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Better than a clean slate

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  • David Chester
    Suppose that the fed were to issue a new kind of dollar bill which can be used by the consumer in the normal way, but is particular in the way that it is used
    Message 1 of 2 , Nov 3, 2008
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      Suppose that the fed were to issue a new kind of dollar bill which can
      be used by the consumer in the normal way, but is particular in the way
      that it is used by the banks. The banks can borrow this dollar to any
      amount they need provided that a) they are not allowed to charge
      interest on it when they credit others with its value and b) after one
      year has passed the notes must physically be returned to the fed,
      canelling the associated bank deficit.

      The aim of this is simply to stop the banks going broke, whilst
      allowing creditors sufficient freedom to withdraw their investments and
      savings as they wish. The banks could no longer make a profit on
      somebody else's doubts and misfortune. The pressure on the market for
      investors to withdraw before the bank crashes and for new speculators
      to "buy low" are both reduced by this means. And after a year, when
      everyone who had doubts is satisfied, our economy is back again on an
      even keel.
    • Fred Foldvary
      From: David Chester ... amount they need
      Message 2 of 2 , Nov 3, 2008
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        From: David Chester <chesterdh@...>

        > The banks can borrow this dollar to any
        amount they need <

        Presumably at zero interest?
        They would borrow as much as possible.

        > provided that a) they are not allowed to charge
        interest on it when they credit others with its value <

        They would loan regular money for interest as before, but would have the new money as reserves.
        So this would be a subsidy to the banks.

        >and b) after one
        year has passed the notes must physically be returned to the fed,
        canelling the associated bank deficit. <

        The banks would use the new money to make one-year loans at interest. That would be good for the shareholders of the bank. The bank gets free money that it can loan out for interest.

        Fred Foldvary
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