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Ben Bernanke: “Helicopter Money May Be The Best Available Alternative”

April 11, 2016

Ben Bernanke: “Helicopter Money May Be The Best Available Alternatives

Now that the prospect of helicopter money by the ECB has so infuriated Germany, the ECB had to reach out to Schauble to “mollify” the Germans who are dreading the second coming of monetary paradrops in one century, it was only a matter of time before Citadel’s most prominent employer opined. In a blog post earlier today, Brookings’ blogger and the central banker who together with Alan Greenspan has been most responsible for the world’s unprecedented debt pile and sad economic state, Ben Bernanke, took the podium to share his views on “helicopter money” head on.

In “What tools does the Fed have left? Part 3: Helicopter money” the former Fed head who first infamously hinted at helicopter money in his November 2002 speech “Deflation: Making Sure “It” Doesn’t Happen Here” when he quoted Milton Friedman, once again started off with a Friedman quote:

“Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” (Milton Friedman, “The Optimum Quantity of Money,” 1969)

He then pulls a quote from his own book “The Courage to Act”

“The deflation speech saddled me with the nickname ‘Helicopter Ben.’ In a discussion of hypothetical possibilities for combating deflation I mentioned an extreme tactic—a broad-based tax cut combined with money creation by the central bank to finance the cut. Milton Friedman had dubbed the approach a ‘helicopter drop’ of money. Dave Skidmore, the media relations officer…had advised me to delete the helicopter-drop metaphor…

…click on the above link to read the rest of the article…

Why Helicopter Money Can’t Save Us: We’ve Already Been Doing It For 8 Years

March 7, 2016

Why Helicopter Money Can’t Save Us: We’ve Already Been Doing It For 8 Years

There’s a lot of talk going around these days about “helicopter money.”

For those unfamiliar, it’s billed as a kind of last Keynesian resort when ZIRP, NIRP, and QE have all failed to boost aggregate demand and juice inflation.

For instance, HSBC said the following late last month: “If central banks do not achieve their medium-term inflation targets through NIRP, they may have to adopt other policy measures: looser fiscal policy and even helicopter money are possible in scenarios beyond QE and negative rates.”

And here’s Citi’s Willem Buiter from Septemeber: “Helicopter money drops would be the best instrument to tackle a downturn in all DMs.”

So what exactly is this “helicopter money” that is supposed to provide a lifeline when all of central banks’ other forays into unconventional policy have demonstrably failed? Well, here’s Buiter to explain how it works in theory (this is the China example, but it’s the same concept everywhere else):

Now whether it’s “fiscally, financially and macro-economically prudent in current circumstances,” (or any circumstances for that matter) is certainly questionable, but what’s not questionable is that it is indeed feasible.

How do we know? Because we’ve been doing it for 8 long years.

If you think about what Buiter says above, it’s simply deficit financing. The government prints one paper liability and buys it from itself with another paper liability that the government also prints.

Sound familiar? It’s called QE.

The first-best would be for the central government to issue bonds to fund this fiscal stimulus and for the PBOC to buy them and either hold them forever or cancel them, with the PBOC monetizing these Treasury bond purchases. Such a ‘helicopter money drop’ is fiscally, financially and macro-economically prudent in current circumstances, with inflation well below target and likely to fall further.

…click on the above link to read the rest of the article…

Fear The Smell Of (Monetary) Napalm In The Morning

February 26, 2016

Fear The Smell Of (Monetary) Napalm In The Morning

Via ConvergEx’s Nick Colas,

Warm up the choppers and put some Wagner on the loudspeakers – “Helicopter money” is a hot economic topic.

That’s where central banks print money and either hand it to the government for things like infrastructure investment or just send it out to consumers to spend. While that may sound like an extreme measure, advocates of this novel approach argue that it is a valid response to an extreme problem: slowing global growth and central banks with no “Standard” tools left in the shed.

But would it work?  There are two real-world examples in the last 15 years that offer some clues: the 2001 and 2008 tax rebate checks mailed to millions of Americans for up to $600 (2001) and $1,200 (2008). Studies by the National Bureau of Economic Research done in the wake of both events show notable differences.

  • In the first “Drop” (mid 2001), recipients reported spending most (53-73%) of their windfall.
  • In the second (early 2008), the percentage dropped to one third and most recipients reported saving the cash or using it to reduce debt.

The key lesson here: if policymakers are considering “Helicopter money”, they need to have the choppers in the air before a crisis hits. After that, it is too late.

The world’s central bankers are apparently out of ideas for how to stimulate the global economy back to health. Low interest rates?  Check.  Zero interest rates? Check.  Buying bonds to lower long term interest rates?  Big check.  Negative interest rates?  Ditto.  If monetary policy were a theme park, we could safely say we’ve been on every ride in the whole place.

…click on the above link to read the rest of the article…

Time for the Nuclear Option: Raining Money on Main Street

September 23, 2015

Time for the Nuclear Option: Raining Money on Main Street

Predictions are that we will soon be seeing the “nuclear option” — central bank-created money injected directly into the real economy. All other options having failed, governments will be reduced to issuing money outright to cover budget deficits. So warns a September 18 article on ZeroHedge titled “It Begins: Australia’s Largest Investment Bank Just Said ‘Helicopter Money’ Is 12-18 Months Away.”

Money reformers will say it’s about time. Virtually all money today is created as bank debt, but people can no longer take on more debt. The money supply has shrunk along with people’s ability to borrow new money into existence. Quantitative easing (QE) attempts to re-inflate the money supply by giving money to banks to create more debt, but that policy has failed. It’s time to try dropping some debt-free money on Main Street.

The Zerohedge prediction is based on a release from Macqurie, Australia’s largest investment bank. It notes that GDP is contracting, deflationary pressures are accelerating, public and private sectors are not driving the velocity of money higher, and central bank injections of liquidity are losing their effectiveness. Current policies are not working. As a result:

There are several policies that could be and probably would be considered over the next 12-18 months. If private sector lacks confidence and visibility to raise velocity of money, then (arguably) public sector could. In other words, instead of acting via bond markets and banking sector, why shouldn’t public sector bypass markets altogether and inject stimulus directly into the ‘blood stream’? Whilst it might or might not be called QE, it would have a much stronger impact and unlike the last seven years, the recovery could actually mimic a conventional business cycle and investors would soon start discussing multiplier effects and positioning in areas of greatest investment. 

Willem Buiter, chief global economist at Citigroup, is also recommending “helicopter money drops” to avoid an imminent global recession, stating:

 

…click on the above link to read the rest of the article…

Buiter: Only “Helicopter Money” Can Save The World From The Next Recession

September 9, 2015

Buiter: Only “Helicopter Money” Can Save The World From The Next Recession

 

It is to be expected that economists – even economists working for the same team – have different views about the likelihood of different future outcomes. Economics isn’t rocket science, and even rockets frequently land in the wrong place or explode in mid-air.

That rather hilarious characterization of the pseudoscience that is economics comes from the desk of Citi’s Chief Economist Willem Buiter and it’s apparently evidence that even if you don’t think too much of his views on “pet rocks” (gold is a 6,000 year-old bubble) or on the efficacy and/or utility of physical banknotes (ban cash), you’d be hard pressed to disagree with him when it comes to critiquing his profession. Of course we don’t want to give Buiter too much credit here because the quote shown above could simply be an attempt to stamp a caveat emptor on his latest prediction in case, like his predictions on when Greece would ultimately leave the euro, it turns out to be wrong.

As tipped by comments made at the Council of Foreign Relations in New York late last month, Buiter is out with a damning look at the global economy which he says will be drug kicking and screaming into a recession by the turmoil in China and the unfolding chaos in EM. Here’s the call:

In the Global Economics team, however, we believe that a moderate global recession scenario has become the most likely global macroeconomic scenario for the next two years or so. To clarify further, the most likely scenario, in our view, for the next few years is that global real GDP growth at market exchange rates will decline steadily from here on and reach or fall below 2%.

More specifically, Buiter says the odds of some kind of recession (either mild or terrifying) are 55%. Not 54%, or 56% mind you, but exactly 55%, because as indicated by the introductory excerpt above, economic outcomes are very amenable to precise forecasting:

…click on the above link to read the rest of the article…

Citigroup Chief Economist Thinks Only “Helicopter Money” Can Save The World Now

August 29, 2015

Citigroup Chief Economist Thinks Only “Helicopter Money” Can Save The World Now

Having recently explained (in great detail) why QE4 (and 5, 6 & 7) were inevitable (despite the protestations of all central planners, except for perhaps Kocharlakota – who never met an economy he didn’t want to throw free money at), we found it fascinating that no lessor purveyor of the status quo’s view of the world – Citigroup’s chief economist Willem Buiter – that a global recession is imminent and nothing but a major blast of fiscal spending financed by outright “helicopter” money from the central banks will avert the deepening crisis.Faced with China’s ‘Quantitative Tightening’, the economist who proclaimed “gold is a 6000-year old bubble”and cash should be banned, concludes ominously, “everybody will be adversely affected.”

China has bungled its attempt to slow the economy gently and is sliding into “imminent recession”, threatening to take the world with it over coming months, Citigroup has warned. As The Telegraph’s Ambrose Evans-Pritchard reports, Willem Buiter, the bank’s chief economist, said the country needs a major blast of fiscal spending financed by outright “helicopter” money from the bank to avert a deepening crisis.

Speaking on a panel at the Council of Foreign Relations in New York, Mr Buiter said the dollar will “go through the roof” if the US Federal Reserve lifts interest rates this year, compounding the crisis for emerging markets.

“So why it matters is that the competence of the Chinese authorities as managers of the macro economy is really in question – the messing around with monetary policy, the hinting on doing things on the fiscal side through the policy banks. But I think the only thing that is likely to stop China from going into, I think, recession – which is, you know, 4 percent growth on the official data, the mendacious official data, for a year or so – is a large consumption-oriented fiscal stimulus, funded through the central government and preferably monetized by the People’s Bank of China.

…click on the above link to read the rest of the article…

 

 

China Soars Most Since 2009 After Government Threatens Short Sellers With Arrest, Global Stocks Surge

July 9, 2015

China Soars Most Since 2009 After Government Threatens Short Sellers With Arrest, Global Stocks Surge

Here is a brief sample of some of the measures the Chinese government and the PBOC have unleashed in just the past ten days to prop up the crashing market include:

  • a ban on major shareholders, corporate executives, directors from selling stock for 6 months
  • freezing more than half (1400 at last count per Bloomberg) of the listed companies from trading,
  • blocking fund redemptions, forcing companies to invest in the market,
  • halting IPOs,
  • reducing equity transaction fees,
  • providing daily bailouts to the margin lending authority,
  • reducing margin requirements,
  • boosting buybacks
  • endless propaganda by Beijing Bob.

The measures are summarized below.

But it wasn’t until last night’s first official threat to “malicious” (short) sellers that they face charges (i.e., arrest), as Xinhua reported yesterday:

[Ministry of Public Security in conjunction with the recent Commission investigation of malicious short stock and stock index clues ] correspondent was informed on the 9th morning , Vice Minister of Public Security Meng Qingfeng led to the Commission , in conjunction with the recent Commission investigation of malicious short stock and stock index clues show regulatory authorities to the operation of heavy combat illegal activities.

 

… that the wall of Chinese intervention finally worked. For now.

And since this is all about one thing, the stock, market, it is worth noting that the Shanghai Composite Index had dropped as much as 3.8% to a 4 month low before the news that the cops were going to arrest anyone who used a wrong discount rate in their DCF, when everything suddenly took off, and the SHCOMP closed  a “Dramamine required” 5.8% higher, the biggest daily increase since March 2009!

“As China beefs up its efforts to rescue the market, with even the public security ministry involved, market sentiment is recovering slightly from a panicky stage earlier,” Shenyin Wanguo analyst Qian Qimin says by phone

…click on the above link to read the rest of the article…

 

Why The Powers That Be Are Pushing A Cashless Society

May 4, 2015

Why The Powers That Be Are Pushing A Cashless Society

We Can’t Rein In the Banks If We Can’t Pull Our Money Out of Them

Martin Armstrong summarizes the headway being made to ban cash,  and argues that the goal of those pushing a cashless society is to prevent bank runs … and increase their control:

The central banks are … planning drastic restrictions on cash itself. They see moving to electronic money will first eliminate the underground economy, but secondly, they believe it will even prevent a banking crisis. This idea of eliminating cash was first floated as the normal trial balloon to see how the people take it. It was first launched by Kenneth Rogoff of Harvard University and Willem Buiter, the chief economist at Citigroup. Their claims have been widely hailed and their papers are now the foundation for the new age of Economic Totalitarianism that confronts us. Rogoff and Buiter have laid the ground work for the end of much of our freedom and will one day will be considered the new Marx with hindsight. They sit in their lofty offices but do not have real world practical experience beyond theory. Considerations of their arguments have shown how governments can seize all economic power are destroy cash in the process eliminating all rights. Physical paper money provides the check against negative interest rates for if they become too great, people will simply withdraw their funds and hoard cash. Furthermore, paper currency allows for bank runs. Eliminate paper currency and what you end up with is the elimination of the ability to demand to withdraw funds from a bank.

…click on the above link to read the rest of the article…

Largest Bank In America Joins War On Cash

April 24, 2015

Largest Bank In America Joins War On Cash

The war on cash is escalating. Just a week ago, the infamous Willem Buiter, along with Ken Rogoff, voiced their support for a restriction (or ban altogether) on the use of cash (something that was already been implemented in Louisiana in 2011 for used goods). Today, as Mises’ Jo Salerno reports, the war has acquired a powerful new ally in Chase, the largest bank in the U.S., which has enacted a policy restricting the use of cash in selected markets; bans cash payments for credit cards, mortgages, and auto loans; and disallows the storage of “any cash or coins” in safe deposit boxes.

Buiter defended his “controversial” call for a ban on cash, as Bloomberg reports:

“The world’s central banks have a problem. When economic conditions worsen, they react by reducing interest rates in order to stimulate the economy. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.

In a new piece, Citi’s Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates. Fundamentally, the ELB problem comes down to cash. According to Buiter, the ELB only exists at all due to the existence of cash, which is a bearer instrument that pays zero nominal rates. Why have your money on deposit at a negative rate that reduces your wealth when you can have it in cash and suffer no reduction? Cash therefore gives people an easy and effective way of avoiding negative nominal rates. Buiter’s note suggests three ways to address this problem:

  1. Abolish currency.
  2. Tax currency.
  3. Remove the fixed exchange rate between currency and central bank reserves/deposits.

…click on the above link to read the rest of the article…

 

 

 

Another Shill for Statism and Central Planning Demands a Cash Ban

April 17, 2015

Another Shill for Statism and Central Planning Demands a Cash Ban

Citigroup’s Chief Economist Joins the Cash Ban Bandwagon

We have discussed the views of Citigroup’s chief economist Willem Buiter previously in these pages (see “A Dose of Buiternomics” for details), on occasion of his coming out as a supporter of assorted monetary cranks, such as Silvio Gesell, to name one. Not to put too fine a point to it, Buiter is a monetary crank too.

Buiter is always shilling for more central bank intervention, and it seems no plan can ever be too silly or too extreme for him. In fact, he seems to have made the propagation of utterly crazy ideas his trademark.

Buiter has now joined one of his famous colleagues, Kenneth Rogoff, another intellectual enamored with central planning, in clamoring for a cash ban (for our discussion of Rogoff, see “Meet Kenneth Rogoff, Unreconstructed Statist”). Both Buiter and Rogoff want to make it impossible for citizens to escape the latest depredations of central bankers, such as the imposition of negative interest rates. This is to be done by forcing them to keep their money in accounts at fractionally reserved banks.

As Bloomberg reports:

“The world’s central banks have a problem. When economic conditions worsen, they react by reducing interest rates in order to stimulate the economy. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.

…click on the above link to read the rest of the article…

 

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