Abstracts Category : Other

Today's Credit Market - How to Avoid a House of Cards? : Austrian Full Reserves and the Chicago Plan as Alternatives to the Current Fractional Reserves

by Julia Eriksson

Todays household debt consists for the most part of credit money, and this general phenomenon does not only occur in Sweden. Money in the economy is mostly created by private banks, as much as 97 percent of the money in the United States, while central banks only create a very small share of all money. This is the reason for the oppressed household debt. During this period of high debt in Sweden, the household consumption has also increased in comparison to earlier years. The aim is to study and compare how the money supply in two different full-reserve systems, the Austrian through convertibility and the Chicago plan through quantity control, would reduce the household debt in relation to todays fractional system. The method used in this study is a time series analysis where data of Swedens household debt, savings, money supply; M1 and M3, GDP, assets, currency reserves, gold reserves and interest rates has been collected for the years 2005-2013. These are further examined in three different equations. The data for all the variables was collected from SCB, IMF, Ekonomifakta and the World Data Bank. The first theory that is used in this study is Wicksells cumulative process which will explain how the money supply M3 affects household debt in today's fractional reserve system. The second theory is the Austrian Business Cycle Theory which will examine the money supply M1 effect on household debt through full reserves by convertibility control. The third theory is the Friedman rule, where the effect of household debt by money supply M1 will be examined. This rule explains how the Chicago Plan is affecting household debt through a full reserve system by quantity control. In the both systems, fractional reserves and full reserves, the debt will increase in this study. The result shows that with full reserves, the household debt would be backed by savings in comparison to fractional reserves, where household debt would be backed by credit money. Therefore, full reserves would contribute to a healthier economy in contrast to todays fractional system. Since it would involve a large cost for Sweden to transcend to an Austrian system through convertibility, where price inertia would occur as well, the conclusion of this study is that the Chicago Plan, based on the quantity principle, is to prefer. Strsta delen av hushllens skuldsttning bestr idag av kreditpengar, och detta generella fenomen finns inte bara i Sverige. Pengarna i ekonomin r fr det mesta skapade av affrsbankerna, s mycket som 97 procent i USA, medan centralbanken endast skapar en liten del av dessa pengar. Detta r anledningen till de hga hushllsskulderna. Under den hr perioden av hg skuldsttning i Sverige s har ven hushllens konsumtion kat i frhllande till tidigare r. Syftet med denna studie r att jmfra hur penningmngden i tv olika hundraprocentiga reservsystem, den sterrikiska konjunkturcykeln, genom konvertibilitet, och Chicago planen, genom kvantitetskontroll, skulle reducera hushllens