Helicopter money

Bernanke Helicopter


Martin Wolf

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"helicopter money"
Italy’s new finance minister Professor Giovanni Tria is an advocate of full-blown fiscal reflation and
printed money to rescue Europe’s high-debt states, putting him on an inevitable collision course with Brussels and Germany’s policy elites.
Ambrose Evans-Pritchard Telegraph 1 June 2018

In an essay last year, entitled "Rethinking the Deficit Monetization Taboo to Save the Euro’" he said the attempt to restore debt sustainability through austerity had failed.

The only way out is “strong fiscal stimulus” to boost demand and close the output gap, accompanied by “conditional and temporary overt monetary financing at European level”.
This is what is known in central banking circles as "helicopter money".
It is anathema to the Bundesbank and the German ordoliberal professoriat.

The paper drew heavily on work by Britain’s Lord Adair Turner, a global champion of controlled monetary financing of deficits for countries in a liquidity trap.

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Monetary rescue helicopters getting bigger
FT Gillian Tett December 18, 2007

Mario Bothers: Germany Takes Aim at the European Central Bank

The idea of pumping money directly into the economy, Draghi said, was a "very interesting concept," with a helicopter to distribute the money across the country if necessary, as economists have half-jokingly recommended.

German money being thrown out of a helicopter: It would be difficult to find a more fitting image to show people that the money they have set aside for retirement may soon be worth very little.

A few weeks ago, Finance Minister Wolfgang Schäuble warned the ECB head that his ultra-loose monetary policies could "ultimately end in disaster."

Der Spiegel 8 April 2016

Helicopter Money
The ECB should hold an open debate about policy alternatives,
starting with a realisation that quantitative easing has failed.
Wolfgang Münchau, FT March 6, 2016

A helicopter drop means that the ECB would print and distribute money to citizens directly.

If it were to distribute, say, €3,000bn or about €10,000 per citizen over five years, that would take care of the inflation problem nicely.

The policy would bypass governments and the financial sector.

The financial markets would hate it. There is nothing in it for them.
But who cares?

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Helicopter Money Might be Closer Than You Think
Mark Gilbert, Bloomberg MAR 1, 2016

With governments still unwilling to flex their fiscal muscles to boost the world economy,
Friedman's idea -- easy to articulate, devilishly hard to envisage in practice -- is very much in vogue.
Here's how he described it in "The Optimum Quantity of Money," a collection of papers published in 1969:

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community.

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När nästa recession väl kommer, så är risken stor att politiken har uttömt sina motmedel.
För tio år sedan talade ekonomerna om »the great moderation«
Klas Eklund, Fokus Februari 29, 2016, nr 08

Budgetpolitiken kan visserligen bli mer aktiv i några länder med låg statsskuld, såsom Sverige. Men de flesta länder är alltför skuldsatta.

Sverige har utrymme att svara med lånefinansierade offentliga utgifter för infrastruktur. Men andra länder har inte den möjligheten, eftersom de är för djupt skuldsatta.

Det finns dock ett medel kvar som inte prövats – så kallade helikopterpengar.

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Rolf Englund Facebook 1 mars 2016
Man låtsas som om ländernas centralbanker inte är en del av staten.
Därmed kan man säga att Sverige har utrymme att svara med lånefinansierade offentliga utgifter för infrastruktur.
Men andra länder har inte den möjligheten, eftersom de är för djupt skuldsatta.
Men varför är det OK om centralbanken skapar nya pengar ur luften men fel om regeringen lånar och ger pengar till folket?

The Great Moderation

Rethinking Inflation Targeting


Helicopter drops might not be far away
The world economy is slowing, both structurally and cyclically.
How might policy respond? With desperate improvisations, no doubt.
Martin Wolf, FT 23 Febr 2016

More recently, this is the policy foreseen by Ray Dalio, founder of Bridgewater, a hedge fund.

Also the recommendation of Adair Turner, former chairman of the Financial Services Authority, in his book Between Debt and the Devil .

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“Helicopter drops” of money have clearly moved from the realms of economic black magic to taking up a respectable role in the monetary toolbox.
Among the authoritative endorsements of helicopter money, we find Adair Turner, the FT’s own Martin Wolf and the hedge fund manager Ray Dalio.
Martin Sandbu, 29 Febr 2016

In other words, so weird and wonderful is the world of monetary economics that
the only barriers to helicopter money are blocks on our imagination.

That’s good to remember should helicopter drops be needed.

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After years of record low interest rates, central banks may resort to just dumping cash out of helicopters
Zero interest rates are not doing enough to stimulate flagging economies,
while negative rates, by destroying the profitability of the banking system, may well do more harm than good.
Matthew Lynn, Telegraph 22 Feb 2016

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The Simple Analytics of Helicopter Money: Why It Works — Always
Willem H. Buiter

Buiter at IntCom

Martin Wolf:
What might central banks do if the next recession hit while interest rates were still far below pre-2008 levels?
FT February 2016

The helicopters start to drop money

This Is The Endgame, According To Deutsche Bank
We think the end game is that when the next global recession hits, then QE/zero rate world will be re-appraised.
Perhaps the G20 will get together and decide to try a different approach.
In our 2013 long-term study we speculated how we thought the end game was 'helicopter money'

- ie money printing to finance economic objectives (tax cuts, infrastructure etc).
zerohedge 1 October 2015

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The Endgame

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While it has obvious flaws and huge risks (eg political manipulation and inflation), one can argue it will always have more economic impact than QE in its current form.

Helicopter Money And The Comeback Of Gold
– central bankers have taken it upon themselves to sponsor great bull markets in the hopes of making people spend more because they will feel richer.
That was the theory.
James Grant, September 26, 2015

Lars EO Svensson 2014-12-29

Helikopterpengar är vad man kan kalla en tryckpressfinansierad direkt transferering till hushållen.

Man kan se det som att staten skickar pengar till hushållen, t.ex. i form av ett utbetalningskort, och finansierar detta genom ökad upplåning,
dvs. genom att emittera statspapper. Centralbanken köper dessa statspapper.
I slutändan sker finansieringen således genom en ökning av mängden centralbankspengar (”high-powered money”), dvs. bankernas tillgodohavanden i centralbanken plus utestående sedlar och mynt.

Helikopterpengar består alltså av två delar. Den första delen är en transferering från staten.
Den andra delen är en lika stor ”kvantitativ lättnad” (”quantitative easing”), dvs. ett lika stort centralbanksköp av statspapper som finansieras med centralbankspengar.

Det finns mer att läsa om helikopterpengar, exempelvis ett uppmärksammat tal av Ben Bernanke, en debatt mellan Adair Turner och Michael Woodford, en riktig djupdykning av Willem Buiter och ett marknadsbrev av Andreas Wallström.
Milton Friedmans liknelse finns i hans bok The Optimum Quantity of Money and Other Essays, kapitel 1, s. 4-5, Chicago 1969.

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Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken.
Det skrev jag på min blogg första gången den 5 december 2009

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No, the Fed doesn’t have a helicopter, why do you ask?
The growth of the money supply has actually slowed since the adoption of QE3.
In a $16 trillion economy, $1 trillion would be if that money were in circulation in the economy.
But most (if not all) of that money remains outside the economy, parked at the Fed
Rex Nutting, MarketWatch 14 February 2014

Should there be another round of QE/helicopters, we must surely find a better way to inject the money.
Today’s method is enriching the uber-elites, with a painfully slow trickledown.
The better alternative is to stick the needle straight into the veins of the economy
- building roads, railways or nuclear power stations.
Ambrose 29 May 2013 with nice pic of Fed

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Helicopters can be dangerous
Lord Turner believes that all forms of monetary or fiscal stimulus,
conventional or unconventional,
work by increasing nominal demand in the economy
Gavyn Davies, Financial Times February 17, 2013

Does that mean that no-one should ever contemplate using permanent monetisation?
Well, never is a long time, encompassing many possible scenarios.

Adair Turner and Martin Wolf make a very convincing case that Japan cannot find any other way out of the public debt trap into which it has fallen,
except default or deep recession. Japan needs actively to raise inflation expectations.

But neither the US nor the UK are anywhere there yet.

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Draghi’s recent speech at the annual gathering of central bankers in Jackson Hole has excited great interest,
but the implication of his remarks is even more startling than many initially recognized.
If a eurozone breakup is to be avoided, escaping from continued recession will require increased fiscal deficits financed with ECB money.
The only question is how openly that reality will be admitted.
Adair Turner, former Chairman of the United Kingdom’s Financial Services Authority,
member of the UK’s Financial Policy Committee and the House of Lords, Project Syndicate 8 September 2014

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The helicopter has landed: yet the public at large feels little benefit, sees little stimulus.
The reason is that the objective of monetisation has not been to put money in the hands of consumers and businesses but to put money in the vaults of banks.
To be fair, the central bankers who disbursed it hoped some might work through to the real economy.
But their primary objectives were to underwrite the past losses of the banking system and allow the strengthening of bank balance sheets.
That is why these mechanisms for printing money have won plaudits rather than excoriation from the traditional defenders of sound currency.
John Kay, Financial Times 12 February 2013

There are many ways central banks can give money away without hiring a helicopter.
They can lend against old gold and silver without troubling much to assess the value of the collateral.
They can accept IOUs they do not expect issuers can fulfil.
They can give creditors implicit or explicit guarantees their future claims will be met even if the borrower fails.
Since 2008 central banks have done these things on a massive scale. They have purchased long-term debt at prices not seen for a generation, and not likely to be seen again;
they have refinanced poorly secured private loans; they have purchased obligations of, and underwritten liabilities of, financial institutions and governments of doubtful solvency.

The new radicals want to give the cash central banks are creating directly to the public rather than the bankers. This makes good sense.

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The case for helicopter money
I fail to see any moral force to the idea that fiat money should only promote private spending
Martin Wolf, Financial Times 12 February 2013

When arguing that monetary policy is already too loose, critics point to exceptionally low interest rates and the expansion of central bank balance sheets. Yet Milton Friedman himself, doyen of postwar monetary economists, argued that the quantity of money alone matters.

Measures of broad money have stagnated since the crisis began, despite ultra-low interest rates and rapid growth in the balance sheets of central banks,

Under fiat (that is, government-made) money the supply of reserves is potentially infinite.

True, central banks can pretend reserves are limited. In practice, however, central banks will advance reserves without limit to any solvent bank (and, as we have seen, to insolvent ones).

With central banks able to supply reserves at will, the constraints on lending are solvency and profitability. Expanding banking reserves is an ineffective way to increase lending, not a dangerous one.

First, it is impossible to justify the conventional view that fiat money should operate almost exclusively via today’s system of private borrowing and lending.

Why should state-created currency be predominantly employed to back the money created by banks as a byproduct of often irresponsible lending?

Why is it good to support the leveraging of private property, but not the supply of public infrastructure? I fail to see any moral force to the idea that fiat money should only promote private, not public, spending.

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Rolf Englund blog 5 december 2009:
Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken.
Men väljarna och därmed deras medlöpande politiker är rädda för budgetunderskott och vill hellre att villaägarna skall låna än att staten skall göra det.
Strategin synes vara att det gäller att stabilisera, helst höja, villapriserna så att konsumenterna främst i USA skall återgå till att konsumera med lånta pengar, dvs just det som ledde fram till katastrofen.
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Let me tell you a little secret, folks.
They don't teach it in Economics 101, and none of the players dealing with the current meltdown will talk about it on the record.
But it's a time-tested strategy
The theory is that if you give stricken financial institutions enough time, profits from their basic operations
can help them dig out of the capital pit into which they've fallen.
A few years of nice profits will help offset the big losses from past blunders
Allan Sloan, senior editor CNN, August 18, 2008


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A breakthrough speech on monetary policy
Wednesday night may have marked the “emperor’s new clothes” moment of the Great Recession,
in which the world suddenly realizes its rulers are suffering from a delusion
That delusion today is economic fatalism: the idea that nothing can be done to break the paralysis in the global economy
and therefore that a “new normal” of mass unemployment and declining living standards is inevitable for years or decades to come.
Anatole Kaletsky, Reuters Opinion 7 February 2013

That such economic fatalism is nonsensical is the key message of a truly historic speech delivered on Wednesday by Adair Turner, chairman of Britain’s Financial Services Authority and one of the most influential financial policymakers in the world.

Turner argues that a virtually surefire method of stimulating economic activity exists today and that politicians and central bankers can no longer treat it as taboo:

Newly created money should be handed out to the citizens or governments of countries that are mired in stagnation and such monetary financing of tax cuts or government spending should continue until economic activity revives.

The idea of distributing free money to end deep recessions has been promoted theoretically by serious economists since the 1930s, when it was one of the few practical policies that Keynesians and monetarists agreed on.

John Maynard Keynes proposed burying money in disused coal mines to be dug up by unemployed workers, while Milton Friedman suggested dropping money out of helicopters for citizens to pick up.

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Should Bank /of England/ start the helicopter?
Stephanie Flanders, BBC Economics editor, 12 October 2012

Let the helicopters start to drop money. Go, go, go.
Rolf Englund 16 september 2012

Should Bank /of England/ start the helicopter?
For example, the government could simply send every family in the country a one-off "Christmas Bonus" of £1,000,
directly financed by money created by the Bank of England.
Stephanie Flanders, BBC Economics editor, 12 October 2012

Radical or not - would a helicopter drop actually work? To even begin to answer this question, we need to understand how this policy would differ from what the Bank of England is already doing, with its quantitative easing.

In fact, the difference between quantitative easing and "printing money to fund the deficit" comes down to one thing: when and whether the money is paid back.

That is where the "helicopter drop" proposal comes in.

If you really want to understand all this, you should read David Miles' speech last month to the Scottish Economic Society (NB: If you're scared off by the graphs, just read pages 10-11.)

Winding and unwinding extraordinary monetary policy
Speech given by David Miles, External Member of the Monetary Policy Committee, Bank of England

Those of you have struggled this far might wonder whether, in an environment of massive private and public debts, a bit more inflation might not be such a bad thing. That is, after all, how a large part of the public debt built up during World War II was brought down.

It is also what many critics believe will ultimately happen as result of the drastic and unconventional tactics that the world's leading central banks have all taken in the past few years.

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Lorenzo Bini Smaghi satt i högsta ledningen för ECB mellan juni 2005 och november 2011
Centralbankerna har en tendens att hela tiden fortsätta stimulera ekonomin med billiga pengar lite för länge.
Andreas Cervenka, SvD Näringsliv 15 september 2013

Efter en kris uppstår oftast jobbiga val. Skuldberg ska bantas bort, budgetar kanske måste kapas och reformer genomföras för att få igång jobb och tillväxt. Det är sådant som kostar, både för medborgarna och inte minst för de politiker som ska fatta besluten.

Centralbanken erbjuder en bekväm genväg. En knapptryckning. Så enkelt kan ju dessa nästan magiskt utrustade institutioner trolla fram nya elektroniska pengar som tillexempel den amerikanska centralbanken Federal Reserve just nu gör i en takt av 85 miljarder dollar varje månad.

Detta har pågått länge. Åtminstone ända sedan börskraschen 1987 har Federal Reserve reagerat med sänkta räntor och sedelpressen på varje ny kris. Det hände efter de amerikanska bankproblemen i början av 90-talet, efter Asienkrisen och hedgefonden Long Term Capital Managements fall 1998, när dotcombubblan brast och när två flygplan flög in i World Trade Center. Och efter finanskrisen 2008.

Varje bubbla har bara ersatts av en ny och större. Och varje gång är centralbankerna där och sopar bort problemen.

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What to do with the eurozone banking system?
The ECB’s recent announcement that it will start a comprehensive assessment of the eurozone banking system is good news.
However, there are also uncertainties.
Lorenzo Bini Smaghi, FT November 5, 2013

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Central bankers say they are flying blind
Growing concern at IMF over the long-term side-effects of interest rates close to zero
Some of the leading figures in central banking conceded they were flying blind when steering their economies.
Lorenzo Bini Smaghi, the former member of the ECB’s executive board:
“We don’t fully understand what is happening in advanced economies.”

Financial Times, April 17, 2013

Riktiga karlar är inte rädda för lite inflation
Rolf Englund blog 2010-02-19

Inlägg på Rolf Englund blog om att det behövs mer finanspolitik
Klickan på etiketten "skriande"

Let the helicopters start to drop money. Go, go, go.
Rolf Englund blog 16 september 2012

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Come on Bernanke, fire up the helicopter engines
Samuel Brittan, Financial Times, August 30, 2012

No one has explicitly argued for this as a deliberate act. But Milton Friedman raised the possibility in an essay he wrote on the “optimum quantity of money”.

He mentioned the helicopter as a device to avoid discussing the intricacies of the banking system, which he had done sufficiently on other occasions.

Years later, Mr Bernanke described various expedients, including quantitative easing, as being the nearest equivalent to such a drop. This led to some on Wall Street naming him “Helicopter Ben”

John Maynard Keynes raised a similar possibility during the 1930s when he said that if there was no better way of getting out of a depression, pound notes should be buried in the ground, leaving it to the well-tried forces of self interest to dig them up again.

Why can’t we just boost spending or cut taxes in the time-honoured manner? The main reason is ideological. The prevailing dogma is that anti-slump measures must be on the monetary side rather than the fiscal one.

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Jag tycker det är skriande uppenbart att räntan världen över är för låg och att
en större del av stimulanserna borde ske via finanspolitiken.
Rolf Englund blog, 2009-12-05

Now the Fed has done what it's done and will promise to do more. At last week's meeting of the its Open Market Committee, the Fed essentially said it might as well hold future meetings at Strategic Air Command headquarters outside Omaha, Neb.,
so as to be closer to the B-52s it will need to deliver money to the country posthaste.
Bill Fleckenstein, MSN Money 22/12 2008

The central bank helicopters are planning a co-ordinated drop of liquidity on troubled market waters.
One point is clear: central banks must be pretty worried to take such a joint action.
Martin Wolf. FT December 12 2007 18:01

The money to be dropped now is not that large. But if this does not work, more will surely follow. The helicopters will fly again and again and again.

One point is clear: central banks must be pretty worried to take such a joint action. For what is remarkable about Wednesday’s statement is that five central banks – the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve and the Swiss National Bank – are co-ordinating their (different) interventions. Their hope must be that this action will trigger not panic (”what do the central banks know that I do not?”) but confidence (”now that the central banks are prepared to intervene in this way, I can at last stop worrying”).

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The battle may not yet be won, but the cavalry has arrived.
Financial Times editorial, December 12 2007

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Monetary rescue helicopters getting bigger, FT Gillian Tett December 18, 2007