Significant Move Towards
Constitutional System of Money and Finance

Professor Sankarshan Acharya
University of Illinois at Chicago
Pro-Prosperity.Com and Citizens for Development
March 2, 2012
, Updated May 8, 2012

The news today that Wall Street is having a major face off with Federal Reserve is very significant in the direction of constitutional system of money and finance, adoption of the winning economic philosophy of governance, and transformation of existing B-Schools as First-best Management Academies to achieve the first-best status for principals (citizens).

The US Government has de facto adopted my 2003 proposal on "Safe [Central] Banking" in 2008 to avert the domino of runs on trillions of dollars of funds by providing new central bank (Federal Reserve) backed safety to the previously uninsured money market funds and previously uninsured bank debts. This research is based on a dynamic (long-run) general equilibrium model of the game among leveraged firms seeking to maximize profits and not-for-profit government seeking to minimize cost of operation. Bloomberg now reports worries expressed by top economists about a new run on the money market funds.

Google search for information on system of money and finance yields about 400 million websites, among which my paper "Constitutional System of Money and Finance" is at the top. Search for safe banking policy yields about 100 million sites with my paper being at the top of this list. Of course, my unifying philosophy of governance remains popular among Googlers.

The most powerful policymaking body in the world is the U.S. Board of Governors of the Federal Reserve System where I have served as a financial economist (1990-95) on bank regulatory policies. In fact, even the Fed (despite being the most powerful policymaking body) did not propose the unprecedented bank foreclosure policy, which was discovered in my research at New York University, and which was adopted by the US Congress before I joined the Fed. It was unprecedented because only banks could foreclose defaulting individuals and companies, but individuals together could not have their government enact a policy to foreclose defaulting banks and powerful bankers (known as Robber Barons) could force the U.S. Congress in 1913 to enact the Federal Reserve Act in 1913 to print money for them whenever they defaulted! 

I discovered by working closely with top regulators, banking executives and experts that the prevailing system of money and finance (including the Federal Reserve Act of 1913) is unconstitutional, economically inefficient, unsustainable and detrimental to national competitiveness.  But the hubris of established government experts blocked timely enactment of my constitutional system of money and finance. 

I left the Fed in 1995 to pursue directly with the U.S. Congress for adoption of my discovered constitutional system of money and finance.  My selfless pursuits have succeeded immensely.  The U.S. Congress has found in its Financial Crisis Inquiry Commission Report in 2011 that the financial catastrophe of 2008 was caused by the failure of the established experts in the government, industry, and academy.  The U.S. Congress has adopted many crucial policies to consummate my discovered constitutional system of money and finance.

Right now, a big financial tremor is shocking the West (EU and USA), after the circulation of my short selling paper.  

April 18, 2012: Bloomberg reports that the International Monetary Fund sees 3.8 trillion euro worth of assets to be sold by many European Banks. Why should the European banks be selling assets?  It is to 'deleverage' or reduce their debt to assets ratio.  Why?  Are they internally being forced by their governments to cover their huge short  positions?  

Before the short selling paper was circulated, the US Federal Reserve had flamboyantly declared after its bank stress tests that the US banks were safe with adequate capital cushion to withstand far greater shocks than the 2008 financial catastrophe.  After my short selling paper was circulated, the Fed has unexpectedly raised the cash reserve ratios of banks to have banks withstand new shocks.  Where are the new shocks emerging from?  It must be an internally thrust requirement on banks to cover their short positions which would result in huge losses and so the banks are asked to keep more reserves.  

May 8, 2012: Billion dollar traders are now leaving Wall Street majors. Banks have slashed the amount loaned to traders and restricted on taking large bets in markets.

Sankarshan Acharya


Insight: Wall Street, Fed face off over physical commodities

ReutersReuters – 1 hour 49 minutes ago
By David Sheppard, Jonathan Leff and Josephine Mason

NEW YORK (Reuters) - Wall Street's biggest banks are locked in an increasingly frantic struggle with the Federal Reserve over the right to retain the jewels of their commodity trading empires: warehouses, storage tanks and other hard assets worth billions of dollars.

While the battle over proprietary trading and new derivatives regulations has taken place largely in public view since the 2008 financial crisis, the fight by JPMorgan Chase, Morgan Stanley and Goldman Sachs to retain or expand their prized physical commodity operations - most acquired in only the past six years - has remained hidden.

The remainder of the news story is here: