by Dan Denning
Denning is the coauthor of The Bill Bonner Letter, a
monthly investment newsletter to help readers protect
and grow their wealth over time. Before joining Bonner &
Partners, Dan was a founder of Southbank Investment
Research, the leading independent financial publisher in
the UK. Dan is also the author of the 2005 book, The
Bull Hunter. Dan Denning's belief in free markets, sound
money, personal liberty, and small government have
underpinned everything he's done during his 18 years in
the financial publishing industry. Dan is also an
Official Wealth Preservation Expert to Townhall Media.
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.
In March 1933, Henry Morgenthau Jr., chairman of the
Federal Farm Board, was sent a short memo titled, "Memorandum on
It was signed by,
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
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
The End of
Before I show you what the implications of a modern Chicago Plan
would be, it's important you understand how money creation works
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
But here's the other part of that process that most people don't
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.
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.
Program for Monetary Reform
After apparent recovery in the mid-1930s, America entered the
Recession of 1937-1938 and the key elements of the 'Chicago
Plan' resurfaced in a July 1939 draft proposal titled 'A
Program for Monetary Reform' but did not result in
any new legislation.
A Program for Monetary Reform (1939) was never published.
A copy of the paper
was apparently preserved in a college library. Copies of the
paper, stamped on the bottom of the first and last pages,
"LIBRARY - COLORADO STATE COLLEGE OF A. & M. A. - FORT COLLINS
COLORADO" were circulated at the 5th Annual American Monetary
Institute Monetary Reform Conference (2009) and the images were
scanned for display on the internet.
A Program for Monetary Reform was attributed on its cover
page to six American economists:
The July 1939 draft
proposal, coauthored by Paul Douglas and five others,
resurrected proposals for banking and monetary reform from the
'Chicago Plan' but did not result in any new legislation.
And then they want to go
one step further and replace America's money with something else
The main feature of the Chicago Plan is that it moves credit
creation from private hands to public (government) hands, with the
average American unaware of who is really moving the government
Money isn't lent into
existence. It's spent into existence.
You can imagine that he who does the spending in this system has
great power. That's exactly the idea!
Under the plan, instead of stimulating growth by changing the price
of money for commercial banks (which is how monetary policy
currently works with the Federal Reserve and interest rates), the
government would "spend" money into circulation - on public works
and infrastructure projects, for example.
The quantity of money in the economy would be determined by the
government, not the commercial banks. And, at least in theory, the
government would enjoy vastly lower levels of debt (both absolutely,
and relative to GDP) in this kind of money system.
In the current system, the US Treasury raises money by selling bonds
to commercial banks or the Fed, paying interest to both. Money is
created by borrowing. But again, it's debt-based money. That
wouldn't happen in the new system.
But what would the new
money be backed by? Er… government
The term "full-reserve banking" implies every unit of currency is
backed by an actual reserve.
Some advocates of
full-reserve banking (including a handful of Austrian economists)
believe you could back the money with gold. Thus gold would be
restored as the most important reserve asset in the world.
But if your agenda is to spend money into existence in unlimited
quantities, you can also use government debt as a reserve asset.
There's a lot of it already. And you can always make more!
In fact, this is a key feature of the Chicago Plan. It's
full-reserve banking where the government does all the money
creation, "backed" by government debt.
The commercial banks
merely provide payment services or pay interest on deposits. They
are forced out of the debt-based money creation business (where all
the profit is, of course).
According to the theory, this new American money system would
accomplish three things…
End the booms and
busts of the credit cycle.
Do away with bank
runs (no need to get your money out of the bank if it's
government's debt problem. If money can be spent into
existence, government borrowing and government debts are a
thing of the past. If it needs more money, the government
just spends it and "backs" it by issuing new bonds held by
the central bank. The government could never be insolvent.
Does that sound like an
improvement on the current system to you?
To some people, it all
sounds somewhat appealing, until you look closer…
Under the Chicago Plan, the government has "monetary
What is monetary
sovereignty? It is the complete decoupling of money from anything
Let me explain what I mean and why that's so important for the value
of your savings and investments today.
Under the Chicago Plan, money doesn't have to have its roots in real
value-added labor. Money doesn't come into existence because a
tradesman has created something useful and sold it to someone else,
requiring money to make the transaction.
And under the new system, money certainly doesn't have to be
anything physical and scarce, like gold. Under the new system, money
can be whatever the government wants it to be.
With a monetarily sovereign government calling the shots, money is
literally no object. A monetarily sovereign government wouldn't have
to borrow anymore, or pay interest. To create money, it would simply
spend it into existence. Voilà...!
Think of all the jobs and incomes created when a monetarily
sovereign government decides to spend trillions on new
infrastructure and "nation building" projects.
This is Richard Duncan's "creditism" without the need to borrow. It
is economic growth without effort, wealth without labor, riches
If you think it sounds absurd, you're not alone.
But remember what's
at stake here:
total control of American money, and through it, of
the economy, and of you.
And it'll be accomplished by controlling
the quantity of money through a central authority.
For an idea of what that might look like - and why it's so dangerous
to your cash and savings today - consider this quote from the
innocuously titled "The Case for Unencumbering Interest Rate Policy
at the Zero Bound."
It was delivered by Marvin Goodfriend of Carnegie Mellon
University at the Fed's annual retreat in Jackson Hole, Wyoming in
straightforward way to unencumber interest rate policy
completely at the zero bound is to abolish paper currency.
abolishing paper currency would be effective, would not need new
technology, and would not need institutional modifications.
However, the public
would be deprived of the widely used bundle of services that
paper currency uniquely provides.
[…] Hence, the public is likely to resist the abolition of paper
currency at least until mobile access to bank deposits becomes
cheaper and more easily available.
First, we have a proposal
for a new system in which only the government can create money.
Next, the "experts" think the most logical way to "unencumber"
ineffective monetary policy is to abolish cash...
Goodfriend, by the way, was nominated by President
Trump to serve on
the Federal Reserve's seven-member Board of Governors. His
nomination is currently awaiting action by the U.S. Senate.
Taken together, there is a real effort underway to do away with your
individual economic liberty and your preference to hold cash in the
face of interest rate uncertainty.
"If that could be
overcome," Goodfriend seems to be saying, "then we could make
you act the way we want you to."
Am I exaggerating?
It's happening faster than you think.
For example, the Swiss recently voted on implementing a version of
Chicago Plan earlier this month. They ultimately voted it down,
but the fact that such a plan was considered in the first place
shows that this idea is coming back into the mainstream.
Also, keep in mind that the Swiss, due to their constitution, get to
vote on these kinds of things. It's a direct democracy, controlled
at the local level.
Top-down change - the
kind of change which tends to benefit the elites and those in the
shadows of power - is very hard to achieve in Switzerland.
But in the United
What would it
take for elected officials, and the American voters, to
decide that the banks can no longer be trusted?
What would it
take for politicians and voters to agree that it's time to
end "too big to fail" banks and change the financial system
so "the people" (through their elected officials, of course)
can be in charge of the money system?
A stock market
"systemically important bank" collapse?
A sovereign debt
The catalyst could come
from anywhere, or nowhere.
And if you think it's out
of the realm of possibility, then you lack imagination, or an
understanding of history.
In Defense of
In a world where government has unrestricted control of the money,
and hiding in physical cash is no longer an option (because cash has
been abolished), there's no end to what a monetary sovereign could
force you to do.
Control of money
is a massive political power.
What would happen next?
interest rates (effectively a tax on your savings)?
purchase of items that the government deems undesirable,
like weapons, alcohol, or cigarettes?
These may seem
But they are well within
the realm of possibility for a government in complete control of the
money in your account.
This was the plan in 1933. It almost happened. I believe it is the
plan today. And I believe it WILL happen. Much sooner than you
think. Which is why you must plan for it NOW.
This is not a theoretical debate.
What, exactly, is at stake for you
This idea of sovereign money appeals to central planners because
with it, they have absolute authority and permission to try and
solve any "problem" they deem a threat.
You are that threat, because you won't do what you're told. You
won't spend when you're supposed to spend, borrow when you're
supposed to borrow. And you're likely to hoard cash and real money
(precious metals) in the face of low (or negative) interest rates.
That makes you an
uncompliant problem for the State to solve.
When you pair it with banning cash and going all-digital, you have
nothing less than the complete loss of economic liberty and freedom
of action in America. THAT's what's at stake here. Right now...
If you're in a situation where you can only spend money when you're
allowed to spend money, or you can only spend money that 'they' say is
money, and you can only spend money when 'they' think it's okay, then
you're not free.
And to some people, freedom still matters in America...