Why Western Banks Are Being Destabilized

In a previous post, I explained that banks are inherently fragile. One way to make them more robust is to increase equity capital requirements ... A genuinely radical approach would be to kill banking as we know it. Rip all banks, large or small, in two – separate deposit-taking from credit-creation. Back the deposits one-for-one with reserves at the central bank. Then fund loans not with deposits or other money-like liabilities but by tapping investors who understand they've put their savings at risk. This approach, unfamiliar as it sounds, has a long and distinguished academic lineage. Luminaries such as Irving Fisher, Milton Friedman and James Tobin have all advocated it. – BusinessWeek

Dominant Social Theme: Get rid of these pesky banks.

Free-Market Analysis: Gradually the liniments of banking reform are becoming clearer. It began as a low drum roll with the resurgence of Greenbackerism and has continued to expand. We've tracked these ideas and have been regularly attacked for pointing out the "campaign-like" nature of what is now in the works.

This article in BusinessWeek is just another example of this spreading meme. It discusses a "Chicago Plan" developed in the 1930s by Irving Fisher and Henry Simons that was re-presented in a recent International Monetary Fund proposal. We wrote about it here: Rediscovering IMF Working Papers.

In simplest terms, the Chicago Plan is a kind of Greenbackerism. The idea basically is to give the government alone the power to print money. In modern finance, central banks that are putatively independent of the government seemingly have that right.

Government central banks include those in India, China and Brazil. In reality there is no difference between the performance of government printing and private/public central bank printing of money. In either case, those doing the printing have absolutely no idea how much currency to print and will almost always print too much, giving rise to euphoric booms and then terrible busts.

more here: http://www.thedailybell.com/28897/Why-Western-Banks-Are-Being-Destabilized