OPINION: What would you say if Chalkie told you he had a plan to end boom/bust economic cycles, eliminate the risk of bank runs and shrink government and private debt faster than a Republican melts an icecap?
Perhaps you would ask what was in Chalkie's drink, or recommend some restful accommodation with discreet professional support.
However, such a plan does exist. Moreover, it comes from two brains at the International Monetary Fund, both much larger than your humble correspondent's. The IMF is an organisation of 188 countries set up after World War II to foster international monetary co-operation and secure financial stability.
The plan is not IMF policy, just research, say authors Michael Kumhof and Jaromir Benes, but it is no less interesting for that.
Their ideas are contained in a working paper called The Chicago Plan Revisited, drawn to Chalkie's attention by a well-meaning acquaintance who did not realise the mental pain and suffering it would cause.
In a nutshell, the scheme involves changing the way money is created, replacing money created by the banking system with money created by the state.
The problem, say Kumhof and Benes, is that under our current system the money supply is effectively in the hands of private banks, who can't help screwing it up. Far better, they say, to vest money-creating power solely in the government and have the supply controlled by a specialist monetary committee with a status like the judiciary.
As its name implies, the Chicago Plan Revisited is a fresh take on ideas developed in the 1930s by what was known as the Chicago School - a group of influential economists who included Henry Simons, of Chicago University, and Irving Fisher, of Yale.
Then, as now, the developed world was reeling from financial mayhem fuelled by excessive debt. So they wanted radical solutions.
What's new in the Kumhof and Benes paper is their application of modern economic modelling to the Chicago School's theory, using what they describe as a "state-of-the-art monetary dynamic stochastic general equilibrium (DSGE)" model of the United States economy.
The results, they say, strongly support the benefits theorised by the Chicago School all those years ago, "with the potential for much smoother business cycles, no possibility of bank runs, a large reduction of debt levels across the economy, and a replacement of that debt by debt-free government-issued money".
What's more, implementing the Chicago Plan would lead to lower interest rates, lower taxes and inflation of close to zero. Sounds good, doesn't it?
Fear not, Chalkie won't attempt a discussion of DSGE modelling, but the paper's critique of our current monetary system is worth a run-through.
Where money comes from is one of those tricky questions often posed by 5-year-olds, and the answers are often unsatisfactory. Even the Reserve Bank struggles with it, resorting in its online explainer to such platitudes as "eventually, and much more recently by comparison [with coins], paper money appeared".
Chalkie will have to be similarly brief, because the main point for Benes and Kumhof is that, aside from notes and coins, the vast bulk of money is created by private banks in the act of lending - so a loan is, at least momentarily, a deposit in the borrower's account.
The curly issue here is that we tend to think banks have to fund all their lending with money borrowed from someone else, which may be customer deposits or loans from other banks or whatever. But the reality is that a bank loan is simultaneously a bank deposit which can be withdrawn by the borrower, so the traditional view of bank funding is not quite what it seems.
Of course, the loan/deposit in bank A may be instantly withdrawn and paid to bank B, in which case bank A has to obtain more funding from the interbank market. But as bank B is part of the interbank market, the deposit has increased the general amount of funds available, so it should be no problem for bank A to borrow the money.
At any one time some banks may be short of deposits and need to borrow from other banks, while others may have excess deposits and be interbank lenders. But in aggregate, the quantity of money in the economy is driven by the willingness of private banks to lend. Furthermore, as the money supply grows, so does the quantity of debt in the economy.
A feature of the system is that banks tend to prefer loans secured on property because they need security for their deposit liabilities, which may be less productive than lending for business investment.
Kumhof concedes banks don't have it all their own way, however, because the central bank stands in the middle of the domestic interbank market and offers to lend or borrow unlimited short-term sums at prices of its own choosing. So if the central policy rate is 5 per cent, say, bank B won't lend to bank A for 4 per cent because it can get a better return by lending to the central bank.
In this way, the central bank aims to influence the price of money and hence demand for loans in the economy.
However, on the phone from New York, Kumhof told Chalkie the cash rate was "a pretty blunt hammer to use in order to control the quantity of lending".
"Let's say the banks don't agree with what the central bank feels about the quantity of loans out there, the banks say ‘Hey everything is cool, the economy is humming, we want to do like [former Citigroup CEO] Chuck Prince said, keep dancing while the music's playing, right, so we're going to make more loans no matter what the central bank does with its policy rate'. Well that's really hard to overcome unless the central bank gets really aggressive with policy rate."
New Zealand's experience, when the cash rate was cranked up to 8.25 per cent, to no discernable effect until the 2008 crash, bears out Kumhof's comment.
Prince, incidentally, remarked in mid-2007: "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."
So if we don't like boom/bust economies, high debt levels, property-focused lending and shaky bank deposits, what's the alternative?
The Kumhof/Benes paper proposes requiring bank deposits to be 100 per cent backed by reserves of government-issued money, which banks borrow from the state Treasury. This immediately reduces the risk of a bank run to zero.
Previous bank lending to the government can be netted off against this borrowing, resulting in a huge reduction in government debt.
The old lending function of banks is meanwhile carried out by investment trusts that must fund their loans with money borrowed from the Treasury, or with existing government-issued money borrowed from the private sector, or with their own equity.
Chalkie has necessarily over-simplified the scheme, but it is clearly a radical departure from the way the money supply is handled today.
The idea has difficulties, naturally, not least the trickiness of shifting from the current system, although Kumhof reckons the problem can be overcome.
But perhaps the thorniest issue is preventing the emergence of substitute money from the new lending institutions, because it would knacker monetary control.
After numerous discussions with other economists, including prominent British monetary specialist Charles Goodheart, Kumhof says this is the main sticking point.
"Everything else in the paper, as far as I know, nobody has been able to level a decisive critique against."
Indeed, since publishing last August, Kumhof has found little reason to modify his scheme.
"In fact, I'm growing more convinced by the day that this is a very good idea."
Many appear to disagree. Chalkie has heard from other economists who see Kumhof and Benes treading a path already well trod, leading to a dead end.
One said: "It's just another in quite a long list of proposals over the decades for separating banks in a variety of ways. None of them come to anything since the financial system is a complex system that inevitably displays a considerable degree of path dependence, so unwinding it back to some mythical ‘optimum' is essentially impossible in practice."
Given the potential upside in the Chicago Plan, this is regrettable. But perhaps it shows us how far economics has yet to travel.
In the 1930s, these ideas were too radical to implement, despite the critical situation at the time. The same appears true today, despite advances in economic understanding.
Still, it brightened Chalkie's day to imagine an alternative monetary universe could exist. One day, maybe, someone will try it for real.
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