Ideas 3.1 (The Chicago Plan / video)

  By Mystic | October 27, 2012 - 01:49 | , ,

Ideas, so far.
Recessions are when business plans go wrong.
Depressions (and `Great Recessions) are when the people will not take on more debt.
To get the people to take on more debt, they must first shed some of the old debt (deleverage).
This can be `managed` into a beautiful deleveraging by three things happening in balance -
1. Writing down of the value of the debts.
2. Slowly paying off those debts.
3. Inflating the debts away.
Note that none of these are `quick fixes`~!

Austerity makes it harder for debts to be paid.
Government deficits make it easier for debts to be paid.
Quantitative Easing helps to gain time … that is all.

It is then up to the people concerned, to use that time to get the deleveraging done.

All of this, is to get us to a place, where we can `start all over again`.
Some people have put forward ideas, whereby it may be possible to avoid this ever repeating cycle.
(but old farty fuddydudds are in charge, so probably nothing much will change)

08:21 min.

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Written by: Mystic on October 27, 2012.
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  • CSArichardo

    Ideas, so far. (edited!) 
    Recessions are when many business plans go wrong at the same time, because some business plans are always going wrong.   
    Depressions (and `Great Recessions) are when 3 things line up.  

    1.  Many people, including corporations, will not take on more debt because they cannot carry any more debt, 
    2. Lending institutions having taken losses on a previous bubble and tighten their lending standards, and
    3. Other people, including governments, do not “wish” to carry any more debt.

    • http://overthepeak.com/wordpress/ Mystic

      Fair enough.
      As long as you haven’t already grabbed a copyright for ideas …. I’ll copy and paste it up to the menu.

  • CSArichardo

    I am listening to Kumhof and he says you could switch to the Chicago Plan by reseting it all in one big “government debt” to “equity swap” !  I think he means “government debt” to “cash” swap. 

    So he is only confirming that we could keep the current system going by having the government wipe out a major portion of its debt by the issue of new cash reserves into the existing system??!

    All sounds like a helicopter drop by another name !?

    • http://overthepeak.com/wordpress/ Mystic

       Please let me confirm that I am a long, long way, from understand this Chicago Plan~!

  • John_by_the_creek

    Dear Mr. Mystic:
     
    Regarding you comments on mortgage loans, I certainly agree the mortgage companies were “pushing” loans….hard.  For many years, they seemed to be THE major advertiser, in every form of media, here in the US.  It’s clear the financial industry was “pushing” money on an “unsuspecting” public.
     
    But the other major, seldom discussed, enabler of the housing mania was US tax code. 
     
    Throughout the 1990′s, I ran a small technology company.  In the late ’90s, I had a good year.  I was sitting in my accountants office, and we were running down the list of tax deductions I might qualify for.  She sarcastically asked if I had “moved” that year (she knew I hadn’t).  I smiled and said “no, why do you ask”?  She then went on and explained the government had eliminated the capital gains tax on the sale of your home.  I was shocked!  I absolutely could not believe it!  You could take a quarter of a million dollar profit on the sale of your primary residence with no tax liability!!  It stuck me as being so unusual, that the entire incident stuck in my mind!  I knew at that moment the government wanted to encourage home sales, but many years passed before I understood what was going-on.
     
    If I were inclined to be conspiratorially minded, I might think it was a concerted effort by the government and the financial industry to “pump” the real estate market.  But of course, we all know politicians and bankers alike, would never do anything that might harm the “hard working folks of this great country”.

    • http://overthepeak.com/wordpress/ Mystic

       By way of avoiding politics …. Warning Mystic curve-ball a commin’ -

      Are we sure that the housing boom has done the `hard working folk` much harm~?  (any harm~??)

      • John_by_the_creek

        That is a very, very complicated question.  To even attempt to answer it, I think the moral dimensions of the question would need to be explored first.  And that is a discussion that has been ongoing for all of recorded history. 
         
        So for now, I’ll answer this way; Like beauty, “harm” is in the eye of the beholder.  A fourteen year-old boy who “scored” his forty year-old art teacher, views the concept of “harm” in terms very different than his parents might.
         
        I believe the ”money” question goes to the very core of our social order.  It’s much deeper than a question of math or mechanistic theory.  How it works, and how we use it, ultimately reflects who we are, and what we believe (collectively).

        • http://overthepeak.com/wordpress/ Mystic

          Hmmm…??
          I have to divine what you mean.
          I don’t think you mean what you said ……. about “money”.
          It is not the money that gets you; it is – “the people”

          You think that big government is making them weak, so it can be strong for them.

          ??

          • John_by_the_creek

            Not exactly.  I think your statement on “big government” is more symptomatic of the situation than causal. 
             
            Government gets “big” because we want it to get big.  In the minds of the “people”, we believe that the “bigness” is better able to solve ”the big problems”.  In some cases “bigness” is needed, and appropriate.  Digging a trench is better accomplished with a backhoe than a teaspoon.  But in many cases, I think “bigness” is used (by the smart kids in the room) to manipulate, control, hide, and obscure – to their own ends.
             
            I did mean what I said about money, because ultimately, money IS a “people” thing.  It’s not a naturally occurring phenomenon like water or air.  It’s something that emanates from the minds of men.  It’s a social construct.  It’s a social tool, and interaction mechanism.
             
            How well ”money” works is a product not only of how well the system is designed, but how prudently the participants decide to use it.  Traffic lights don’t actually stop cars.   It’s simply a “construct for interaction” that ultimately relies on the actions of the participants in order to function with the desired effects.  The actions of a few bad drivers is problematic.  The actions of lots of bad drivers is catastrophic.  It’s a question not only of the “system”, but the actions of its “users”.

            • http://overthepeak.com/wordpress/ Mystic

              Ah good.  I would say that the `democratic` desire for big government, has about the equal weight as the desire of government to grow itself…. (and it looks like you are somewhere round there as well).

              So, to money.
              I have not understood where you are coming from here.

              There is only one main `money rule` and that is that it should devalue by about 2% per year (to keep it circulating better)

              Now, how the people use it, is how they use it.
              You think they abuse it somehow and this is someone/somethings fault.
              I got lost a bit there~!??

              • John_by_the_creek

                Yes, that is my point.  It’s how people use the system and the money.  It’s the level of wisdom, logic, and maturity people use when making financial decisions (and all other life decisions!!).  If the majority of people are taking actions that are detrimental to both themselves, and in aggregate the entire system, how can we expect anything to improve?  Especially when we have developed an inclination to shield people (and corporations) from the risks and consequences associated with bad decision making!!

                • http://overthepeak.com/wordpress/ Mystic

                   I am not sure we can know that the aggregate decisions are leading to bad outcomes.
                  How can we know~?

                  People, in aggregate, are a whole lot better off than they’s granpapies.

    • Jetser

      Look at the capital gains situation from another perspective: you have a 500k house and 250k is capital gains. You get a job offer in another town and want to effectively “swap” one 500k house for another. Because the government owns part of the capital gain, you need to find a big chunk of money just to maintain your current standard of living. Removing CGT on primary residences does make it more likely that houses will be sold, but is that the objective, or is it to make the workforce more mobile?

      • John_by_the_creek

        Ah!  Reason and logic!! 
         
        I can’t quote you the exact tax code, but I believe prior to the change in the late ’90s, there was already some provision that shielded you from CGT on the sale of your primary residence, IF you went-out and bought another primary residence within 2 or 3 years.  (Don’t hold me to this, but I think this may have been a “one-shot” deal as well).
         
        So if the objective was to provide a “fair” mechanism that permitted mobility, why allow unlimited buy/ sell cycles with zero tax liability?

      • CSArichardo

        In Canada thre are no capital gains on your “principle residence” but you also cannot deduct mortgage interest against that property.  That makes sense.

        • John_by_the_creek

          Has that been a long-standing policy, or is the zero-tax thing a recent occurrence?

      • John_by_the_creek

        I think what I said in my previous post(s) is accurate.  I got curious an found this info that covers the topic:  http://www.bankrate.com/finance/real-estate/capital-gains-home-sale-tax-break-a-boon-for-owners-1.aspx

  • http://www.outoftheboxinsight.org Outoftheboxinsight

    Well as for humanity this video is pointing in all areas to the next paradigm:)

    Francis Ford Coppola, Hearts of Darkness, The Great Hope ~Talking about suitable titles:)~
    http://youtu.be/9WOnRAvdK2s

    • http://overthepeak.com/wordpress/ Mystic

       Hello T,
      Go and sort Richard out on his `Quality of Life #2` posting, will you~?

      He is on to something more important than this money stuff~!

  • Joebhed

    Nick
    Thanks for posting this.
    Having just observed the whole prelim(mostly Ms. Coppola and the respected Ralph Musgrave) and most of this Kumhof video, you are at the edge of monetary understanding today, even if, as you say, you do not necessarily understand all of it. Nor do I..
    Ralph is the most reasonable of the MMT school, obviously with his support of full-reserve banking.
    I’m still digesting a reply to Ralph’s column.
    While it appears at the outset that there is some legitimacy to his observations, and because of the author you know that must be so, his conclusions are at odds with the outcome of the model.
    There is no inflation, economic growth happens only over a decades-long period and consumption is immediately reduced along with debt-levels, again only returning over the long term..
    The disparity of the dialogue can help to bring together a broader understanding of the feasibility of real solutions.
    Which, I believe, you abhor.
    Thanks, again.
      
     

    • http://overthepeak.com/wordpress/ Mystic

       I didn’t quite get that last bit ……. What is it that I abhor~?