FX MONETARY POLICIES
A HELICOPTER DROP THAT MISSED ITS TARGET
All this is far from the helicopter drop proposed by Ben Bernanke in 2002 as a quick fix for deflation. He told the J a p a n e se , “The U.S. government has a technology, called a printing press (or, today, its electronic e q uiv a l e nt ) , that allows it to produce as many U.S. dollars as
it wishes at
essentially no cost.” Later in the speech he discussed “a money-financed tax cut,” which he said was “ e sse n t ia ll y e q uiv a l e nt to Milton F rie d man’ s f am ous ‘helicopter drop’ of money.” Deflation could be cured, said Professor Friedman, simply by dropping money from helicopters.
Friedman’s idea of a helicopter drop involved debt-free money printed by the government and landing in people’s bank accounts. “He foresaw the money entering
the economy through bank deposits, not through bank
free credit, a good deal for the government. But the problem, says Lounsbury, is that:
The helicopters dropped all the money into a hole in the ground (excess reserve accounts) and very little made its way into the economy.
It
There has been no cloudburst of money raining down on the people. The money has gotten only into the reserve accounts of banks
But there has been no cloudburst of money raining down on the people. The money has gotten only into the reserve accounts of banks.
John Lounsbury, writing in Econintersect, observes that 20 FX TRADER MAGAZINE January - March 2014
reserves which was the pathway available to Bernanke. . . . [W] hen Ben Bernanke fired up his helicopter engines he took the only path available to him.”
Bernanke created debt-free money and bought government debt with it, returning the interest to the Treasury. The result was interest-
was essentially a rearrangement of the balance sheets of the creditor nation with little impact on the debtor nation... The fatal flaw of QE is that it delivers money to the accounts of the creditors and does nothing for the accounts of the debtors. Bad debts remain unserviced and the debt crisis continues.
THINKING OUTSIDE THE BOX
Bernanke delivered the money to the creditors because that was all the Federal Reserve Act allowed. If the Fed is to fulfill its mandate, it clearly needs more tools; and that means amending the Act. Harvard professor Ken Rogoff, who
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