This is very close to a suggestion made by various advocates of full reserve banking, as follows. Depositors should have to make a choice between two options. One is to have their money (or some of it) lodged in a 100% safe manner (e.g. lodged at the central bank). The state guarantees that money, but nothing is done with the money: it is not loaned on or invested, thus it is exposed to virtually no risk. Thus there is virtually no taxpayer exposure there.

The second option is for depositors to let their bank lend on or invest their money. In that case the money earns interest, which benefits the depositor. But also the depositor foots the entire bill for any bad loans/investments. In effect, the depositor no longer has a specific sum of money in the bank: the depositor has a stake which can rise or fall in value.

Advocates of the latter system include Laurence Kotlikoff and this lot:

http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf
Amongst the advantages of that system are first, the fact that it is impossible for a bank to SUDDENLY fail. That is the latter stake held by depositors can drift downwards in value, but sudden failure is impossible. Second, there is no taxpayer funded subsidy of banks (TBTF or otherwise). Third, the above system solves a problem which seems to perplex Kregel: that’s his claim that it is impossible to distinguish between the two types of account he refers to, and with a view to having government guarantee one, but not the other.

Incidentally, while the latter system is part and parcel of full reserve banking, as far as I can see, the latter “two types of account” system COULD BE tacked onto a fractional reserve system. I.e. the adopting the two account system does not mean one has to accept full reserve, lock stock and barrel.

That all gives rise to an obvious question, namely whether the two types of deposits at banks proposed by Kregel makes sense, or whether the two types of deposit account proposed by full reservers is better. I suggest that Kregel’s distinction between currency deposits and other deposits does not in fact make sense, and for the following reasons.

If someone deposits currency or coin (or more generally monetary base) with the intention of letting their bank lend on or invest the money, than the depositor no longer has any currency or coin in the bank. (That’s in contrast to where someone deposits a bundle of $100 bills in a safe deposit box at a bank. In that case the bills are still there: they are not loaned on or invested. That is sometimes called “warehouse banking”, and that form of deposit amounts to the same thing as the safe accounts proposed by full reservers.)

I.e. where someone deposits currency with a view to letting the bank lend on the money, the depositor is in effect making an investment (or loan) with the bank simply acting as intermediary. In that case, the depositor / investor has no right to government support if it all goes belly up: any more than if I were to make a stock exchange investment paid for by giving my stockbroker a bundle of $100 bills.

Regarding tax cuts, I suspect working-class tax cuts increase revenue because of the vibrancy of these tax cuts in the economy. However, the recent Payroll Tax Holiday likely did not pay for itself because some of the tax relief went to the rich. That doesn’t mean it was prudent to allow the holiday to expire.

The modern money army is growing!

President Obama does not care about poverty. If he did, he would present a middle class tax relief proposal to Congress and use the bully pulpit to denounce members planning to vote against it.

Frames put you in or out of the picture and that affects how you think about the subject.