FX MONETARY POLICIES
the helicopter money has returned to the lexicon.
In 2002, Bernanke said that “A money- financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.” Tis helps to demystify the concept a little.
Two
characteristics are brought out in relief by Bernanke.
First is the interrelationship between fiscal and monetary policies. Tis is one of the criticisms some
like the
Bundesb ank’s Weidmann has with some ECB policies. It blurs the distinction b e t w e e n monetary policy (ECB’s mandate) and fiscal policy (for elected governments to decide).
and in so doing, offset about 40% of the government’s debt servicing costs.
Te second notable characteristic of helicopter money is that it bypasses
economies and soſt demand, many banks are either unable or unwilling to lend.
US banks spent a good part of the Great Depression sidelined.
Federal Reserve lent
directly
Te to
small businesses. Now in the US, there are two channels of capital d i s t r ib u t io n, the
banks and
the markets. Co nt i n e nt a l Europe and Japan still rely heavily on bank loans. In Europe, the bank channel remains in
disrepair,
Helicopter money would provide funds directly to economic agents who would spend and bypass the banking circuit
Consider
that US monetary policy (QE) led to the Fed being the largest holder of US Treasuries.
Te government pays interest to the Federal Reserve. Last year, the Federal Reserve gave back to the federal government a little more than $100 bln
72 FX TRADER MAGAZINE April - June 2016
the banks. Te idea is to provide funds directly to economic agents who would spend, like households and businesses and cut short the circuit of capital by removing the financial intermediaries. Te financial intermediaries are banks. For various reasons, including regulatory requirements, existing non-performing loan problems, weak
and many fear problems are still festering below the surface of at least one systemically i mp o r ta n t institution.
A report out earlier suggests
that the Japanese government is considering distributing “giſt certificates” to low-income young people as part of a supplemental budget for the fiscal year starting next month. A direct cash disbursement, as I have suggested from a fraction of Japan’s $1 trillion of reserves, could be saved, but the idea is that “giſt certificates” would
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