with the football season only a few weeks old ... and now that my friend's nails are bitten down to his cufflinks ... he doesn't just need tranquillizers ... he needs urgent medical attention ... i'll call the agency right away ... so pick a nurse, john ... any nurse !

 

to be continued, as & when ...

TRUMP demands lower interest rates and is trying to abolish the Federal Reserve ... whilst the most plausible explanation is that he hates paying interest on his debts, and especially on his fines, I thought it worth inquiring in to the practicalities of such a change ... so I asked CHAT GPT ...

 

I UNDERSTAND THAT THE US GOVERNMENT HAVE EXPRESSED SOME HOSTILITY TOWARDS THEIR CENTRAL BANK. IS THERE AN ALTERNATIVE SYSTEM OF BANKING ANYWHERE ?

ChatGPT said:

You’re right — in the U.S., political debates sometimes spill over into tensions with the Federal Reserve (the central bank), usually about interest rate policy, inflation control, or the Fed’s independence. But central banks (or some equivalent) are almost universal in modern economies.

That said, there are (or have been) alternative systems of banking and monetary governance around the world. A few examples:

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1. Currency Boards

Instead of a fully independent central bank, some countries peg their currency directly to another (usually the U.S. dollar or the euro) and maintain strict rules:

• Example: Hong Kong Monetary Authority operates as a currency board, keeping the Hong Kong dollar pegged to the U.S. dollar.
• This limits discretionary monetary policy, essentially outsourcing stability to the anchor currency.

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2. Free Banking (historical model)

In the 19th century, places like Scotland, Canada, and parts of the U.S. experimented with “free banking” — private banks issued their own banknotes backed by gold or reserves.

• There was no central authority managing money supply.
• Stability varied — some systems were quite stable (Scotland), others less so (U.S. “wildcat banks”).

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3. Islamic Banking Systems

In many Muslim-majority countries, banks operate under Shariah law, which prohibits charging interest (“riba”). Instead, profit-sharing, leasing, and fee-based models are used.

• Example: Iran and Sudan have full-fledged Islamic banking systems.
• These still operate alongside central banks, but the structure of financial intermediation is different.

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4. Cryptocurrency-Based Alternatives

Some communities experiment with decentralized, algorithmic money (like Bitcoin) as an alternative to state-managed central banks.

• El Salvador, for example, has made Bitcoin legal tender.
• However, it still has a central bank and a dollarized system — crypto just functions as an add-on.

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5. Dollarization (or adopting another country’s central bank policy)

Some countries abandon their own currency altogether and use another nation’s:

• Ecuador, Panama, El Salvador use the U.S. dollar.
• They give up independent monetary policy but gain stability.

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✅ Bottom line:
Almost every functioning modern economy has some version of a central bank or at least a highly rule-bound monetary authority. The true alternatives are:

• Currency boards (rigid rules, no discretion),
• Dollarization (outsourcing to another country’s central bank), or
• Decentralized/crypto systems (still experimental at national scale).

Would you like me to sketch out what a U.S. alternative might realistically look like if it ever decided to replace or bypass the Federal Reserve?

You said:  YES PLEASE ?

ChatGPT said:

Great question — let’s think it through.

If the U.S. ever moved away from the Federal Reserve system, it would still need a way to manage money supply, payments, and financial stability. Here are some realistic alternative models the U.S. could adopt:

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🔹 1. Currency Board Model (Hard Peg System)

• The U.S. dollar could be pegged to a basket of commodities (like gold, oil, or a mix of goods) or even to another currency.
• Money supply would grow/shrink automatically based on reserves — the government would lose the ability to “print money” freely.
• Pros: Predictability, inflation control.
• Cons: Zero flexibility during crises (like 2008), possible deflationary pressures.

👉 This would look similar to the classical gold standard.

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🔹 2. Nationalized Treasury Money System

• The U.S. Treasury itself (rather than the Fed) could directly issue money, bypassing private banks.
• Banks would function as payment providers/lenders, but money creation power would sit with the government.
• Sometimes called the “sovereign money” model.
• Pros: Democratic control over money.
• Cons: High risk of political abuse (money-printing to win elections).

👉 This was partly how the U.S. operated during the Civil War (with “Greenbacks”).

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🔹 3. Free Banking 2.0 (Private Bank Money System)

• Banks (or even fintechs) could issue their own currencies, redeemable in gold, dollars, or other assets.
• Competition would discipline them — if a bank issues unstable money, people stop using it.
• Pros: Market-driven stability, innovation.
• Cons: Risk of instability, need for strong regulation of fraud.

👉 Historically worked well in Scotland (1700s–1800s), less so in early U.S. history.

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🔹 4. Full Dollarization (No Monetary Policy)

• The U.S. could abolish the Fed and allow the economy to run purely on a fixed money supply (either dollars already in circulation, or perhaps digital tokens).
• Prices, wages, and credit would adjust without central control.
• Pros: Radical stability, no Fed “interference.”
• Cons: Severe recessions would be harder to manage, no lender-of-last-resort function.

👉 Similar to how Panama operates — no central bank, just the U.S. dollar.

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🔹 5. Crypto / Algorithmic Monetary Policy

• Replace the Fed with a rule-based digital currency (e.g., Bitcoin-like supply cap, or an algorithm adjusting supply automatically).
• Could be issued as a U.S. Treasury-backed stablecoin on blockchain.
• Pros: Transparency, reduced political influence.
• Cons: Unproven at national scale, rigid rules may not fit crises.

👉 This is closest to what El Salvador tried with Bitcoin, though they still rely on the U.S. dollar.

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🚦 Most Plausible for the U.S.?

If Washington ever truly abandoned the Fed, the two most likely paths would be:

1. Treasury-issued sovereign money (direct government control), or
2. A rules-based Fed replacement (like a currency board or algorithm).

Completely free banking or pure crypto adoption is much less likely — too unstable for a $25 trillion economy.

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Would you like me to map out the pros/cons of each model specifically for the U.S. today (like what would happen to debt, inflation, banking stability, etc.)? That way you can see how each alternative might actually play out in practice.

You said:  YES, PLEASE ?

ChatGPT said:

Awesome — here’s a US-specific, plain-English scorecard for each alternative. I’ll focus on: inflation, debt dynamics, banking stability/credit, jobs/growth, interest rates, crisis management, and the dollar’s global role.

1) Currency board / hard-rule Fed (gold/basket peg; very limited discretion)

How it works: The monetary base can only expand if reserves (gold/FX/basket) rise; the peg is defended automatically.

• Inflation: Likely lower and more stable over long stretches; near-term risk of deflation if money is too tight.
• Federal debt: Harder to inflate away; pushes discipline onto Congress (spending/taxes). Debt service costs could be volatile if growth slows.
• Banking stability & credit: Tighter money in downturns → pro-cyclical stress; banks face sharper liquidity squeezes.
• Jobs & growth: Slower recoveries; unemployment spikes last longer without monetary cushioning.
• Interest rates: More volatile in the short run; long-run term premia might fall if credibility is high.
• Crisis management: Weak. Lender-of-last-resort capacity is constrained by reserves and rules.
• Dollar’s reserve status: Could strengthen if credibility is rock-solid; fragility if the peg ever snaps.
• Winners/losers: Savers/creditors win; leveraged borrowers, cyclicals, and deficit-heavy governments lose.
• Top risks: Peg break, imported shocks, political pain during recessions.

2) Treasury-issued “sovereign money” (no Fed; money created by Treasury under law)

How it works: The Treasury creates spendable dollars directly; private banks still lend but don’t create deposits as freely (depends on design).

• Inflation: Depends entirely on fiscal rules. With a strict issuance rule and independent board → okay; without it → inflation/credibility risk.
• Federal debt: You can fund deficits with newly issued money → lower reported debt but higher inflation risk if overused. Temptation is the issue.
• Banking stability & credit: Could be stable if payments are public and safe; credit growth may be more cyclical if banks rely more on capital markets.
• Jobs & growth: Potentially smoother if policy is counter-cyclical and rule-based; dangerous if issuance becomes political.
• Interest rates: Market-set; if Treasury also sets administered rates, politicization risk grows.
• Crisis management: Strong if rules allow emergency issuance + targeted backstops; chaotic if politics delays response.
• Dollar’s reserve status: At risk if governance looks politicized; fine if a credible, independent fiscal-monetary board is created.
• Winners/losers: Taxpayers (if seigniorage replaces interest costs) could win; retirees/savers lose if inflation rises.
• Top risks: Governance failure, loss of independence, inflation expectations unanchored.

3) “Free Banking 2.0” (competing private monies; narrow public backstops)

How it works: Banks/fintechs issue redeemable money (claims on assets); public backstops are minimal or narrow (e.g., only for payments).

• Inflation: System-wide inflation anchored by redemption rules (e.g., into Treasuries/gold/dollars). Fragmented pricing possible.
• Federal debt: Little direct change; government loses easy monetary financing avenues.
• Banking stability & credit: Innovation high, but runs/fragmentation risks rise without a robust safety net; supervision must be surgical and tough.
• Jobs & growth: More innovation/productivity long-run; higher cyclical volatility short-run.
• Interest rates: More market-driven, wider dispersion across issuers.
• Crisis management: Weak unless a minimal LOLR exists for payments; expect more failures/resolutions.
• Dollar’s reserve status: Likely weaker unless a clear national unit remains dominant and fully credible.
• Winners/losers: Tech/efficient banks win; weaker banks and uniform-price seekers lose.
• Top risks: Network effects create private monopolies; payment fragmentation; consumer protection gaps.

4) “No central bank” / fixed-base dollarization domestically

How it works: Freeze/slow the base; no macro stabilization—prices and wages adjust.

• Inflation: Likely low, but with bouts of deflation in slumps.
• Federal debt: No monetary backstop → higher default/perceived rollover risk if debt keeps rising; fiscal tightening pressure increases.
• Banking stability & credit: Fragile in shocks; no LOLR means more bank failures unless deposit insurance is overhauled and pre-funded.
• Jobs & growth: Recessions deeper/longer; internal devaluation (wage/price cuts) does the work.
• Interest rates: Higher risk premia; credit rationing in downturns.
• Crisis management: Minimal. Reliance on automatic stabilizers and resolution regimes.
• Dollar’s reserve status: Not directly relevant—this is the dollar—but global confidence may fall if domestic safety nets vanish.
• Winners/losers: Long-term savers in stable times win; workers/borrowers and cyclicals lose in recessions.
• Top risks: Debt rollover crises; political backlash to painful adjustments.

5) Crypto / algorithmic rule (e.g., capped-supply or formulaic supply; tokenized Treasuries)

How it works: A programmable rule governs supply; could be a Treasury-backed stablecoin with automatic adjustments (e.g., nominal GDP targeting on-chain).

• Inflation: If the rule targets NGDP/CPI credibly → good anchor; if hard-cap → deflationary bias with growing economy.
• Federal debt: No direct monetization; possibly lower seigniorage; stronger market discipline.
• Banking stability & credit: Banks adapt to tokenized collateral/settlement; shock absorption depends on whether an emergency backstop is encoded.
• Jobs & growth: Good in normal times if rule is well-chosen; rigidity is dangerous in rare crises.
• Interest rates: Mostly market-set; could improve settlement efficiency and lower term premia via better plumbing.
• Crisis management: Only as good as the pre-coded escape hatches and governance keys.
• Dollar’s reserve status: Could strengthen if the U.S. delivers the premier digital settlement asset; could weaken if fragmentation or hacks occur.
• Winners/losers: Efficient intermediaries, exporters of fintech win; those relying on discretionary easing lose.
• Top risks: Smart-contract/governance failures; oracle manipulation; cyber risk.

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Quick side-by-side (US today)

• Best at keeping inflation low (long run): Currency board / credible algorithmic rule
• Best at cushioning recessions: Current Fed-style discretion > Sovereign-money (only if rule-bound) > Crypto (if NGDP rule + escape)
• Safest for banks: Current system > Sovereign-money (with strong public payments + LOLR)
• Most fiscal discipline: Currency board / algorithmic rule (no monetization)
• Most innovation: Free Banking 2.0 / crypto rail with tokenized assets
• Least transition risk: Tweaking the Fed’s mandate/rules (not full replacement)

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If the U.S. had to pivot, the most plausible low-chaos path

1. Keep a central monetary authority but hard-wire a rule (e.g., a transparent inflation or nominal-GDP target with limited escape clauses).
2. Modernize plumbing: real-time gross settlement, tokenized Treasuries/reserves for wholesale payments, public CBDC for retail only if privacy/resilience boxes are ticked.
3. Strengthen guardrails: automatic capital/liquidity releasers in downturns; pre-funded resolution; sunlight on fiscal paths (debt brakes with escape clauses).
4. Crisis playbook: pre-legislated, time-limited emergency tools with supermajority renewal to preserve independence and credibility.

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Bottom line

• Fully replacing the Fed with a currency board or “no-central-bank” system would likely lower average inflation but make recessions harsher and the financial system more fragile.
• A Treasury-money model could work only with ironclad independence and rules—otherwise inflation risk rises.
• The most realistic improvement isn’t abolition; it’s tightening rules + upgrading market plumbing (possibly including a rule-based digital dollar for settlement), preserving a credible lender-of-last-resort for rare crises.

If you want, I can sketch a concrete US reform package (legal changes, governance model, transitional steps, and what happens to your bank deposits) in one page.

FOOTNOTE:  

I belatedly realized I had no idea how the FED is structured, or how it FUNCTIONS ... Silly Me !

https://en.wikipedia.org/wiki/Federal_Reserve