WI: Chicago Plan Implemented

I'm saying this plan wouldn't have reduced the supply of credit

Right, and everyone has explained why saying that deposits cannot be used to make loans reduces the supply of credit.

"What if instead of loaning money deposited out, banks had to put it in a hole in the ground? But they can still loan money if people explicitly give money to banks to loan!"

Enjoy working in your beet collective.
 
My cousin was VP of a small and conservative midwestern bank in those days. We did not meet often, but 2002 to 2010 we together watched the slow motion freeway pileup. Once or twice a year discussing the unfolding insanity over coffee at our business meetings. A retired economics professor & old friend added his perspective "Carl, the trouble with accountants is they think their numbers have something to do with reality." At the time I wondered where the obviously due recession was in 2005. The construction industry was 'Flame Out' but the financal industry attitude was all rainbows and unicorns. I'm convinced that had the necessary shakeout come in 2003-4 most of the long term damage of 2008 would have been avoided.
Accountants have a place, but as your pal the economist pointed out, they have to stick to the absolute facts of what is in the numbers, not get creative. He remembers that accountants are the ones who, when asked what the company profits were for the year, will ask what the owner wants them to be. Unfortunately accounting has too often become a branch of management magic. Too much moving 'funds' back and forth on paper. (The less said about the financial sector the better. A massive Agency Problem. Too much is set up such that maintaining confidence (and therefore "helium") is necessary to hold it all up.)

You are right, I think, that a shakeout in construction (at least residential), and a few blips in housing markets or even the failure of a major mortgage lender or two, would have headed off a lot of pain. If nothing else it would have been a smaller house of cards to collapse. As for what held it all up - maybe the same belief that the value of land holdings would rise fast enough to rescue everyone?
I spent the late 1990s as a market housing analyst and we saw the US housing crash coming a long way off. Every time there was a loosening in mortgage rules we could sense the increased scope for brinkmanship - and that was without the deliberate fraud that was taking place behind the scenes. Like most economic movements, the more the turn is delayed the sharper the turn will be.
 

CalBear

Moderator
Donor
Monthly Donor
Right, and everyone has explained why saying that deposits cannot be used to make loans reduces the supply of credit.

"What if instead of loaning money deposited out, banks had to put it in a hole in the ground? But they can still loan money if people explicitly give money to banks to loan!"

Enjoy working in your beet collective.
Don't troll.
 

Ian_W

Banned
I'm saying this plan wouldn't have reduced the supply of credit

The actual authors of the Chicago Plan disagree.

Read the top of page 5. And then think about why they are - on page 5 to 6 - calling for exceptionally radical measures like a 15% inflation target, the Feds siezing all the privately held gold coins and as a bonus making the dollar non-convertible, and selling the US gold reserve.
 

kernals12

Banned
The actual authors of the Chicago Plan disagree.

Read the top of page 5. And then think about why they are - on page 5 to 6 - calling for exceptionally radical measures like a 15% inflation target, the Feds siezing all the privately held gold coins and as a bonus making the dollar non-convertible, and selling the US gold reserve.
15% inflation is not radical after a 3 year period where prices fell by 20%.
 
Top