Central banks will try latest monetary policy tool: Helicopter Money

Will “helicopter money” be the last ditch effort by global central banks to stimulate their respective economies? Pundits say that after quantitative easing, subzero interest rates and money printing, helicopter money remains to supposedly be the final tool in the arsenal the European Central Banks and Bank of Japans of the world.

Wait a minute: just what is helicopter money? Well, the media would have you believe that it’s something that’s never tried before, but it’s no different from quantitative easing or any other foolish monetary policy endeavor undertaken by Ben Bernanke.

Helicopter money is exactly what you think it is: freshly created money given directly to the people. It integrates fiscal and monetary policies as governments sell short-term debt to their central bank in exchange for newly printed money that goes straight into tax cuts or government stimulus programs. It bypasses the banking system and credit markets and goes directly to the Treasury.

In layman’s terms: it’s debt/deficit financing. The government prints a paper liability, buys that paper liability from itself with another printed paper liability. This is QE at its fundamental levels!

The term was made famous by legendary economist Milton Friedman in 1969 in an essay – former Federal Reserve Chair Ben Bernanke was also referred to as “Helicopter Ben” because he wanted to drop cash on the street to stimulate consumption. Friedman believed the printed money will be spent by the people, which would then have an effect on the gross domestic product.

Helicopter money, also technically known as “overt monetary finance,” seems like an idea straight out of the Weimar Republic during the era of hyperinflation. However, economists in support of it say it’s a logical idea, particularly for nations that are having a hard time coping with deflation and lackluster economic growth.

Proponents say it will directly incite spending and investment rather than try to influence it through bond yields and sentiment. HSBC said last month that central banks may have no other alternative but to go ahead with this plan:

“If central banks do not achieve their medium-term inflation targets through NIRP, they may have to adopt other policy measures: looser fiscal policy and even helicopter money are possible in scenarios beyond QE and negative rates.”

But as the eurozone and Japan, for instance, run out of other options to spur growth, this may be the “next attempted silver bullet,” says Gabriel Stein, an economist at Oxford Economics Ltd.

“We don’t know for certain that ‘helicopter money’ will be the next attempted silver bullet, however the topic is receiving considerably more attention,” Stein told Bloomberg News. “The likelihood is reasonably high of some form being implemented somewhere.”

From an Austrian standpoint, this is a destructive Keynesian proposal since it will in all likelihood generate inflation, though the Wall Street Journal disagrees. It also takes money away from the producers and investors in the economy. Moreover, since this helicopter money mantra has been tried already, the only solution the central banks could come up with is stepping into insolvency by doling out more cash to the state than what the bonds they receive are worth.

The only positive thing that could stem from this concept is that it transfers monetary policy from clandestine and un-elected officials into the hands of an elected Congress. Of course, this isn’t the perfect system either because Congress is just as inept and surreptitious as the Fed.

The biggest question that should be asked here is: when this money is freshly printed, who gets it anyway? Special interests, the big banks, the well-connected and the politicians. That’s who.

Helicopter money has been tried before, and it hasn’t worked. The central banks of the world are doomed.

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Comments

  1. One mans inflation is another mans economic growth. But neither is good for the average consumer. Income almost never goes up as fast as prices. So you are always adjusting your budget and if something costs more, and you cannot afford it, you just do not buy it.
    I have $27,000 in credit available to me. All unsecured from 6 different banks. 136 % of my annual income.
    Current amount owed $11,200, It was all created out of thin air with nothing but my promise to pay and my military pension income guaranteeing payment. And that income stops the day I die.
    If I were to drop dead tomorrow, the banks would get nothing, my estate has almost zero assets. A 1966 Mercedes worth about $3,000. Over the last 40 years most families have maintained the illusion of a middle class standard of living with “DEBT,”
    The credit bubble is bigger than the Titanic and when it pops it is going to be a wipe out.
    What a way to run a banking system!

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