by Dan Denning, Bonner and Partners:
Before I show you what I’ve learned about a plan to seize control of America’s money, let me make one point clear…
If you value sound money and political freedom… if you value limited government and taxation with representation… and if you value enterprise and privacy… then you’re going to hate the future I’m about to describe.
There is no philosophical or monetary middle ground on the issue.
You’re either with it or against it.
The Chicago Plan
In March 1933, Henry Morgenthau Jr., chairman of the Federal Farm Board, was sent a short memo titled, “Memorandum on Banking Reform.”
It was signed by Frank Knight (the acknowledged author of the memo), Garfield Cox, Aaron Director, Paul Douglas, Lloyd Mints, Henry Schultz, and Henry Simons. All of them were professors at the University of Chicago.
The memorandum advocated for full-reserve banking (FRB) in the U.S. monetary system. U.S. currency would be backed only by government debt, not bank debt (loans issued by commercial banks to private citizens and companies).
It wouldn’t nationalize the U.S. banking system. But it would nationalize the nation’s money supply.
Under this kind of system, banks could no longer “create” money by lending it into existence. Money creation would be the exclusive territory of the government of the United States.
In this system, the key government agencies could not create money through new lending. They would do so through new spending (on priorities determined by elected politicians).
They called it “The Chicago Plan.”
The most radical elements of the plan – which we’ll discuss shortly – were left on the shelf nearly a century ago.
But I believe it’s about to find a resurgence in modern America…
The End of Fractional Reserve
Before I show you what the implications of a modern Chicago Plan would be, it’s important you understand how money creation works today.
Despite what you may think, the central bank (the Federal Reserve) doesn’t print that much money. The vast majority of the money supply in the U.S. economy is grown by banks lending money into existence.
Commercial banks issue a loan, it appears in your account, and just like that… it’s money. From nothing, something! And then there was cash!
But here’s the other part of that process that most people don’t realize. When the banks issue a loan, they don’t have to have a dollar in cash in their vaults for every dollar in cash they lend. If they DID, then every loan to a new customer would be matched with an equal amount of savings already in the bank from another customer. That’s “full reserve” banking.
What we have today is called “fractional-reserve” banking. Why? The amount of cash savings actually held by the bank is only a fraction of the money lent by the bank. And for each dollar in saving deposits held by the bank (your money), the bank can lend up to $10 in new money (this is the secret magic of money creation).
It’s also what some people call “debt-based” money, because money is created when a new debt is born (in the form of a bank loan).
Proponents of the Chicago Plan contend that allowing banks to create credit in a fractional reserve system leads to credit cycles. And the credit cycle has booms and busts. The busts damage everyone, not just those who have borrowed and spent too much.
That’s a problem, they say. To circumvent it, there are those in power actively trying to end the banking system as we know it. They want to go back to the original idea of the Chicago Plan. And then they want to go one step further and replace America’s money with something else entirely.