Dust off the Chicago Plan

Dust off the Chicago Plan
By Hossein Askari and Noureddine Krichene
http://www.atimes.com/atimes/Global_Economy/JI17Dj03.html
...
The magnitude and ordeal of the Great Depression led a number of celebrated economists to devote considerable effort to analyze the true causes of the Depression and to formulate financial reforms that would immunize the economy against such financial turmoil.

The reform plan that was developed came to be known as the Chicago Plan, as it was formulated in a memorandum written in 1933 by a group of Chicago professors, including Henry Simons, Frank Knight, Aaron Director, Garfield Cox, Lloyd Mints, Henry Schultz, Paul Douglas, and A G Hart, and was forcefully advocated by the noted Yale University Professor Irving Fisher in his book titled 100% Money.

Noting the fundamental monetary cause underlying each of the severe financial crisis in 1837, 1873, 1907, and 1929-1934, the Chicago Plan calls for a full monopoly for the government in the issuance of currency and forbids banks from creating any money or near money by establishing 100% reserves against checking deposits. Investment banks that play the role of brokers between savers and borrowers were to undertake financial intermediation. Hence, the inverted credit pyramid, the high-leverage financial schemes (such as hedge funds), and monetization of credit instruments (such as securitization) were precluded under the Chicago Plan. The credit multiplier would be far smaller and would be determined by the savings ratio instead of the reserves ratio.

As stated by Irving Fisher: "The essence of the 100% plan is to make money independent of loans; that is to divorce the process of creating and destroying money from the business of banking.

..... http://www.atimes.com/atimes/Global_Economy/JI17Dj03.html

It was an interesting read...