- Date published:
8:25 am, March 13th, 2016 - 136 comments
Categories: economy, Financial markets, Keynes, monetary policy - Tags: bernard hickey, helecopter money, printing money, quantitative easing
Banks create money out of nothing all the time. When governments do it the process is dressed up in the pseudo-technical term “quantitative easing”. There’s a lot of debate about QE, but some credit it with saving both the American and the European economies after the global financial crisis.
The money created by QE goes to banks and other financial institutions – helping the 1% rich to get richer and contributing to the ever-widening inequality gap. I wasn’t aware that anyone had seriously proposed creating money for ordinary individuals – QE for the masses – but a piece last week from Bernard Hickey covers exactly that!
Want some free money?
Just imagine that one day the Reserve Bank deposited $1000 in your account, and that of every other citizen in New Zealand. It’s sounds crazy, yet it’s something some central bankers are talking about in a world of deflation, negative interest rates and slow economic growth.
This idea is called Helicopter Money and it’s suddenly the hot topic in the sometimes arcane and always sober world of central banking. It’s a truly radical idea that would seem utterly irresponsible and dangerous in normal times.
…the world’s biggest Central Banks cut their interest rates to almost 0 per cent during the Global Financial Crisis. It helped avoid financial armageddon, but proved ineffective in restarting the engine of growth. Almost a quarter of the world’s economy now has negative interest rates. The theory is it will force banks to lend money and encourage people to spend. But it appears this apparent last resort isn’t working either.
Late last year the former chairman of Britain’s Financial Services Authority, Adair Turner, recommended something similar. He suggested monetary financing of Government deficits, which means the central bank prints money to lend to the Government to spend on new infrastructure or tax cuts or whatever it feels like.
The other suggestion is the central bank simply pay the money into everyone’s accounts. It would be fair and have an immediate effect because much more of it would go to poorer spenders, rather than richer savers.
No one is suggesting this is appropriate for New Zealand any time soon. Our Reserve Bank still has another 2.5 per cent of interest rate cuts to go and is expected to signal a few as early as this Thursday. But Helicopter Money is now being actively discussed in the Northern Hemisphere and, as we’ve seen over the last decade, where they go, we often follow.
Prior to the last election The Greens toyed with a form of QE to reduce the value of the NZ dollar. Naturally the Nats attacked the idea with cheap “printing money” ridicule and it never made it in to policy. But The Greens might have the last laugh if helicopter money makes it out of economic theory and in to the real world.