|»The Daily Reckoning by Bill Borner|
14 FEBRUARY 2013
Financially, the feds and the Fed are out of control too. And not just in the US. Central bankers all over the world are loading their drones with cash...
And now we've got the world's leading opinion mongers openly advocating things that used to be a joke...or a crime.
First, last week, Adair Turner, head of Britain's Financial Services Authority (equivalent to the SEC in the US) came out in favor of "helicopter money." Centralbanking.com has the story:
Speaking last night at the Cass Business School in London, Turner - who was a candidate to succeed Mervyn King as governor of the Bank of England, before the appointment of Mark Carney - focused on the controversial topic of "helicopter money", a term coined by economist Milton Friedman, who once suggested governments could fight deflation by scattering newly-printed notes out of helicopters.
While Turner was careful to hedge his remarks with considerations of the various risks surrounding monetary financing, he came down clearly in its support. "I think there are some circumstances - they may be extreme circumstances - where you should use helicopter money," he said.
Second, in the present exceptional circumstances, when expanding private credit and spending is so hard, if not downright dangerous, the case for using the state's power to create credit and money in support of public spending is strong. The quantity of extra central bank money required would surely be smaller than under today's scattergun quantitative easing. Why not employ monetary financing to recapitalise commercial banks, build infrastructure or cut taxes? The case for letting fiscal deficits facilitate private deleveraging, without undue expansion in overt public debt, is surely also strong.
Cancer sufferers have to undergo dangerous treatments. Yet the result can still be a cure. As Lord Turner notes, "Japan should have done some outright monetary financing over the last 20 years, and if it had done so would now have a higher nominal gross domestic product, some combination of a higher price level and a higher real output level, and a lower debt to gross domestic product ratio". The conventional policy turned out to be dangerous. Whether this is also true of troubled countries today can be debated. But the view that it is never right to respond to a financial crisis with monetary financing of a consciously expanded fiscal deficit - helicopter money, in brief - is wrong. It simply has to be in the tool kit.
Is this a dangerous treatment? Yes, of course...but "cancer sufferers have to undergo dangerous treatments," he says, so why not an entire economy?
And think of the benefits. Money goes directly to worthwhile projects...and into consumer pockets. People get jobs. Things get done. Bridges get built. And the federal deficits disappear. The feds don't borrow from the Fed. They just spend the money.
Dear readers will recognize this as the policy of Mr. Gideon Gono of the Central Bank of Zimbabwe. They will also recall that it was disastrous. But Mr. Wolf must imagine that he and the other elite policy makers and policy implementers are much smarter and more disciplined than Mr. Gono.
Mr. Gono's money drones took off from Harare and headed directly for the army barracks. Then, when inflation was getting out of control, his monetary policy was out of his control too. He couldn't stop paying the army!
How will it be any different in London or Washington? Mr. Wolf doesn't say.
But here's another voice, Anatole Kaletsky, with more support for "helicopter money:"
Ten years after the Helicopter Ben speech, Turner has broken the taboo about monetary financing. The effect on economic debate around the world could be irreversible and profound. Turner's 70-page paper presents the arguments for the many variants of helicopter money with unprecedented academic sophistication, financial detail and historical context.
Now that Turner has broken the taboo on helicopter money, the sound of monetary salvation should soon be heard round the world.