Oh boy -- a helicopter money drop may be coming, free cash for all

SpacePete · Sep 19, 2015

QE is failing, secular stagnation, velocity of money continues to fall, QEs becoming exponentially larger and talk of last ditch efforts to inject money directly into the system. Free money for everyone.

It Begins: Australia's Largest Investment Bank Just Said "Helicopter Money" Is 12-18 Months Away

Today, one day after the Fed according to some finally lost its credibility, none other than Australia's largest investment bank, Macquarie, just made the case that helicopter money is not only coming, but has a "very high" probability of commencing its monetary paradrops over the next 12-18 months.

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Time for a policy U-turn? Back to the future: British Leyland

From conventional QEs to more unorthodox policies

As discussed (here and here), we do not believe that investors are likely to benefit from acceleration in growth rates, trade or liquidity and indeed on the contrary, negative feedback loops from EMs to DMs imply that neither would be able to support global growth. Secular stagnation is the key explanatory variable (here). The deflationary pressures from overleveraging, overcapacity and technology shifts can be either allowed to work through economies or public sector needs to continue resisting via expansionary policies.

Since '08, monetary policies were doing most of the lifting with limited participation by fiscal authorities (bar China). In other words, in the absence of either private or public sectors driving higher velocity of money, it was CBs that were supplying incremental liquidity to preclude contraction of nominal GDP and avoid stronger deflationary pressures. However, marginal utility of incremental injections has been declining (witness much lower impact of recent ECB's QE and increase in BoJ accommodation since Dec '14).

Part of the reason for monetary stimulus fading is that supply of US$ remains low. Global economy continues to reside on a de-facto US$ standard and current incremental supply is almost non-existent (depending on definition growing at +2%/-1% clip vs. average since '01 of ~15%). In other words, due to lack of recovery in the US velocity of money and lack of QEs, global economy is not getting enough US$ to continue leveraging.

as efficacy of conventional monetary QE is questioned

At the same time efficacy of continuing with conventional QE policies is being challenged and not just by independent observes but also 'insiders' (such as recent SF Fed paper). As velocity of money globally continues to fall, conventional QEs have to become exponentially larger, as marginal benefit declines. If public sector is not prepared to step aside, what other measures can be introduced to support nominal GDP and avoid deflation?

There are several policies that could be and probably would be considered over the next 12-18 months. If private sector lacks confidence and visibility to raise velocity of money, then (arguably) public sector could. In other words, instead of acting via bond markets and banking sector, why shouldn't public sector bypass markets altogether and inject stimulus directly into the 'blood stream'? Whilst it might or might not be called QE, it would have a much stronger impact and unlike the last seven years, the recovery could actually mimic a conventional business cycle and investors would soon start discussing multiplier effects and positioning in areas of greatest investment.

British Leyland failed, but it might work at least for a while

British Leyland (formed from nationalized British car companies in the late '60s) destroyed its automotive industry but for a time it provided employment and investment. CBs directly monetizing Government spending and funding projects would do the same. Whilst ultimately it would lead to stagflation (UK, 70s) or deflation (China, today), it could provide strong initial boost to generate impression of recovery and sustainable business cycle. It could also significantly shift global terms of trade (to the benefit of commodity producers) and cause a period of underperformance by our 'Quality & Stability' portfolio and improve performance of 'Anti-Quality' screen. What is probability of the above policy shift? Low over next six months; very high over the longer term.

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What's most disturbing about the above assessment is that Macquarie realizes this last ditch attempt to preserve the status quo will fail, but will - if nothing else - buy another 12-18 months.

So is that the event horizon countdown: 1-2 years... and then?

http://www.zerohedge.com/news/2015-...-bank-just-said-helicopter-money-12-18-months
Click to expand...

"To generate an impression of a recovery"??? And then...?

For those unfamiliar with the idea of a helicopter money drop:

A hypothetical, unconventional tool of monetary policy that involves printing large sums of money and distributing it to the public in order to stimulate the economy. Helicopter drop is largely a metaphor for unconventional measures to jumpstart the economy during deflationary periods. While "helicopter drop" was first mentioned by noted economist Milton Friedman, it gained popularity after Ben Bernanke made a passing reference to it in a November 2002 speech, when he was a new Federal Reserve governor. That single reference earned Bernanke the sobriquet of "Helicopter Ben," a nickname that stayed with him during much of his tenure as a Fed member and Fed chairman.

http://www.investopedia.com/terms/h/helicopter-drop.asp
Click to expand...

BuggedOut · Sep 19, 2015

Oh f*ck. Just when I think it can't get any more desperate, a new kind of stupid comes along.

Surely the mainstream isn't dumb enough to think this will actually work!??

SpacePete · Sep 19, 2015

BuggedOut said:

Oh f*ck. Just when I think it can't get any more desperate, a new kind of stupid comes along.

Surely the mainstream isn't dumb enough to think this will actually work!??
Click to expand...

It would be a move of desperation and unlikely to turn out well in the long term.

SpacePete · Sep 19, 2015

BuggedOut said:

...Surely the mainstream isn't dumb enough to think this will actually work!??
Click to expand...

They are dumb enough to think it will work:

Free Money for Everyone
A wacky-sounding idea with surprisingly conservative roots may be our best hope for escaping endless, grinding economic stagnation.

How would you like to get $2,000 in free money today, fresh off the government printing presses? And what if I told you it wouldn't just be a nice windfall for you and your friends and family, but that we'd do it for all Americans on an ongoing basis, and that doing so would solve our crippling problem of mass unemployment?

I know what you're thinking: it would be crazy. Either it would be a fast track to crippling inflation or it's some Republican satire of an ultra-liberal government handout program. But it is not quite as radical as it sounds. The key idea behind such a program has a longstanding, bipartisan economic pedigree. John Stuart Mill argued in 1829 that mass unemployment was caused by "a deficiency of the circulating medium" relative to other commodities. John Maynard Keynes used the idea in his 1936 book, The General Theory of Employment, Interest and Money, to lampoon the inherent silliness of gold mining, suggesting that old coal mines could be filled up with bottles full of banknotes, buried over with trash, then left "to private enterprise on well-tried principles of laissez-faire to dig the notes up again." Milton Friedman suggested that monetary policy could never fail to cure mass unemployment, because as a last resort the central bank could just drop cash out of helicoptersan enticing analogy that former Federal Reserve chairman Ben Bernanke borrowed in a 2002 speech, earning himself the persistent nickname of "Helicopter Ben."

[snip huge article]

The helicopter money policy, by contrast, keeps government almost completely out of the picture. It distributes resources directly to citizens, with no limits on how they can spend it, thereby strengthening individual choice and the private sector, not government bureaucracies. It's a stimulus Milton Friedman could love. And if everyone gets the same-sized check, there's not even a concession to the god of progressivityit's like a flat tax in reverse! There will be a Republican president again someday, and as we've seen, it is highly likely that government will face the same weak growth and high unemployment we face today. This is a tool as friendly to the conservatives' ideology as they are likely to find.

In any case, we shouldn't forget the relative simplicity of what's wrong with our economy right now: it's a simple divergence between incentives for production and those for consumption. The money supply is a very powerful tool to fix that misalignment of incentives, and its power is communal. It comes from the fact that it is accepted as a medium of exchange by all 310 million Americans. We should not fear to use that tool, and to provide badly needed help to millions of people in the process.

http://www.washingtonmonthly.com/ma...es/free_money_for_everyone049287.php?page=all
Click to expand...

phrenzy · Sep 19, 2015

We already had this, does nobody remember the $900 cash credit given to every adult Australian?

I don't want to say how I spent mine.

kramer · Sep 19, 2015

I would spend it on gold or silver as fast as I could.[/quote]

Hookers and blow.. Thats the go!

col0016 · Sep 19, 2015

If I had to choose between the government propping up me or the stock market, I'd choose me.

bordsilver · Sep 20, 2015

SilverPete said:

BuggedOut said:

...Surely the mainstream isn't dumb enough to think this will actually work!??
Click to expand...

They are dumb enough to think it will work:

Free Money for Everyone
A wacky-sounding idea with surprisingly conservative roots may be our best hope for escaping endless, grinding economic stagnation.

How would you like to get $2,000 in free money today, fresh off the government printing presses? And what if I told you it wouldn't just be a nice windfall for you and your friends and family, but that we'd do it for all Americans on an ongoing basis, and that doing so would solve our crippling problem of mass unemployment?

I know what you're thinking: it would be crazy. Either it would be a fast track to crippling inflation or it's some Republican satire of an ultra-liberal government handout program. But it is not quite as radical as it sounds. The key idea behind such a program has a longstanding, bipartisan economic pedigree. John Stuart Mill argued in 1829 that mass unemployment was caused by "a deficiency of the circulating medium" relative to other commodities. John Maynard Keynes used the idea in his 1936 book, The General Theory of Employment, Interest and Money, to lampoon the inherent silliness of gold mining, suggesting that old coal mines could be filled up with bottles full of banknotes, buried over with trash, then left "to private enterprise on well-tried principles of laissez-faire to dig the notes up again." Milton Friedman suggested that monetary policy could never fail to cure mass unemployment, because as a last resort the central bank could just drop cash out of helicoptersan enticing analogy that former Federal Reserve chairman Ben Bernanke borrowed in a 2002 speech, earning himself the persistent nickname of "Helicopter Ben."

[snip huge article]

The helicopter money policy, by contrast, keeps government almost completely out of the picture. It distributes resources directly to citizens, with no limits on how they can spend it, thereby strengthening individual choice and the private sector, not government bureaucracies. It's a stimulus Milton Friedman could love. And if everyone gets the same-sized check, there's not even a concession to the god of progressivityit's like a flat tax in reverse! There will be a Republican president again someday, and as we've seen, it is highly likely that government will face the same weak growth and high unemployment we face today. This is a tool as friendly to the conservatives' ideology as they are likely to find.

In any case, we shouldn't forget the relative simplicity of what's wrong with our economy right now: it's a simple divergence between incentives for production and those for consumption. The money supply is a very powerful tool to fix that misalignment of incentives, and its power is communal. It comes from the fact that it is accepted as a medium of exchange by all 310 million Americans. We should not fear to use that tool, and to provide badly needed help to millions of people in the process.

http://www.washingtonmonthly.com/ma...es/free_money_for_everyone049287.php?page=all
Click to expand...

Click to expand...

The author of that Washington Monthly article is impugning the reputations of Milton Friedman and John Stuart Mill by completely misquoting them. Milton coined the helicopter drop analogy in reference to the Keynesian idea of a deflationary spiral and how easily such a thing could be combated if it should occur. He certainly did not espouse it as a standard policy instrument and it certainly wasn't an idea to "cure mass unemployment". And John Stuart Mill certainly did not argue "that unemployment was caused by "a deficiency of the circulating medium" relative to other commodities". He was attacking people like Malthus who did claim the nonsensical idea of a "General Glut". J.S. Mill was firmly a supply-side economist who was one of the key people to understand and argue for the Law of Markets (also called Say's Law but which he understood far better than Say himself).

willrocks · Sep 20, 2015

I'd buy non-perishable food supplies.

SpacePete · Sep 20, 2015

I'd buy non-perishable food supplies.[/quote]
US dollars, PMs and survival goods.

Potato · Sep 20, 2015

Take note of what happened to US stocks after QE, and then you'll know where to put your $2000.

Just bring your magic 8 ball to the party so you'll know when to get out before things go sour.

hiho · Sep 20, 2015

Remember Krudds free cash $800 could have purchased nearly an oz of gold back then

errol43 · Sep 20, 2015

phrenzy said:

We already had this, does nobody remember the $900 cash credit given to every adult Australian?

I don't want to say how I spent mine.
Click to expand...

Don't forget the pensioners who in 2008 got $2300 a couple bonus. We all have our nose in the trough I tell you.. Welfare payments for Families, Negative gearing, Spend $20,000 tax free for small business.. We live in a welfare state with everyone having their nose in the trough. The list goes on and on.

Maybe helicopter adventurer Bishop may be able to point out the area where the $$$$$$$$ will be dropped.

Hope they drop real money (silver coins) and not paper fiat.

Will send my co-ordinates to Canberra tomorrow. OH I forgot, they already have them.

Regards Errol 43

Dabloodymess · Sep 20, 2015

col0016 said:

If I had to choose between the government propping up me or the stock market, I'd choose me.
Click to expand...

I agree 100%. If they are going to conjure up some cash I like the idea of some of it landing in my account.

While QE seems to have benefited the rich end of town most, a direct stimulus to the populace likely would as well. For every person who saves their stimulus or pays down debt etc, there will be another who buys some c**p.... money flows up unless you keep a tight grip on it.

Caput Lupinum · Sep 20, 2015

Make it rain I say!

[youtube]http://www.youtube.com/watch?v=wUw-qRihn7k[/youtube]

SpacePete · Sep 20, 2015

Caput Lupinum said:

Make it rain I say!
Click to expand...

boyracer · Sep 20, 2015

SilverPete said:

BuggedOut said:

Oh f*ck. Just when I think it can't get any more desperate, a new kind of stupid comes along.

Surely the mainstream isn't dumb enough to think this will actually work!??
Click to expand...

It would be a move of desperation and unlikely to turn out well in the long term.
Click to expand...

You said a naughty word!

ShinyStuff · Sep 20, 2015

Remember that this was all Pauline Hanson's idea... just print more money! She was laughed at for that, and yet everyone has now taken her idea and is running with it!!!

Shiny

trew · Sep 20, 2015

ShinyStuff said:

Remember that this was all Pauline Hanson's idea... just print more money! She was laughed at for that, and yet everyone has now taken her idea and is running with it!!!
Click to expand...

It was so successful for Zimbabwe

Clawhammer · Sep 20, 2015

And Argentina

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