Tuesday, January 12, 2010

Using Reserve Requirements to Decrease Liquidity

Raising reserve requirements is a key component of the modern Jubilee plan. The idea of directly using reserve requirements does not occur to most Americans, simply because the Federal Reserve uses only open market operations to change liquidity levels.

But this week, China demonstrates the utility of reserve requirements as a tool to fight inflation (read more here).

In fact, China is demonstrating the real-world success of the Jubilee plan. After flooding the country with stimulus in the past year, the government is now counter-acting potential inflation by requiring banks to stockpile more money.

The Jubilee plan is slightly different, in that it would not randomly disburse stimulus. Rather, would unleash stimulus across the board by direct payoff of debt, simultaneously requiring banks to soak up the extra money by raising reserve requirements.

The total amount of money (currency and credit) in circulation would remain the same, but all debt payments would be eliminated, allowing the economy to restart itself without central government control.

2 comments:

bgamall said...

The plan to raise capital requirements is already on the table at Basel 3. I have written about it here: http://hubpages.com/hub/We-Already-Have-One-World-Government

BTW, I think you have a great blog here with fresh ideas. Perhaps people will just have to take their own personal jubilees as I have recommended in http://dontpaycreditcards.com

Anonymous said...

A lot of the money used to pay off the debt would pass through to the purchasers of the securitized debt.

A jubilee would definitely cause a one-time, albeit, significant spike in inflation.

Just reality - it's still worth doing though.