The Chicago Plan revisited by ASP

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Current Banking System Balance Sheet Assets 20

Government Bonds

100

Short-Term and Mortgage Loans

Liabilities

184

Deposits

Bank Equity

Investment Loans

All numbers are in percent of U.S. GDP

Transition to Chicago Plan Step 1 Banks purchase 100% reserve cover against treasury credit IOU Assets Liabilities 20

Government Bonds

100

Short-Term and Mortgage Loans

184

Deposits

Bank Equity

184

Treasury Credit

Investment Loans

100% Reserve Cover

184

Reserves

Transition to Chicago Plan Step 2 Banks are split into money banks and credit investment trusts Assets

Credit Investment Trusts

Government Bonds

100

Short-Term and Mortgage Loans

184

Treasury Credit

Bank Equity

Investment Loans

Money Banks

Assets

184

Liabilities

Reserves

184

Liabilities

Deposits

Transition to Chicago Plan Step 3 Bank-held government bonds are cancelled against treasury credit Assets

Credit Investment Trusts

Government Bonds

100

Short-Term and Mortgage Loans

184

Treasury Credit

Bank Equity

Investment Loans

Money Banks

Assets

184

Liabilities

Reserves

184

Liabilities

Deposits

Transition to Chicago Plan Step 3 - completed Bank-held government bonds are cancelled against treasury credit

Assets

100

Credit Investment Trusts

Short-Term and Mortgage Loans

164

Treasury Credit

Bank Equity

Investment Loans

Money Banks

Assets

184

Liabilities

Reserves

184

Liabilities

Deposits

Transition to Chicago Plan Step 4 Part of treasury credit is distributed as a citizensâ&#x20AC;&#x2122; dividend

Assets

Credit Investment Trusts

100

Short-Term and Mortgage Loans

Investment Loans

184

100

Citizensâ&#x20AC;&#x2122; Accounts

Treasury Credit

Bank Equity

Money Banks

Assets

Reserves

Liabilities

184

Liabilities

Deposits

Transition to Chicago Plan Step 5 Mandatory first use of citizensâ&#x20AC;&#x2122; dividend is repayment of any debts

Assets

Credit Investment Trusts

100

Short-Term and Mortgage Loans

Investment Loans

184

100

Citizensâ&#x20AC;&#x2122; Accounts

Treasury Credit

Bank Equity

Money Banks

Assets

Reserves

Liabilities

184

Liabilities

Deposits

Transition to Chicago Plan Step 5 - completed Mandatory first use of citizensâ&#x20AC;&#x2122; dividend is repayment of any debts

Assets

Credit Investment Trusts

Investment Loans

184

Treasury Credit

Bank Equity

Money Banks

Assets

Reserves

Liabilities

184

Liabilities

Deposits

Transition to Chicago Plan Step 6 Bank equity distribution due to reduced balance sheet size Equity replaced by additional treasury credit

Assets

Credit Investment Trusts

Investment Loans

184

Treasury Credit

Bank Equity

Money Banks

Assets

Reserves

184

Liabilities

Deposits

Transition to Chicago Plan Step 7 - Optional Treasury credit used to repay all remaining government debt held outside the financial system Â&#x2021; This is shown to illustrate that there is no need for government to have a dominant role in credit provision Â&#x2021; But the drawback is that this completely removes an important financial market benchmark and saving instrument

Assets

Credit Investment Trusts 60

Long-Term Non-Monetary Private Deposits

Treasury Credit

Investment Loans

184

Bank Equity

Money Banks

Assets

Reserves

Liabilities

184

Liabilities

Deposits

Changes in Government Balance Sheet in Transition Period "

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Reserves are equity in the commonwealth, not debt.

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GDP

Investment

(% Difference)

Real Wholesale Lending Rate (pp Difference)

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-1.0

-1.5

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4 12 20 28 36 44 52 60

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Inflation

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4 12 20 28 36 44 52 60

Labor Tax Rate 1

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4 12 20 28 36 44 52 60

-4

-4 -4

4 12 20 28 36 44 52 60

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-6 -4

4 12 20 28 36 44 52 60

Fiscal Variables __ = Transition to Chicago Plan, .... = Final Values after Transition Gross Debt Service/GDP

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(pp Difference)

0.5

-1

-2

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0.0

3.5

-0.5

3.0

-1.0

2.5

2.0

-1.5

1.5

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0.5

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4 12 20 28 36 44 52 60

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Government Debt/GDP

Treasury Credit/GDP

(pp Difference)

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-0.5

0.5

-10

-1.0

-15

-1.5

-20

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-25

-2.5

4 12 20 28 36 44 52 60

-2.5 -4

4 12 20 28 36 44 52 60

Tax Revenue/GDP

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4.0

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0.5

(pp Difference)

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Bank-Driven Business Cycles __ = Pre-Transition, - - - = Post-Transition, with Quantitative Lending Guidance 2

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Bank Loans/GDP

(% Difference)

(pp Difference)

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Bank Basel Ratio

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Real Wholesale Lending Rate (pp Difference)

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Application: Central Bank Purchase of Non-Performing Loans (Richard Werner)

1. Initial Balance Sheets Assets

Central Bank Other Assets 20

Liabilities

Assets 170

Banks Other Loans 184

Liabilities Deposits

Money

Non-Perf. Loans

Bank Equity

Application: Central Bank Purchase of Non-Performing Loans (Richard Werner)

2. Purchase of NPL (worth 40%): Banks are now in perfect shape Central Bank Liabilities Assets 20

Other Assets 20

Non-Perf. Loans

Assets 170

Banks Other Loans 184

Liabilities Deposits

Cash

Reserves (Equity)

Reserves

Bank Equity

Application: Central Bank Purchase of Non-Performing Loans (Richard Werner)

3. Raise banksâ&#x20AC;&#x2122; reserve requirement Assets in line with higher reserves Assets

Central Bank Other Assets 20

Non-Perf. Loans

Liabilities

170

Banks Other Loans 184

Liabilities Deposits

Cash

Reserves (Equity)

Reserves

Bank Equity

Application: Central Bank Purchase of Non-Performing Loans (Richard Werner)

4. Write off the NPL against equity Government net gain = 12 Assets

Central Bank Other Assets 20

12 Recovery on Loans

Liabilities

Assets 170

Banks Other Loans 184

Liabilities Deposits

Cash

12 Reserves minus Write-Offs (Equity) 30

Reserves

Bank Equity

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