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Stalled global economy and helicopter money

Written By: - Date published: 10:08 am, April 20th, 2016 - 21 comments
Categories: capitalism, class war, economy, International, monetary policy - Tags: , ,

Printing money, which financial types like to call “quantitative easing”, has brought the global economy some time in what now looks like an ongoing crisis since 2008. But the buzz is wearing off – and there are calls for another fix:

Alan Greenspan: More QE Possible as Monetary Policy ‘Has Done Everything It Can’

Former Federal Reserve Chairman Alan Greenspan said current monetary policy has done everything it can without another round of quantitative easing.

“Monetary policy … has done everything it can unless you want to put additional QEs on,” he told CNBC.

“There’s no real evidence that we’re getting an impact on lending and on the economy picking up,” he said.

In a similar vein, see this interesting piece in The Guardian:

The bad smell hovering over the global economy

Attempts at economic stimulus have left a bad smell. Central banks are starting to think the unthinkable – helicopter money

Don’t be fooled. China’s growth is the result of a surge in investment and the strongest credit growth in almost two years. There has been a return to a model that burdened the country with excess manufacturing capacity, a property bubble and a rising number of non-performing loans. The economy has been stabilised, but at a cost. The upward trend in oil prices also looks brittle. The fundamentals of the market – supply continues to exceed demand – have not changed.

Then there’s the US. Here there are two problems – one glaringly apparent, the other lurking in the shadows. The overt weakness is that real incomes continue to be squeezed, despite the fall in unemployment. Americans are finding that wages are barely keeping pace with prices, and that the amount left over for discretionary spending is being eaten into by higher rents and medical bills.

The plan has not worked. There has been little impact on interest rates, banks have not increased their lending and the yen has risen on the foreign exchanges – the opposite of what was planned – because investors fear that the Bank of Japan is fast running out of ammunition. They have a point. Central banks, of course, swear blind that they are fully in control and that there is nothing to worry about. Perhaps not, but something doesn’t smell right. The fact that economists at Deutsche Bank published a helpful cut-out-and-keep guide to helicopter money last week is a straw in the wind.

As the Deutsche research makes clear, the most basic variant of helicopter money involves a central bank creating money so that it can be handed to the finance ministry to spend on tax cuts or higher public spending. There are two differences with QE. The cash goes directly to firms and individuals rather than being channeled through banks, and there is no intention of the central bank ever getting it back.

The underlying softness of the global economy, however, means that it is quite easy to envisage a downturn in 2017, the 10th anniversary of the start of the financial crisis. In those circumstances, the unconventional would quickly become conventional, as it did after the collapse of Lehman Brothers. The only question would be which central bank would move first. …

The global economy is being strangled by structural problems and greed. QE hasn’t helped, so it seems we’re now seriously considering helicopter money (“QE for the masses”). That might buy us some more time, but it doesn’t address the underlying structural problems. What is needed is major reform – and an end to the illusion of perpetual growth.

21 comments on “Stalled global economy and helicopter money”

  1. tinfoilhat 1

    “What is needed is major reform – and an end to the illusion of perpetual growth.”

    This has been obvious for some time, however, I’m not holding my breath waiting for any of the mainstream political parties around the world to change their business as usual agendas.

  2. Colonial Viper 2

    “Helicopter money” – a term introduced by Milton Friedman, what a great guy.

  3. Steve Alfreds 3

    Sorry about the definition coming from wikipedia, but the last sentence sums things up nicely:

    “A liquidity trap is a situation, described in Keynesian economics, in which injections of cash into the private banking system by a central bank fail to decrease interest rates and hence make monetary policy ineffective. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Common characteristics of a liquidity trap are interest rates that are close to zero and fluctuations in the money supply that fail to translate into fluctuations in price levels.”

    The neoliberals, as I understand it, have denied it for years and as a result helicopter money is their last gasp attempt to save face.

    Click to access 1998b_bpea_krugman_dominquez_rogoff.pdf

    • RedLogix 3.1

      Or my father who taught this subject for some years once told me; in the Great Depression most people still had a quid or two in their back pocket. They just wouldn’t spend it because they were not sure where the next one was going to come from.

      Debt saturation has a similar effect. In a system that relies on credit creation for growth, there comes a point where business and consumers refuse to take on more debt, which stalls growth.

      Of course the solution is to change the system so as it is not dependent on perpetual debt … but that will never happen until the people profiting from it are removed from power.

      • Colonial Viper 3.1.1

        Of course the solution is to change the system so as it is not dependent on perpetual debt … but that will never happen until the people profiting from it are removed from power.

        And the people profiting from it, and who wield the real power, are not elected officials. The politicians have tended to be reduced to the level of functionaries and system administrators.

      • Draco T Bastard 3.1.2

        Or my father who taught this subject for some years once told me; in the Great Depression most people still had a quid or two in their back pocket. They just wouldn’t spend it because they were not sure where the next one was going to come from.

        Which is why the UBI works as the main source of money for the economy while bank created credit doesn’t. Everyone has income and so will be willing to spend.

    • Phil 3.2

      . A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war.

      There’s a case to be made that banks themselves had been in something of a liquidity trap post-GFC. For example, the TARP funds provided to US banks were not lent into the economy in the way the US Treasury hoped, because the banks were terrified of the potential size and scale of fines they might have to pay.

  4. Kevin 4

    I am guessing the whole point of ‘helicopter money’ is to get people to spend into the economy?

    What if all they do is pay down debt?

    Doesn’t that defeat the whole purpose?

    • Phil 4.1

      Doesn’t that defeat the whole purpose?

      Not at all. If people pay down debt today, then their disposable income goes up tomorrow (because they have lower/no debt-servicing interest cost) and you should end up with greater spending.

      • Kevin 4.1.1

        Assuming the helicopter money covers all their debts…

        If it was me, I would pay down debt and any left over, save for a rainy day.

        • McFlock 4.1.1.1

          Yeah, but that would require the debt to have been largely luxury, rather than being born of necessity when your income is not sufficient to cover sudden expenses.

          Many people will either pay down debt and spend at least some of their subsequent interest payments savings, or it will go straight towards buying the semi-essentials they’d put off such as new undies or longer-life lightbulbs to replace the incandescents that they can afford to buy now. Or smoke alarms.

          Some will definitely go to the banks, but they get the crumbs. OCR changes give the cash to the banks and the people get the crumbs.

  5. Expat 5

    It’s been quite apparent the US economy has been stuttering in the last week or so, the NZ and Aus dollar have climbed considerably against the greenback over this period, the US has been flat out printing money, but most of it has ended up in the hands of the wrong people to be of any benefit to the economy as whole, when will they learn that the solution lies in significant wealth redistribution.

    During the GFC, Aus govt paid every household a gift of $1000 to help stimulate the economy, and those on welfare received $1400, there were other packages as well’ but the important aspect was putting the money in the hands of the people who could keep the country afloat, Aus was the only western country to not go into recession, they’ve had nearly 25 years of continuous growth, but even that record may be broken if the planet continues on the economic pathway of failed measures, ensuring the 1% only benefit.

    • Colonial Viper 5.1

      when will they learn that the solution lies in significant wealth redistribution.

      I’m pretty sure that “significant wealth redistribution” has been the plan and the action in the USA for the last 40 years.

      • Expat 5.1.1

        Yes, but I’m talking Helen Clark style, you know the one, Key called it “Communism by stealth” and subsequently changed it, poor old working for families……..

        That’s why so many hate Clark, equality just isn’t fair on rich people……..

        • Colonial Viper 5.1.1.1

          I wasn’t aware that inequality improved under Helen Clark. How are you measuring that?

          I suppose it might have levelled off from the bad trends of the Ruthanasia days, but it didn’t improve AFAIK except for maybe those in the top quartile.

          • Expat 5.1.1.1.1

            Don’t you remember, lots of people had jobs, (in my local area, it was a historical low) lots more than they do now, a direct result of wealth redistribution to the many, and don’t forget about all the infrastructure investments, rebuilt the local hospital and added classrooms to all the local schools, something the “blue” seat hadn’t seen in decades.

            And don’t forget we had nine years of “not” a single beneficiary bashing incident (that’s because there weren’t many of them), sometimes you take it for granted, until you realise how the current Govt has made “hay” out it, and divided the country, blaming the poor for the countries poor economic performance.

  6. Smilin 6

    Growth now is a cover word for producing rubbish for the sake of it
    or advertising ramping up of the so called need for more growth
    If dairy farmers dont get paid enough for what they owe because their govt has conned them into thinking that their market will keep expanding with ever increasing profits and its obvious that their top dog position of 2yrs prior doesnt exist and wont ever be that good again because the competition got smarter and there is no more wars the size of GWBs bs Iraq and the axis of evil to lie to the nation that they need to keep producing at the great shit rate that was necessary to feed a war
    You get it ,add your own parts to the rest of it, a few hints :American Freedom Radio today- Fraud and our govt
    The real life and times of the ultimate con man aka uno hu
    Media works aka NZds Dick Cheney
    Look into this stuff and see why that we will never own our country again without a complete revolution because no matter what the present govt does to defraud us we will never have accountability to stop it
    We owe over half our GDP every year now Hello to the Chinese communist party our new govt

    • Colonial Viper 6.1

      Strictly speaking its the Anglo American oligarchy which is our new government. The Chinese are just foreign traders that they are hawking us off to.

  7. CoroDale 7

    That sovereign money chopper shall also have to land a BNZ buy back. Anything less isn’t being honest about how far this scam has already gone.

  8. Lucy 8

    Why not just make corporations and rich people pay taxes in the country that they reside, if they reside in more than one country then each country gets a portion of taxes based on the amount of time they are there. There is no need for weird money choppers if everyone pays their share!

  9. esoteric pineapples 9

    The underlying problem is that no one ever took the hit (written off the losses in their ledger) for the last crisis. The debt keeps on being passed around.

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    5 days ago
  • New fund to help save local events and jobs
    The Government has established a new $10 million fund for the domestic events sector to help save jobs and protect incomes as it recovers from the impacts of COVID-19, Minister of Economic Development Phil Twyford announced today. This funding from Budget 2020 follows talks with the event sector designed to ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Bill to improve fuel market competition
    The Government has taken another step in its commitment to making sure New Zealanders get a fairer deal at the petrol pump with the introduction of legislation to improve competition in the retail fuel market, says Energy and Resources Minister Megan Woods. “The fuel market study that this Government ordered ...
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    5 days ago
  • New Zealand joins global facility for pre-purchase of COVID-19 Vaccine
    New Zealand has joined a global initiative that aims to enable all countries to access a safe and effective Covid-19 vaccine, Foreign Affairs Minister Winston Peters announced today. The COVAX Facility was recently launched by Gavi, the Vaccine Alliance. The Alliance includes the World Health Organization, UNICEF, the World Bank ...
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    5 days ago
  • Right to legal representation in Family Court restored today
    From today new legislation takes effect to both restore the right to legal representation at the start of a Care of Children (CoCA) dispute in the Family Court, and allow parties to those proceedings to access legal aid where eligible. During a visit to the Family Court in Auckland today, ...
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    5 days ago
  • Transitioning to a fully-qualified home-based ECE workforce
    Home-based early childhood education (ECE) subsidised by the government will transition to a fully qualified workforce by 2025 to ensure better and more consistent quality, Education Minister Chris Hipkins announced today. “Quality early learning helps provide children with a strong foundation for their future,” Chris Hipkins said. From 1 January ...
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    5 days ago
  • Criminal Cases Review Commission gets to work
    The new Criminal Cases Review Commission | Te Kāhui Tātari Ture (CCRC) has started work and can now independently investigate claimed miscarriages of justice. “Even though we have appeal rights and safeguards against unsafe convictions, from time to time our justice system does get things wrong. The design of the ...
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    5 days ago
  • Speech by the Minister of Defence to the New Zealand Institute of International Affairs
    E ngā mana, e ngā reo, e ngā karangatanga maha, tēnā koutou Ki a koutou Te Āti Awa, Taranaki Whānui, Ngāti Toa Rangatira, ngā mana whenua o te rohe nei, tēnā koutou Ko Te Whare Wānanga o Aotearoa ki ngā take o te Ao (NZIIA), Ko te Rōpū Tohu Tono ...
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    5 days ago
  • Six months with baby and $20 more a week for new parents
    The Government’s increase to paid parental leave kicks in today with another 4 weeks taking New Zealand up to a full 6 months (26 weeks, up from 22 weeks) leave for new parents, and the maximum weekly payment will increase by $20pw, Workplace Relations and Safety Minister Iain Lees-Galloway says. ...
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    5 days ago
  • Infrastructure investment to create jobs, kick-start COVID rebuild
    A new package of infrastructure investments will help kick-start the post-COVID rebuild by creating more than 20,000 jobs and unlocking more than $5 billion of projects up and down New Zealand. Finance Minister Grant Robertson and Infrastructure Minister Shane Jones today outlined how the $3 billion infrastructure fund in the ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Statement on passage of national security law for Hong Kong
    Foreign Affairs Minister Winston Peters today expressed the New Zealand Government’s deep disappointment at the passage by China’s National People’s Congress Standing Committee of a national security law for Hong Kong. “New Zealand has consistently emphasised its serious concern about the imposition of this legislation on Hong Kong without inclusive ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • July 1 marks progress for workers, families
    More jobs and more family time with newborns are the centrepiece of a suite of Government initiatives coming into effect today. July 1 is a milestone day for the Government as a host of key policies take effect, demonstrating the critical areas where progress has been made. “The Coalition Government ...
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    6 days ago
  • Auckland water consent referred to Board of Inquiry
    Environment Minister David Parker has today “called in” Auckland’s application to the Waikato Regional Council to take an extra 200 million litres of water a day from the lower reaches of the Waikato River for Auckland drinking water and other municipal uses.  The call-in means the application has been referred ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • New Zealand to host virtual APEC in 2021
    Foreign Affairs Minister Winston Peters and Trade and Export Growth Minister David Parker announced today that New Zealand’s hosting of APEC in 2021 will go ahead using virtual digital platforms. Mr Peters said the global disruption caused by COVID-19, including resultant border restrictions, had been the major factor in the ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Matakana Link Road construction kicks off and drives jobs
    The start of construction on a new link road between Matakana Road and State Highway 1 will create jobs and support the significant population growth expected in the Warkworth area, Transport Minister Phil Twyford and Mayor Phil Goff announced today. Transport Minister Phil Twyford said construction of the Matakana Link ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • PPE supplies secured as COVID-19 response focuses on border
    The Government is prioritising its latest investment in PPE for frontline health workers, including staff at managed isolation and quarantine facilities, Health Minister David Clark says. “With no community transmission of COVID-19 our response now has a firm focus on keeping our border safe and secure. “We must ensure that ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • PGF funding for Parihaka settlement
    The Parihaka Papakāinga Trust in Taranaki will receive up to $14 million for a new visitor centre and other improvements at the historic settlement that will boost the local economy and provide much-needed jobs, Regional Economic Development Minister Shane Jones and Minister for Treaty of Waitangi Negotiations Andrew Little have ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Protections for workers in triangular employment
    Protections for workers who are employees of one employer but working under the direction of another business or organisation have come into force, closing a gap in legislation that  made the personal grievance process inaccessible for some workers, says Workplace Relations Minister Iain Lees-Galloway. “This Government is working hard to ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Government strengthens managed isolation system
    A range of improvements are already underway to address issues identified in the rapid review of the Managed Isolation and Quarantine system released today, Housing Minister Megan Woods said. The review was commissioned just over a week ago to identify and understand current and emerging risks to ensure the end-to-end ...
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    1 week ago
  • Whakatāne to go predator free with Government backing Ngāti Awa led efforts
    The important brown kiwi habitat around Whakatāne will receive added protection through an Iwi-led predator free project announced by Minister of Conservation Eugenie Sage and Under Secretary for Regional Economic Development Fletcher Tabuteau. “The Government is investing nearly $5 million into Te Rūnanga o Ngāti Awa’s environmental projects with $2.5 ...
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    1 week ago
  • Growing Goodwood: Expanding wood waste recycling plant in Bay of Plenty, Waikato
    An extra 4,000 tonnes of offcuts and scraps of untreated wood per year will soon be able to be recycled into useful products such as horticultural and garden mulch, playground safety surfacing and animal bedding as a result of a $660,000 investment from the Waste Minimisation Fund, Associate Environment Minister ...
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    1 week ago
  • Scott Watson’s convictions to be referred to Court of Appeal
    The Governor-General has referred Scott Watson’s convictions for murder back to the Court of Appeal, Justice Minister Andrew Little announced today. Mr Watson was convicted in 1999 of the murders of Ben Smart and Olivia Hope. His appeal to the Court of Appeal in 2000 was unsuccessful, as was his ...
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    1 week ago