day will come when we can simply use ditch weeds to produce ethanol with the only input cost being that of mowing it and hauling it to the plant.

"Knee-jerk" reactions to shut down these plants today would be distasterous to the future of Cellulosic ethanol...but a good thing for oil...hmmm

<<US-Dutch plan for ‘clean’ bioethanol plant>>

"Dutch chemical company DSM and US ethanol producer Poet have announced a $250m joint venture to build the world’s largest cellulosic bioethanol factory in Iowa."

http://www.ft.com/cms/s/18db7694-4614-11....

Pika - Krugman has routinely demonstrated that he does not believe that the raw emission of credit is an issue for a nation that produces its own currency - a currency that is globally accepted.

While Karl makes this point, I wish to emphasize it. It is not just the boom/bust cycle that this monetary expansion causes, it is the gradual decline in the value of the currency that is the more insidious. It erodes the value of savings and encourages folks to borrow to "get ahead." I admit to having odd views on the value of work/labor. Work is good. It is an important aspect of who we are and what we value. When we diminish the value of labor, we diminish ourselves. What I am trying to say, is that one dollar of capital is not just mathematically correct, it is socially good. It would tend to make our society better. And I agree with others on this forum - as credit binging improves the lot of the elite, and because the elite run the world, I would not expect the Chicago Plan to be enacted absent massive civil unrest.

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without a 10 to 1 priviledge by banks we would need high schools to teach contract law because at some point in time many of us will be asked to loan money for homes,autos,educations,farms,and business equipment/supplies.


Correct me if I'm wrong but One Dollar of Capital doesn't mean an end to fractional reserve lending as I understand it. It only does away with unbacked credit emission.

Steel wrote..

Pika - Krugman has routinely demonstrated that he does not believe that the raw emission of credit is an issue for a nation that produces its own currency - a currency that is globally accepted.

Yes, I'm aware of that, which is precisely why this IMF paper would tweak his ass no end.

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We can't just "stop" using corn to produce ethanol...it would bankrupt the industry and severely damage the corn-ethanol conversion to Cellulosic ethanol.

Good, let the industry BK. Please, soon. It's only alive at the gunpoint of government onto users' backs. When the ethanol industry actually produces more units of work than are destroyed by its manufacture, then it should exist and it would be supported by consumers willingly.

From the IMF Paper wrote..

In this simulation, banks have to raise their
capital adequacy ratio from 10.5% to 15% during the boom, so that the wholesale lending
rate, and thus also the retail lending rate, remains very much higher during that time. As
a result the increase in investment is only one third as large, with a commensurate
reduction in the fluctuations in consumption. At the time of the reversal in lending
optimism this makes the economy far more resilient, first because capital investment funds
are now much less exposed to a collapse in their asset values, and second because banks
are far more resilient and can respond to the shock by reducing their capital adequacy
ratio from a very comfortable level. As a result the spike in lending rates under this
scenario is also much milder, and smaller than in the pre-transition environment, while the
treasury credit rate can be far less volatile. Finally, the amplitude of GDP fluctuations
throughout the entire boom-bust cycle is about half that under the other two scenarios.

A 15% CAR hardly sounds like "One dollar of Capital"

'just take one toke right here sir!'

One toke over the line sweet Jesus
One toke over the line
Sittin' downtown in a railway station
One toke over the line

The ship sailed along time ago. Elections will change nothing. War is coming. Bankers love war.

Nice logo, "One Dollar of Capital, Sound Banks Sound Money".

Krugmen knows this and so do all the rest. The arguments they use only work if you never get to challenge them in an open debate. Inflation is theft. Krugmenites dont like to here it. QE is also theft.

That said when this nation was built they did a pretty good job. They did not do enough insure accountability. This lack has grown over time. This distortion has become the operating principal. Sadly our demands for accountability have fallen on deaf ears.

Do we have the will to set things right?
How to gain the ability? That is one thing I draw a blank on. I believe we can have lasting accountability. But how to get there? jmo

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In Iowa here, on the front lines of this...

We can't just "stop" using corn to produce ethanol...it would bankrupt the industry and severely damage the corn-ethanol conversion to Cellulosic ethanol.

That would be fantastic. Let's bankrupt the ****ers before they do even more damage.

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Other plants in Iowa are in the process of converting and Cellulosic ethanol is the future for the (very) cheap production of ethanol from 100% renewable sources that we don't eat..

Cellulosic ethanol would be a disaster. Spare biomass is largely a fiction; corn stover needs to go back into the soil or you will hemorhage soil carbon even faster than you already do when you grow soy and corn every year.

Collecting "ditch weeds" will produce ****-all biomass and "marginal lands" are only marginal for farming(e.g. see the amazonian rain forest)

Then, what this says is a bank would have to receive an actual deposit, unencumbered by debt to make a loan. If they were lending actual money they possessed, there would be no need for the Fed. I think the problem is a lot deeper than that, in that depositors couldn't have immediate access to their funds, because they were all loaned out. This would mean, as I believe I have seen Karl comment, there would have to be 2 type banks, one of which never loans money, but merely holds it for customers.

Here is the rub on money. You hear this nonsense that money is going into the stock market, like it disappears. Money only changes hands or is created out of debt or disappears in the payment of debt to banks. It also cycles through accounts. Clearly the lending bank would have to also have an account at the deposit bank, because this is where the money is. Thus a lending bank would have to borrow out of the accounts at the deposit bank and I believe it would work more like the money market accounts. They would have to bid for funds and what they borrowed or loaned would merely change accounts. Whomever loaned their money to a lending bank would no longer have it.

The effects? For one, as lending went up, interest rates would also have to float upward. A fixed amount of money against a growing amount of loans would imply a growing need to acquire money, either through selling something or through productive enterprise. This would restrict boom and bust and discourage marginal investments. The idea we would have a Fed fooling with the rate of interest would destroy the entire self regulation of the system. Inflation and low interest rates are counter to each other and I believe we would have to keep the government out of this as well, as it would only take a short while before they were back into cronyism and destructive inflation.

In America's Great Depression, book page 71-72, Rothbard makes this comment. This is an important feature of economics, banking and government in that depressions are caused in large part by continual efforts of government and central banks to prevent true price discovery. A prime example would be the government subsidy for Solara or whatever that outfit was. Most people can't comprehend their wages declining and their standard of living increasing, but this is the true nature of a limited money system. It probably beats hell out of a system, where $30,000 a year today barely supports what $3000 a year did 45 years ago. Quote follows:

Just as in the case of the acceleration principle, the fallacy of the
“investment opportunity” approach is revealed by its complete
neglect of the price system. Once again, price and cost have disappeared.
Actually, the trouble in a depression comes from costs being
greater than the prices obtained from sale of capital goods; with
costs greater than selling prices, businessmen are naturally reluctant
to invest in losing concerns. The problem, then, is the rigidity
of costs. In a free market, prices determine costs and not vice versa,
so that reduced final prices will also lower the prices of productive
factors—thereby lowering the costs of production. The failure of
“investment opportunity” in the crisis stems from the overbidding
of costs in the boom, now revealed in the crisis to be too high relative
to selling prices. This erroneous overbidding was generated
by the inflationary credit expansion of the boom period. The way
to retrieve investment opportunities in a depression, then, is to
permit costs—factor prices—to fall rapidly, thus reestablishing
profitable price-differentials, particularly in the capital goods
industries. In short, wage rates, which constitute the great bulk of
factor costs, should fall freely and rapidly to restore investment
opportunities. This is equivalent to the reestablishment of higher
price-differentials—higher natural interest rates—on the market.
Thus, the Austrian approach explains the problem of investment
opportunities, and other theories are fallacious or irrelevant.

http://mises.org/document/694/Americas-G....

There seems to be a belief that dollars have babies, but they don't. Reserve bank lending is based on the idea that there is more money available than has been created, as money originates with banks and interest is attached. The concept of an expanding money supply has little to do with the economy and a lot to do with keeping the loans on the bank ledger performing. Thus more and more collateral is needed to keep the system going and more money has to be created to pay the interest that is coming due. The public is faced with the dilemma of struggling to pay what they owe, file bankruptcy or borrow more and the banker is faced with the dilemma of either lending more or writing their loans down out of their capital reserves. Increasing bank capital is nothing more than accounting for money that never existed in the first place, through the addition of more money that never existed. Fed policy is based on buying assets bought with money that never existed with notes that can be exchanged between banks and other banks and between them and their customers. All compound debt.

Under a gold standard, there was always the gold. I find it highly doubtful that trade beyond borders could be established out of purely government issued money. The whole thing would be a farce. Gold was eliminated through debt and collateral, not because the government could print money. We are now totally in a legal tender for payment of debt and outside of this factor, the ink on a dollar is worth more than the paper. But our houses are valued, our businesses are valued, our cars are valued and through the income tax, the government establishes a bondage that demands this money. The basis of the dollar has little to do with its real worth, but in the structure of debts internationally. Should it fail, it would be necessary to go back to a gold standard to repeat the process, as this would imply the structure of international debt had come unwound and there would be no use for dollars. This is why the dollar is king and the yuan has little international value.

Where I carry this theory forward is that debt in the system is nothing but compound interest piled up as money. This probably leads into a gold bug idea that gold and silver were the base of the current system and are all that remain of the non compounded interest. Due to Breton Woods, the US has to produce all the debt to keep the world system afloat, thus we had $5 trillion a year in new debt coming into the system at the bubble peak and since then, much of the rest of the world has run into trouble. In the 1990 period, the US slowed down and there went Japan. Once the US began expanding again, the excess went to China, not Japan and the advent of the Euro gave the Southern European countries access to some of the credit. Bubbles appeared in these countries along with China, even though Japan continued to deflate. China continued the boom, attempting to use their own credit, but such an expansion cannot go on and wouldn't have made it this far if not for the rigged game the Chinese banking system is. There has been no price discovery allowed in China other than exports and as such all kinds of misallocations of capital have been allowed to go on.

Creating debts that involve the money supply and having more money due than is possible to pay back, as the banking system has been allowed to do through state and national charter, has to be changed. If this is changed, government interference in the price discover mechanism also has to stop. Lending out of the money supply should be done at the risk of the indivdual depositor at market rates, set without any interference by the government. The idea we need more money by diluting the money is like deciding we need more whiskey and getting it by filling the half empty half gallon bottle with water. This might work if you drink your whiskey with water, but it would be wise not to add water when making a drink, at which pace you would run out the same time. This can be illustrated by the fact that $30K a year is about what $3000 a year was 45 years ago. 10 times as much liquid, but the same amount of booze.

Lastly, I have suspicion of any thing that comes out of Chicago. I would suspect the University of Chicago was behind this and the Rockefellers bankrolled that institution. The Rockefellers also were behind the creation of the Fed, Nelson Aldrich being one of John D's in laws. Rothbard's Origins of the Fed covers much of the 15 year smoke screen employed to sell the Fed to the government. Worth reading at the following link.

http://mises.org/document/6119/The-Origi....

Karl, this should interest you. At first I thought it was going to get the banks, but instead, the ruling basically allows banks to steal what they want, regardless of law. I listened to one, Eustace Mullins describe our legal system, as he was always doing battle with the establishment in the courts. He said that bench meant bar, which in legalese meant bank. The American Bar Association has been described to me as something imported from England in the 1870's to codify this banker law into the US. Anyone who has employed one, has to know that most of the time you are employing an incompetent to represent you in court because you are incompetent to represent yourself. What a deal at $300 to $500 an hour?

http://www.acting-man.com/?p=19030

Yep...

Between that acting-man link and the fact that the government now wants you to launder money for "national security threats" so you can pay them part of the vig, the slim hope for reforming the system slips into the darkness.

I hope enough people get One Dollar of Capital for when it comes time to rebuild.

Soylent wrote..

Spare biomass is largely a fiction;

Brazil cultivates sugar cane for sugar to ferment to ethanol.

The energy-return/energy-invested for cane vs corn is high enough to make it feasible for cane ethanol to compete with gasoline using market prices. No subsidies are needed for cane sugar to ethanol.

Corn starch -> ethanol is breakeven at best; probably loses energy once transport, fertilizer etc. factors are included.

We used to have an import tariff for ethanol. That was stopped a few years ago. The demand for ethanol to put in gasoline (by edict of Congress) is distorting world prices of ethanol.

But the biggest impact is that the people that depend on corn for food are seeing much higher prices because of the ethanol mandate.