IMF Paper: End Fractional Reserve & Banker Monopoly on Debt

A paper published last August by IMF Researcher Jaromir Benes and IMF Economist Michael Kumhof suggested revisiting the “Chicago Plan” drafted from the new rush of economic thinking that came in the wake of the Great Depression. The first major idea in the paper proposes eliminating bank runs by eliminating the Fractional Reserve system, requiring banks to keep 100% of deposits on reserve instead of only a fraction of what is on The digital banking systemdeposit. It also proposes that governments create their own currencies instead of the current monopoly on currencies, issued as debt, through the banks. While no one can argue that governments are corrupt enough to defraud their own people through the power of high finance, I would argue that minimizing the same ability in banks is the preferable option. The paper lays bare the facts and consequences of banks today not functioning as “intermediaries between depositors and borrowers,” but primarily as “creators and destroyers of money.”

In the current system, many times the amount of money being held in reserve can be used by banks to make any number of risky or outright fraudulent bets or investments. This means that money that doesn’t actually exist is “created” and can be used by banks to speculate in the market. If they lose, the money never actually existed, but the concept is part of why every major bank today is functionally insolvent while posting record “profits” and bigger-than-ever executive bonuses. The Glass-Steagall Act, passed after the Great Depression, once prevented commerical banks from being involved in these kinds of investment banking functions.

But Bill Clinton ended Glass-Steagal with the Gramm-Leach-Bliley Act, and removed a major modern barrier to Big Banking power. We are told by proponents of the global Keynesian banking system that it’s “working,” because there hasn’t been a bank run since the passage of the Federal Reserve Act. But the reason there hasn’t been a bank run under the current system is because one of The Fed’s functions is to create more debt to bail out domestic and foreign financial institutions on the American taxpayer’s dime with no vote, no justification and no oversight.

The Fed is an institution that, inarguably, grants massive power to already-monolithic banking institutions known without question to be involved in global-level mafia activities like money laundering for drug cartels, mortgage fraud, derivatives fraud, interest rate manipulation, precious metals price manipulation and every other kind of financial Newspaper Article Hailing the Dawn of the Federal Reserve Actlooting they think they can possibly get away with.

If you’re against the power of the big banks, you should be against The Fed. And if you’re not, it can only arise from a lack of understanding of how The Fed operates. As Vermont Senator Bernie Sanders’ first-ever audit of The Fed revealed,

“The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo.  The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.”

The IMF paper even admits that booms and busts are created by the debt bubbles engineered by central banks, and that the banking industry’s ability to manipulate credit is the main cause of fluctuations in the business cycle. So why would the IMF, a neoliberal globalist financial institution known for making predatory loans to the third world in the name of “development,” be suggesting things like 100% reserve ratios and an end to debt-based currencies issued through institutions controlled by banking cartels? Well, for one, the paper begins with a disclaimer that the content does not represent the views of the IMF, or of IMF policy. It’s the work of independent researchers at the IMF, a large global nstitution with a large staff consisting of all kinds of folks. Still, the fact that they published a paper promoting actions that would majorly de-power The Federal Reserve and big banks is interesting.

So, then, minds at the IMF, even if not its most powerful members, are beginning to question the current financial and geopolitical status quo. Even foreign governments are beginning to wonder if The Fed is a safe place for their assets. (Linked article is in German–English speakers, run through Google Translate). It would Relationship Between Government, Bureaucracy and Special Interestscertainly shake certain industries if the Chicago Plan or something like it was put into place, and there are definitely questions as to whether or not even an ostensibly “fair” debt-free monetary system could not be exploited by banking interests. There would be an adjustment period, perhaps a painful and uncertain one, as there must be with all such major global changes and shake-ups. Read the report and decide for yourself. At the very least the financial crisis of 2008, from which we are showing few signs of recovery and many of a perfect financial storm to come, should be prompting us to question and look more deeply into incredibly-powerful financial institutions like The Federal Reserve, other central banks and global lending institutions like the IMF and World Bank.

2 comments

    1. Eric T. Raue · · Reply

      Hi John,

      Looks like a decent resource–Tons of information there! Thanks for your addition.

      Best,
      E.T.R.

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