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Comments on: Is the ‘Chicago Plan’ the way forward? http://www.tvhe.co.nz/2014/04/04/is-the-chicago-plan-the-way-forward/ The Visible Hand in Economics Thu, 10 Apr 2014 20:01:00 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Matt Nolan http://www.tvhe.co.nz/2014/04/04/is-the-chicago-plan-the-way-forward/#comment-42964 Thu, 10 Apr 2014 20:01:00 +0000 http://www.tvhe.co.nz/?p=11191#comment-42964 In reply to Miguel Sanchez.

Yar, sometimes I think people’s determination to discuss how banks “create their own deposits” forget that it still relies on a transaction with borrowers – who involve their own risks and willingnesses to borrow.

]]> By: Miguel Sanchez http://www.tvhe.co.nz/2014/04/04/is-the-chicago-plan-the-way-forward/#comment-42947 Fri, 04 Apr 2014 09:10:00 +0000 http://www.tvhe.co.nz/?p=11191#comment-42947 Really really baffled by the number of central bankers etc who think that banks can create their own funding (while somehow simultaneously holding the view that banks are at risk of a ‘run’ on their funding). To use a snippet that was quoted in the IMF paper: “Suppose that Bank A gives a new loan of $20 to Firm X, which continues to hold a deposit account with Bank A. Bank A does this by crediting Firm X’s account by $20. The bank now has a new asset (the loan to Firm X) and an offsetting liability (the increase in Firm X’s deposit at the bank). Importantly, Bank A still has [unchanged] reserves in its account. In other words, the loan to Firm X does not decrease Bank A’s reserve holdings at all.” All well and good until Firm X decides to withdraw the money, at which point Bank A has to stump up. And gee, what are the odds that, having borrowed some money, Firm X might want to do something with it other than just leaving it on deposit? Just… so… dumb.

]]> By: HJC http://www.tvhe.co.nz/2014/04/04/is-the-chicago-plan-the-way-forward/#comment-42943 Fri, 04 Apr 2014 00:07:00 +0000 http://www.tvhe.co.nz/?p=11191#comment-42943 In reply to Matt Nolan.

Yes, I agree.

]]> By: Is the ‘Chicago Plan’ the way forward? http://www.tvhe.co.nz/2014/04/04/is-the-chicago-plan-the-way-forward/#comment-42942 Fri, 04 Apr 2014 00:05:11 +0000 http://www.tvhe.co.nz/?p=11191#comment-42942 […] Matt Nolan David Grimmond writes about the old Chicago Plan, written up following the Great Depression. Given […]

]]> By: Matt Nolan http://www.tvhe.co.nz/2014/04/04/is-the-chicago-plan-the-way-forward/#comment-42941 Thu, 03 Apr 2014 23:00:00 +0000 http://www.tvhe.co.nz/?p=11191#comment-42941 In reply to HJC.

The devil would be in the details. However, I’ll be honest that, from my perspective, the claims that it would increase output by 10% – without a clear explanation of why – appear absolutely outlandish.

]]> By: HJC http://www.tvhe.co.nz/2014/04/04/is-the-chicago-plan-the-way-forward/#comment-42939 Thu, 03 Apr 2014 22:52:00 +0000 http://www.tvhe.co.nz/?p=11191#comment-42939 It’s interesting to consider how banking could even work under these conditions. Equity-funded lending is not banking, it has no aspect of liquidity provision. Would banks need to have 100% reserve backing for undrawn facilities (e.g. credit cards), which can become deposits instantly? If the reserve requirement was enforced with a lag there would be massive inter-bank rate volatility on each day of reckoning and the central bank would need to be more active in its open-market operations possibly taking a much wider range of collateral. Maybe there would be no real change at all, other than that the central bank would have a much larger balance sheet.

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