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Page added on August 6, 2016
`Helicopter Money’ Is Coming to the U.S.
Several years of rock-bottom interest rates around the world haven’t been all bad. They’ve helped reduce government borrowing costs, for sure. Central banks also send back to their governments most of the interest received on assets purchased through quantitative-easing programs. Governments essentially are paying interest to themselves.
Since the beginning of their quantitative-easing activities, the Federal Reserve has returned $596 billion to the U.S. Treasury and the Bank of England has given back $47 billion. This cozy relationship between central banks and their governments resembles “helicopter money,” the unconventional form of stimulus that some central banks may be considering as a way to spur economic growth.
I’m looking for more such helicopter money — fiscal stimulus applied directly to the U.S. economy and financed by the Fed –no matter who wins the Presidential election in November.
It’s called helicopter money because of the illusion of dumping currency from the sky to people who will rapidly spend it, thereby creating demand, jobs and economic growth. Central banks can raise and lower interest rates and buy and sell securities, but that’s it. They can thereby make credit cheap and readily available, yet they can’t force banks to lend and consumers and businesses to borrow, spend and invest. That undermines the effectiveness of QE; as the proverb says, you can lead a horse to water, but you can’t make it drink.
Furthermore, developed-country central banks purchase government securities on open markets, not from governments directly. You might ask: “What’s the difference between the Treasury issuing debt in the market and the Fed buying it, versus the Fed buying securities directly from the Treasury?” The difference is that the open market determines the prices of Treasuries, not the government or the central bank. The market intervenes between the two, which keeps the government from shoving huge quantities of debt directly onto the central bank without a market-intervening test. This enforces central bank discipline and maintains credibility.
In contrast, direct sales to central banks have been the normal course of government finance in places like Zimbabwe and Argentina. It often leads to hyperinflation and financial disaster. (I keep a 100-trillion Zimbabwe dollar bank note, issued in 2008, which was worth only a few U.S. cents as inflation rates there accelerated to the hundreds-of-million-percent level. Now it sells for several U.S. dollars as a collector’s item, after the long-entrenched and corrupt Zimbabwean government switched to U.S. dollars and stopped issuing its own currency.)
Argentina was excluded from borrowing abroad after defaulting in 2001. Little domestic funding was available and the Argentine government was unwilling to reduce spending to cut the deficit. So it turned to the central bank, which printed 4 billion pesos in 2007 (then worth about $1.3 billion). That increased to 159 billion pesos in 2015, equal to 3 percent of gross domestic product. Not surprisingly, inflation skyrocketed to about 25 percent last year, up from 6 percent in 2009.
To be sure, the independence of most central banks from their governments is rarely clear cut. It’s become the norm in peacetime, but not during times of war, when government spending shoots up and the resulting debt requires considerable central-bank assistance. That was certainly true during World War II, when the U.S. money supply increased by 25 percent a year. The Federal Reserve was the handmaiden of the U.S. government in financing spending that far exceeded revenue.
Today, developed countries are engaged not in shooting wars but wars against chronically slow economic growth. So the belief in close coordination between governments and central banks in spurring economic activity is back in vogue — thus helicopter money.
All of the QE activity over the past several years by the Fed, the Bank of England, the European Central Bank, the Bank of Japan and others has failed to significantly revive economic growth. U.S. economic growth in this recovery has been the weakest of any post-war recovery. Growth in Japan has been minimal, and economies in the U.K. and the euro area remain under pressure.
The U.K.’s exit from the European Union may well lead to a recession in Britain and the EU as slow growth turns negative. A downturn could spread globally if financial disruptions are severe. This would no doubt ensure a drop in crude oil prices to the $10 to $20 a barrel level that I forecast in February 2015. This, too, would generate considerable financial distress, given the highly leveraged condition of the energy sector.
Both U.S. political parties seem to agree that funding for infrastructure projects is needed, given the poor state of American highways, ports, bridges and the like. And a boost in defense spending may also be in the works, especially if Republicans retain control of Congress and win the White House.
Given the “mad as hell” attitude of many voters in Europe and the U.S., on the left and the right, don’t be surprised to see a new round of fiscal stimulus financed by helicopter money, whether Donald Trump or Hillary Clinton is the next president.
Major central bank helicopter money is a fact of life in war time — and that includes the current global war on slower growth. Conventional monetary policy is impotent and voters in Europe and North America are screaming for government stimulus. I just hope it doesn’t set a precedent and continue after rapid growth resumes — otherwise, the fragile independence of major central banks could go the way of those in banana republics.
18 Comments on "`Helicopter Money’ Is Coming to the U.S."
shortonoil on Sat, 6th Aug 2016 10:32 am
More illusions to the US FED being a reincarnation of the Fair God Mother. The are not, they are a private bank owned by their member banks who in turned are owned by the richest people in the world. The FED has managed to buy a good share of the US by simply printing the money, and buying US treasuries with it. They were not giving anything away. They were making themselves fabulously richer at the expense of the American people.
The US government has now been purchased by a group of bank investors, and the whole thing was sanctioned by the US Congress. The American people no longer control the US Government simply because they no longer own it.
Anonymous on Sat, 6th Aug 2016 11:15 am
Indeed it is Short. And just ‘who’, are the majority, if not all of those private bankers?
I would say, ask JewBerg to disclose their identities and backgrounds of those private bankers. But in the empire and its lessor proxies, there is a heroic effort made to maintain the fiction that the uS ‘fed’ is actually ‘federal’. While this fact is not exactly a secret, the prevailing fiction still has many believe it as a branch of the uS gov’t, and thus, in theory anyhow, works in the public interest.(lol)
Being a jewberg farticle, its 100% worthless of course. Like this:
“Several years of rock-bottom interest rates around the world haven’t been all bad. They’ve helped reduce government borrowing costs, for sure. ”
‘Borrowing costs’, for whom exactly? And who is benefiting from those interest payments? ZIRP is a western thing, Russia for example, has about a 10% interest rate atm I believe. Im sure there are other examples. Gov’ts could self-finance, their debt, there is absolutely no ‘need’ for ‘borrowing costs’ to enter into it. ‘Costs’ only become an issue when a 3rd party (ie the ‘rothschild and friends, sorry ‘fed’), control the entire system, and extract private profit from the process via these ‘borrowing costs’.
Go Speed Racer on Sat, 6th Aug 2016 11:19 am
Fly the helicopter to my place.
Dump in my backyard.
shortonoil on Sat, 6th Aug 2016 11:35 am
“Fly the helicopter to my place.
Dump in my backyard. “
The only way that is going to happen is if you own a $100 million shack in South Hampton. This is for the folks in the Club, and you ain’t in it.
shortonoil on Sat, 6th Aug 2016 11:57 am
“‘Borrowing costs’, for whom exactly? And who is benefiting from those interest payments? “
It is benefiting those that own the government that owes $20 trillion. JP Morgan, Citi, Well Fargo, GS, etc, and etc. If you don’t believe that, look at the interest charged by credit card companies. They can now borrow money at 0.50% and loan it out to the public at up to 21%. If you don’t follow their rules, the credit rating companies sell you down the river. But they will give you $40 a month in ETB benefits. That’s just to let you know how fair they are!
Meanwhile back in South Hampton they are giving a $27,000 per bottle champagne party.
Cloud9 on Sat, 6th Aug 2016 1:56 pm
It has been thirty years since I read Gibbon’s Decline and Fall of the Roman Empire. This old boy does a pretty good summation and draws some significant parallels with what is happening within our own empire to those experienced by Rome during its decline. A bottle of wine and a couple of hours will get you through it. https://www.youtube.com/watch?v=qh7rdCYCQ_U&feature=youtu.be
Cloud9 on Sat, 6th Aug 2016 2:13 pm
The real truth is that we have been on this trajectory much longer than most people realize. It started in 1913 with the creation of the Federal Reserve. This is Ponzi scheme created by American bankers and it has scammed the world. It has been so successful that most Americans do not even recognize gold and silver as being money. They think the Federal Reserve is a governmental institution and they have no idea that the dollar in their pocket was borrowed into existence. This collaboration between bankers and career politicians created the matrix that surrounds all of us.
Will it ever end? Of course it will. When it will end is anybody’s guess. Many of us feel the end is drawing near. The debasement of the currency is almost complete.
shortonoil on Sat, 6th Aug 2016 2:36 pm
” It has been so successful that most Americans do not even recognize gold and silver as being money. “
Yes, and it even says on the damn thing Federal Reserve Note
A debt taken on by some bank, and people think it’s money? The US has its own Treasury, its own printing presses and it farms out the creation of money to some sleazy bankers. The all time story of hiring the fox to watch the chicken coup. Think they will figure it out when they go to their ATM and find a note that says, “out of service”?
penury on Sat, 6th Aug 2016 3:31 pm
Just goes to show us. We should all have voted for Dr, Ron Paul when he ran for POTUS,
Cloud9 on Sat, 6th Aug 2016 3:41 pm
Article 1 Section 10 is pretty plain. “No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”
i1 on Sat, 6th Aug 2016 4:31 pm
You might ask: “What’s the difference between the Treasury issuing debt in the market and the Fed buying it, versus the Fed buying securities directly from the Treasury?” The difference is that the open market determines the prices of Treasuries, not the government or the central bank.
omfg
makati1 on Sat, 6th Aug 2016 5:42 pm
We have all been playing with Monopoly Money since 1971. Few realize it, but only coins are NOT IOUs issued by the Fed but money issued by the US Government.
Your money placed in any bank is only a loan to that bank and may not be returned if the bank goes under. The US government only has a few hundred billion to backstop trillions in bank deposits. That $250,000.00 guarantee is more bullshit believed by the public. I keep enough in my accounts to keep them open for my use and not a cent more. I don’t want to have a heart attack when I go to the ATM and it is blank, permanently. They get to hold what I can afford to lose.
The only good and permanent investment is education/knowledge and experience. The second is to live a healthy lifestyle and keep fit. The third, in my thoughts is: to own some land, build a house that meets your needs (not wants) without borrowing from the bank, have enough resources (gold/silver/?) to pay taxes until the government collapses and there is no one to collect property taxes and learn how to be self sufficient there.
adonis on Sat, 6th Aug 2016 9:08 pm
helicopter money will be tried but only when bail-ins occur to provide the extra cash for governments to distribute to the ‘spenders’ in society this will all occur within one year according to my thoughts, after that we may see high inflation and a substantial rise in interest rates
ghung on Sat, 6th Aug 2016 10:52 pm
Desperate to juice consumption in a limits to growth environment. Double down, baby!
Newfie on Sun, 7th Aug 2016 7:36 pm
No amount of helicopter money will bring back growth. The era of growth is over. Nothing grows forever in a finite world.
makati1 on Sun, 7th Aug 2016 7:43 pm
Newfie, you are spot on! Contraction is the name of the game and will not end until we hit bottom and/or crash and burn. The reset will be to a world with much less and a lot of pain.
Apneaman on Sun, 7th Aug 2016 8:31 pm
“The era of growth is over”
“The era of growth is over”
We are currently in the era of pretend.
onlooker on Mon, 8th Aug 2016 8:20 am
And the way they pretend is typing in fictitious amounts on computer screens. So on top of the illusion of money as having real worth now we have this illusory instrument that is money being created out of thin air. HAHA. Illusions within Illusions and fantasies within fantasies. Poof