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Saturday, February 4, 2017

Dr. Warren Coats - My Political Platform for 2017

Readers here know that we have featured articles by former IMF Chief of Operations (SDR) Dr. Warren Coats. Dr. Coats has decades of experience related to the issues we cover here and has also been kind to donate some of his time to help add information to this blog (like this interview he did here last year). 

Right now there are no major events taking place leading to the kind of major monetary system change we watch for here. I do want to try and continue to produce a few articles for the readers who continue to visit here regularly while we wait to see how things unfold.

Here we have a recent blog article by Dr. Coats where he lays out his vision for a political platform for 2017. I thought it had a lot of interesting ideas and his section on monetary policy of course directly ties in to what we cover here. Below I have excerpted his section on monetary policy (bold emphasis is mine). Below that are a few added comments.





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Monetary and Financial Policies

Government policies that affect business should be as rule based and transparent as possible. Monetary policy stands out as a particularly important area in which clearer rules are needed. A currency with stable real value (purchasing power) is an important part of the foundation of efficient free markets. At the very minimum the Federal Reserve’s mandate should be tightened as provided in the very pragmatic Federal Reserve Accountability and Transparency Act of 2014. This act would require the Fed to chose an operational rule, from which it could depart only with an explanation to Congress of its reasons. A deeper review of options is proposed by the Centennial Monetary Commission Act of 2015. I have proposed a more radical reform in the spirit of the gold standard but with tighter rules and an anchor of a large number of goods rather than just gold. The supply of this currency, which ideally would become the global currency, would be regulated by the market using currency board rules and “indirect redeemability.” A hard anchor for the dollar.
The banking and financial sector are currently smothered with detailed regulations the compliance cost of which are driving smaller banks out of business. Under the Dodd Frank law adopted after the financial crisis of 2008, the largest five American banks have grown even larger (in absolute terms and as a share of the banking sector) than they were in 2008. Regulators, despite (or because of) their detailed banking regulations have failed to make banks safer and have slowed the competitive process of producing better and cheaper services. Bank owners and market preferences should regulate risk taking by banks.
Bank regulation by the government should focus on broad principles with strong owner accountability. Bank capital requirements should be raised and the no bail out rules strengthened. Bank owners and investors should absorb any bank losses. The payment services of banks should be isolated from the rest of its lending and investing business by adopting the Chicago Plan of one hundred percent reserve requirements against current account deposits, and virtually all other regulations (other than accounting and reporting standards) should be dropped. Larger banks will develop their own risk weighted capital requirements for their internal use, but the government’s capital requirements should state the minimum required leverage ratio (ratio of core capital to total assets) and set it at a high level. Changing direction on bank regulation, Cayman Financial Review April 2015. A bill now in congress moves in this direction: The Financial Choice Act          
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My added comments: If you take time to read over the full platform I think you will find it worth your time. As with anything, I am sure various readers will probably agree with some of the proposals and disagree with some. But there are a lot of interesting ideas presented on a wide variety of issues. The basic theme I see in the platform is to try and strike the right balance for the role of government. Enough to have an orderly society based on the rule of law, but not too much so that freedom is restricted too much. We have struggled with this balance as a nation our entire history. Dr. Coats offers his thoughts on it in his blog article on how to strike the balance.

Added note: Dr. Coats furnished me this link to another thought provoking article he had written earlier which is now published at the Cayman Financial Review.

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