One of the features of these times is how monetary policies move so quickly from being considered extreme to mainstream. There was a time that zero interest-rates were considered to be not far off “unpossible” yet now we find that there were only a brief stopping point on the way to negative interest-rates and yields. Currently the ECB and Bank of Japan amongst others are pushing the boundaries of QE (Quantitative Easing) style policies with even the latter admitting this is a consequence.
liquidity and functioning of the JGB market have largely declined ( JGB = Japanese Government Bonds)
Or to put it another way the market is essentially now the Japanese government issuing debt and the Bank of Japan buying it. The concept of the price and yield of debt being an economic signal goes flying out of the window at that point.
Whilst such policies are officially a triumph the cry invariably goes up for something extra and that cry has been issued again over the last couple of days. A group of 18 European Parliamentarians have written to ECB President Mario Draghi asking for a change of policy. From Bloomberg.
Those alternatives would include the introduction of a citizens’ dividend, using “helicopter money”, and the buying of bonds from the European Investment Bond, as possible solutions to enhance economic development through direct spendings into the real economy
By seriously considering these alternative tools the ECB would send a great signal of ambition and commitment.
Apparently expanding your balance sheet to 3.08 trillion Euros and rising at 80 billion a month demonstrates a lack of “ambition and commitment”! I guess so does an interest-rate of -0.4%. Oh and I am surprised at the mention of the European Investment Bank as a new venture as it is already in the QE eligible list under the definition below.
international or supranational institutions located in the euro area
Anyway we move on noting that these lawmakers if they got enough support could break one of the boundaries for helicopter money which is the legal issue. Rather oddly Bank of Japan Governor Kuroda has also raised the legal issues. Why odd? Well as I shall come to later Japan has already given it a go.
I find the issue of Janet Yellen of the US Federal Reserve discussing this issue particularly revealing as of course she and her colleagues are supposed to be tightening monetary policy via interest-rate rises or as it has been so far a rise. Form the Wall Street Journal.
“In normal times” there should be a separation between monetary and fiscal policy, she says. Central bank independence — keeping politicians from printing money — keeps inflation stable.
While academics are debating the idea of helicopter money, she says, it would take an “abnormal” and “extreme” situation for it to make sense.
As the current situation is plainly abnormal and more than a few will consider the spread of negative interest-rates and bond yields to be extreme then these barriers may be rather easily hurdled. Janet’s predecessor Ben Bernanke seems somewhat keen too.
it has the attractive feature that it should work even when more conventional monetary policies are ineffective and the initial level of government debt is high.
Are so QE and negative interest rates are conventional now are they?! Anyway his nickname of “Helicopter Ben” I guess gives even casual observers of the state of play a fair clue.
Lunch with the FT
You might be wondering how this is linked apart from obviously the boost to the economy provided by lunch at a restaurant in Mayfair. However I will provide a clue by pointing out that Ben Bernanke described the guest as an “influential advocate”. According to Martin Wolf he can be described thus.
He embodies the international economic and policymaking elite.
A career in finance in spite of the fact he says this.
But I’d forgotten that banks create credit, money and purchasing power.
That is a simply extraordinary statement from the main UK advocate of helicopter money who is Jonathan Adair Turner or Baron Turner of Ecchinnswell if you prefer. Especially from a man who headed up the CBI and FSA. His support for the Euro is a mere bagatelle quickly corrected apparently as we learn one more time that career ending mistakes are for plebs and the hoi polloi only. The higher you climb the greasy pole the less responsible for anything you become.
I think that a comment by 2000AD to the article sums things up rather well.
Nice analogy – Lord Turner is indeed like an “enarque”. Eloquent, polished and well connected, yet shamelessly incompetent and corrupted. This article made me sad.
The establishment is singing along with The Mock Turtles on Helicopter Money.
Can you dig it?
Can you dig it?
Can you dig it?
Can you dig it?
UK Retail Sales
Those hammering out a helicopter money beat found the UK data giving them quite a bloody nose yesterday. Helicopter money works as follows. People get it as a type of “free money” and then they spend it and boost the economy via higher consumption. So UK consumption is lacking?
The volume of retail sales in May 2016 is estimated to have increased by 6.0% compared with May 2015.
I don’t know about you but the UK consumer seems to be in rude health and if anything is not it seems set to be the trade deficit. This reinforces again one of my themes as I note a fair bit of this is driven by lower prices.
Average store prices (including petrol stations) fell by 2.8% in May 2016 compared with May 2015.
I raise this issue as lower prices have had provided an economic stimulus via higher real wages as you can see. This matters in itself but also because it is the exact opposite of the “cure” suggested by Turner and Bernanke who are both advocates of inflation being pushed higher and in the former case of raising the inflation target.
Mind you reality and supposed elites and the establishment rarely coincide. Let me remind you of the surge in UK Retail Sales and then this issued by the Bank of England at noon yesterday.
Households could defer consumption
Back on the 6th of April I looked at the Helicopter Money issue and pointed out that it mostly was produced in the rarefied air to be found at the top of Ivory Tower.
Also the rise of the concept of helicopter money has another problem which is that if things are going as well as we are continually told why do we need it at all?
There is another problem too.
Actually I can make an even more damning critique which is that all this monetary effort harms rather than encourages reform. It has glued the global elites in place and they have no intention of reforming at all.
Adair Turner et al. As we look deeper we also see a problem in the original Milton Friedman definition.
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. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.
Who could possibly believe the second sentence in that paragraph after what has happened in the credit crunch era?
As we review events any introduction of Helicopter Money now in what we are told is a recovery would be a type of contradiction in terms. How much would it be split between inflation and output growth as we mull the fact it is invariably inflation advocates who propose it. Perhaps the biggest irony of all is that the place which most needs it, Greece with its ongoing economic depression, seems to be the least likely to get it.
Oh and when Japan gave it a go ( £142 per head if I recall correctly) it was mostly saved. Perhaps they did not believe it would be unique and frankly it is hard to blame them.
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