The Economy’s Get Out of Jail Free Card – The Chicago Plan, Revisited

Ask any college student which freshman-level subject requires the most study and generates the biggest headaches, and he or she will usually say economics. What should be simple in practice–the exchange of goods and services–generates complexities and bizarre concepts and conventions that quickly convince students that they’re not in Kansas high school anymore. The International Monetary Fund recently dusted off an old economic plan in an attempt to deal with rising debt and economic uncertainties according to

The Chicago Plan, which was developed in 1936 as a possible solution for dealing with the Great Depression, was championed by Irving Fisher to replace the current economic system but was eventually scrapped due to opposition from the banking industry. Although the system was never adopted, there remains plenty of support for this economic approach, and many experts–especially in the European community–are revisiting the approach as a solution to rising debt. According to a report posted at, The Chicago Plan could slash debt by 100 percent of each country’s GDP, stabilize prices and stock values, boost growth and take economic policies out of the hands of bankers.

Details of The Chicago Plan’s Ability to Reorder Economic Practices

The plan would essentially be a one-time “get out of jail free” card for the world’s economies that would substitute money for debt without the negative consequences of printing money according to another report. Under current financial practices, banks have the power to create money in boom-or-bust cycles by borrowing money to cover the money that they lend. Banks often speculate that their deposits will rise and lend money based on anticipated increases in their deposits.The plan would eliminate this power by restructuring banks so that they would be required to hold reserves to cover 100 percent of their deposits. This approach was actually used everywhere until King Charles II transferred control of the money supply to private investors in 1666 with the English Free Coinage Act. Banks currently hold reserves that fall between zero and 10 percent of their total deposits. According to, the details of a resurrected Chicago Plan include:

  • All debts would be canceled, and banks would be forced to exchange assets to bring their reserves up to 100 percent of their deposits so that global economies could start with a clean slate.
  • Banks couldn’t create their own funds but would be forced to rely on real-time deposit reserves before extending credit.
  • Governments could issue money with no interest instead of borrowing from banks, but they would fall under tremendous pressure to balance their budgets with tax increases.
  • Money creation would be linked to productivity and not artificial debts or investment gains on paper.
  • The money supply and available credit would be determined independently of each other.
  • Governments would have more precise control to adjust money or credit separately instead of adjusting one and hoping for the desired effect in the other.
  • Credit would become more stable and not depend on central bank policies and fluctuating investment markets.
  • Bank runs would become obsolete as would the FDIC and other deposit-insuring agencies.

How The Chicago Plan Might Work in Today’s Markets

Bitcoins and cryptocurrencies would become unnecessary because a simple, global currency, or multiple currencies linked to gold and other commodities, could be traded without linkages to central banks. Currency speculation would end. There would be an inviolable firewall between deposit and loan functions, which would eliminate Ponzi schemes, fraud and bank and investor manipulations. Governments would not be allowed to finance banks and influence economic policies through central bank operations, so banks would become unbiased intermediaries. The FDIC and other bank-insuring companies would become unnecessary, so these insurance costs would disappear. Each bank would hold enough assets to cover all its deposits and only loan money from its own assets or equity-backed investments. Returning to the Gold Standard is a workable solution because it would prevent governments from printing money to reach unrealistic economic goals. Governments would be forced to balance their budgets or raise taxes to pay for new initiatives.

The Chicago Plan Offers Dramatic Reductions in Public Debt

Overhauling the way that banks do business would certainly generate some uncertainties, major operating changes and resistance–especially from the banking industry that vetoed the original Chicago Plan in 1936. However, fresh thinking and creative approaches in today’s interconnected economies could eliminate bank runs, inflationary pressures and volatility in the money supply while reducing public and private debt. It might take a global economic meltdown of epic proportions to convince world leaders to adopt the plan, but many economic experts are predicting that such a catastrophe is imminent. Find out more about economics, banking policies and The Chicago Plan at the

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