Central Banks have begun increasing talks about using the "helicopter money" concept as a last resort to promote economic growth. Senior figures such as Kathy Jones, chief fixed income strategist at Charles Schwab, have been talking about the approach being the last resort for desperate economies. With economic growth being described as "fragile" by the IMF, the old metaphor of helicopter money is gaining in popularity. The motivation behind the concept is simple: Americans will spend the money. Consumption makes up the vast majority of US economic activity and the spending will, as a consequence, give the economy a bump in the right direction.
These talks illustrate the desperation of Central Banks to promote economic growth. Most experts say Japan, who has been using negative interest rates to stimulate spending, will be the most likely to consider using helicopter money.
"Helicopter Ben" Bernanke certainly sees the merits of the approach. He debates that helicopter money from a central bank is a better option than Congress increasing spending or creating a tax cut- both of which increase the risk of driving up the national debt and making it harder to pay off that debt in the long run.
There are still hurdles which need to be overcome is helicopter money is actually ever to be used, though. Deciding how much money and how it's implemented are problematic topics.
http://money.cnn.com/2016/04/26/news/economy/central-banks-helicopter-money/?iid=EL
It is interesting to note the urgency with which the central banks want to stimulate economic growth and also the point about congress creating a tax cut and how it would increase national debt versus the helicopter money that would not increase our debt
ReplyDeleteI find it interesting that the helicopter money is being so talked about even though they are discussing it as a last resort. Is nothing else working? Japan, who is struggiling with deflation, could use it, but it is being denied by their banks. Perhaps it is a good idea in theory, but puts too much stress on the banks themselves?
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