tag:blogger.com,1999:blog-2546602206734889307.post4209662758561747145..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: What do people mean by helicopter money?Mainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger25125tag:blogger.com,1999:blog-2546602206734889307.post-56958239618408456152016-07-16T01:37:05.315+00:002016-07-16T01:37:05.315+00:00> We have the QE, so why not call for fiscal st...> We have the QE, so why not call for fiscal stimulus rather than helicopter money?<br /><br />Fiscal stimulus is when the government increases public spending or decreases taxes to stimulate the economy. Helicopter money is when the central bank (Federal Reserve Bank in the U.S.), not the government, "prints" (creates) new money and puts it directly in the hands of citizens/residents to stimulate the economy.<br /><br />So, the actors/mechanisms are:<br />1. Fiscal stimulus (fiscal policy): Government > Citizens and industry (the government spends on stimulus programs and/or lowers taxes)<br /><br />2. Quantitative easing (monetary policy): Central bank (FRB) > Government<br />(the central bank purchases government bonds, so the government borrows money from the central bank and spends the borrowings to stimulate the economy)<br /><br />3.)Helicopter drop (monetary policy): Central Bank > Citizens/Residents<br />(the central bank "prints" money and puts it in the hands of the people. The people then spend the money, thereby stimulating the economy)<br />Translation snippetshttps://www.blogger.com/profile/15723630988781090151noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-30326003384657907512016-03-27T16:07:24.832+00:002016-03-27T16:07:24.832+00:00Professor Wren-Lewis
Thank you for this post and...Professor Wren-Lewis<br /><br />Thank you for this post and your clear explanations of Helicopter Money. <br /><br />As you have noticed, it is the new hype in the euro zone. Thanks to it, ECB might proceed to the fiscal stimulus that governments can't engage because of constrained public deficits.<br />Arnaud Sylvainhttp://www.arnaudsylvain.frnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-49422850998245670532015-04-06T04:31:44.656+00:002015-04-06T04:31:44.656+00:00This is really very good topics. I have earned $ 1...This is really very good topics. I have earned $ 1500 today from this site and I have earned over 20000 USD in this month by using this site. This is great and important elements in the modern world that mean (click here - <a href="http://ipasmillionaire.com/cp1/?id=54420&tid=" rel="nofollow">how to make money</a>.) I have always wanted to know how to make money easily from home without so much investment. I have got it and doing my dream. You are most welcome in this site! Thanks so much!Ibrahim Khalil Muhimhttps://www.blogger.com/profile/10636923007452024712noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-31988885726970245192015-01-29T13:06:14.914+00:002015-01-29T13:06:14.914+00:00Very interesting post "Helicopter Money"...Very interesting post "Helicopter Money". I love to read your posts. <a href="http://goo.gl/QWwEPb" rel="nofollow">http://goo.gl/QWwEPb</a>Anonymoushttps://www.blogger.com/profile/12981761677696232624noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-36077695916073654652015-01-28T02:19:29.582+00:002015-01-28T02:19:29.582+00:00Helicopter money ensures money will be spent, and ...Helicopter money ensures money will be spent, and acts as a lubricant, especially to the extent it is "dropped" on the people who need it most. Much more efficient than funneling spending through banks or "perceived" improvements in lending conditions, etc. In hindsight, the US would have done better had it sent out a trillion dollars in checks to citizens (especially if directed toward those who need it) rather than propping up the banking system to save bondholders and stockholders.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-34395349121457487682015-01-11T13:53:14.454+00:002015-01-11T13:53:14.454+00:00I recently found many useful information in your w...I recently found many useful information in your website especially this blog page. <br /><a href="http://moneymakingconference.com/" rel="nofollow">London 2015</a><br />Anonymoushttps://www.blogger.com/profile/10161378138086950442noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-91249574495527238132014-11-14T23:59:34.902+00:002014-11-14T23:59:34.902+00:00It's the second time I've read this helico...It's the second time I've read this helicopter money. I now fully understand what it means. Nice post and thanks for clearing things up. <a href="https://www.greeneconsults.com/" rel="nofollow">client experience courses</a>Anonymoushttps://www.blogger.com/profile/12419063676000240122noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-27834162869280752382014-05-28T07:04:40.702+00:002014-05-28T07:04:40.702+00:00* When I refer to credit-worth lenders, I actually...* When I refer to credit-worth lenders, I actually mean 'borrowers/lendees'Joanna Bnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-91630872694137304812014-05-28T07:01:02.226+00:002014-05-28T07:01:02.226+00:00Several years on, and on the brink of QE 2014: ECB...Several years on, and on the brink of QE 2014: ECB, the above becomes more topical than ever in Europe. I haven't studied economics since A-Level. However, a few questions/observations:<br />1). What evidence is there that the modern consumer/decision maker (I'm talking US/Europe here, where QE is topical) is Ricardian? Both corporate and personal indebtedness is at, or near, record levels. This surely indicates that consumers are, now, more than ever, less Ricardian? So, how does the effectiveness of helicopter money change if consumers are becoming less Ricardian (you only focus on the line of investigation supposing that consumers are Ricardian). Also, QE only finds it's way into the credit-worthy (an ever-shrinking) sector of the economy; i.e. more cheap loans for an ever shrinking pool of credit worthy lenders (in the private sector, at least), whereas helicopter money, in a diminishingly Ricardian economy, would have, arguably, more penetration than QE. <br />2). More importantly though, I perceive (forgive me - as I said, I haven't studied economics since A-Level) that using QE to simulate inflation towards long-term inflation targets, is causing large-scale distortion of the free market, and a complete decoupling of stock markets versus the real economy. <br /><br />a). In my simple layman's world, there is little wage-growth expansion, and employment levels in Europe (especially the PIGS - who are, presumably, the main impetus for QE) and the US are still relatively poor, so why then do we need to artificially stimulate inflation, which simply serves to widen the wage gap?<br />b). Is deflation not a normal part of the economic cycle which the economy should be allowed to experience until such time where prices, supply and demand reach equilibrium? Presumably, Europe is experiencing deflation because supply of goods (it's particularly PPI and import prices that are struggling) outweighs demand for those goods?<br />c). Shouldn't deflation be allowed to persist until it finds a natural floor, rather than trying to promote credit growth, via QE, to an already leveraged (by historical standards) consumer?<br />d). Given that the pool of credit worthy consumers is also shrinking, does this mean that QE, each time it is performed (in an economy that does not appear to be de-leveraging - in the corporate nor private sector) has a lower 'penetration', because banks, although they have money to lend, have a shrinking pool of credit-worthy lenders? <br />e). Look at stock market growth versus real growth since the inception of central-bank intervention in Europe and the US - doesn't this say just about everything that needs to be said about the (non-)effectiveness of QE?<br /><br />So, to what extent is stimulating inflation in a highly leveraged economy sensible central bank policy and, with regard to helicopter money (just as short term as QE, but with a greater penetration), assuming that consumers are becoming less Ricardian, would this not be a more effective economic stimulus, because of its potentially wider penetration, than QE?Joanna Bnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-47116794337784609092012-10-16T22:05:50.572+00:002012-10-16T22:05:50.572+00:00Thanks for the explanation. I guess the term helic...Thanks for the explanation. I guess the term helicopter money has a different meaning than I thought.Hannah Edwardshttp://www.hillsboroaviation.com/en/page/helicopter_flight_training_coursesnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-88546543997448050582012-10-15T09:55:33.987+00:002012-10-15T09:55:33.987+00:00Yes, in theory, HeliMoney and QE+dB are the same. ...Yes, in theory, HeliMoney and QE+dB are the same. The difference between those macroeconomic tools does not come from their function (which is the same), but from the people who hold them.<br /><br />HeliMoney is printed by the central bank (an independent body with supposedly some economic knowledge).<br />In the example of SWL, HeliMoney can be reversed (if there is inflation) with a poll tax imposed by the Government (a political body, prone to electoral considerations, and whose economic knowledge is variable).<br /><br />Fiscal policy is decided by the Government and may, or may not, be supported by the central bank with QE.<br />If there is no inflation, or if the economic situation is too bad, it is imaginable that the central bank simply cancels the gov debt.<br /><br />In both cases, the outcomes may be the same (either a permanent or a temporary monetary expansion). But their likelihood is very much different.<br />The permanence of the monetary expansion looks much more likely in the case of HeliMoney than with QE + dB.<br /><br />(Note that it depends on who sits respectively on the central bank and the government. It's long been assumed that central bankers are more conservative than governments, but that's an hypothesis that's been proved wrong in a very recent past.)<br /><br />In practice, small nuances may have big effects, and this is why economic theory can never be taken without a pinch of salt.Stéphane Genilloudhttps://www.blogger.com/profile/16017313931212356823noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-16389252004626749312012-10-15T09:22:34.552+00:002012-10-15T09:22:34.552+00:001) Don't see large implications of this
2) Fis...1) Don't see large implications of this<br />2) Fiscal stimulus could also be person-blind. See the comment above: "Wren-Lewis says the government would send everyone a check, not build a bridge to nowhere". More importantly, you can't have 'helicopter money' unless through the government (fiscal authorities). So the alternative described by SWL is not about who gets the money, but about how it is financed. Should fiscal authorities issue new bonds which the FED would buy back on the secondary market? (QE + fiscal stimulus). Or should the fiscal authority have a current account at the FED, where the FED would credit positive money balances in return for nothing? SWL asks if it make any difference.<br />PierGiorgio Gawronskinoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-49126683565178194922012-10-14T18:31:22.361+00:002012-10-14T18:31:22.361+00:00Arent unemployment checks an example of helicopter...Arent unemployment checks an example of helicopter money? The unemployed are more likely to be Ricardian. The bigger challenge is to prevent moral hazards from popping up. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-44175245426680444232012-10-13T20:26:48.050+00:002012-10-13T20:26:48.050+00:00This discussion detracts attention from the main m...This discussion detracts attention from the main macroeconomic question - what did induce the economic slowdown? Likely, the financial crisis was just one of many features of the economic fall. Currently, the treatment seems more dangerous than the desease, which in turn, is not clear. Ivan Kitovhttps://www.blogger.com/profile/16756147426052505832noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-19445389187587974082012-10-13T20:25:55.670+00:002012-10-13T20:25:55.670+00:00It's only stimulus to the extent it circulates...It's only stimulus to the extent it <em>circulates</em>. So long as the Fed pays interest (>0) on Excess Reserves* while we're in a ZLB situation(r=0), you're not going to get a sustained multiplier effect.<br /><br />You can only throw money at the problem to the extent that money can solve the problem: A buys from B who buys from C who buys from D who buys from A, et seq. When the path is A buys from B who pays Jaime Dimon or Vikram Pandit's compensation for being Such A Great Leader, you accomplish less than the value of the coinage.<br /><br /><br />*I'll quibble paying interest on reserves, too--it's rewarding a bank for follwing the rules that enable it to be bailed out with impunity by idiots like Timmeh--but paying interest to encourage "intermediaries" not to intermediate is something that reeks of crony capitalism and/or the inability to do math. So long as the Fed insists on doing that, I'm applying Occam's Razor and declaring that the major U.S. banks are all insolvent.Ken Houghtonhttps://www.blogger.com/profile/01440837287933536370noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59734789177154678072012-10-13T16:06:48.923+00:002012-10-13T16:06:48.923+00:00You're mistaken. Singapore implemented a helic...You're mistaken. Singapore implemented a helicopter drop throughd transfers to household bank accounts, monetizing the resultant debt, about 2 years ago. One major central bank to discuss it was BoE, which released a discussion paper considering monetizing PAYE tax cuts, and finally concluded against it.<br /><br />There's a strong intellectual foundation behind the call for helicopter drops, which has nothing to do with the shenanigans of the US political system.<br /><br />Helicopter drop is indeed QE + fiscal stimulus, but both are motherhood terms because of aggregation. As Rajiv Sethi points out, distribution matters non-trivially.Ritwikhttps://www.blogger.com/profile/00616694597577112758noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-87299780930636325702012-10-13T15:30:46.319+00:002012-10-13T15:30:46.319+00:00Here is how to do a helicopter drop in the U. S. c...<br />Here is how to do a helicopter drop in the U. S. context. The President requires the Treasury to create 4 trillion dollars of coin signorage, delivers it to the Fed, and has the Fed mark up the Social Security Trust Fund by 4 trillion, giving the the Trust Fund a surplus of 6.6 trillion dollars. The President then goes to the Congress and asks "Why are we taxing employers and employees 10.4 % of every paycheck to bolster a retirement fund that already has 6.6 trillion dollars? Give workers and employers back their payroll tax. They earned it, let them spend it or save it, or pay down debt with it." Require that enabling legislation specify a target for re-establishing the payroll tax, perhaps in stages, as the U. S. reaches targetted NGDP growth. The pressure on Congress to do this would be strong. <br /><br />One can look at this as debt forgiveness on obligations going forward. Of course, Bernanke could sterilize this move by raising interest rates, but he has been calling for help from Congress for some time, and republicans do like tax breaks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-62303087332754214672012-10-13T15:14:26.117+00:002012-10-13T15:14:26.117+00:00"the government can send the cheques using mo..."the government can send the cheques using money borrowed by selling debt, and the central bank can buy the debt by printing money (i.e. QE)"<br /><br />In the U.S., the fiscal deficit is running about 8% of gdp. Growth in government ransfer payments have accounted for a large percentage of Disposable Income growth. Meanwhile, the Fed is buying the bulk of term Treasuries. How is this different than what Wren-Lewis is proposing? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-79855694408526750042012-10-13T11:24:19.225+00:002012-10-13T11:24:19.225+00:00I absolutely agree that helicopter money is QE plu...I absolutely agree that helicopter money is QE plus fiscal stimulus.<br /><br />I think the reason some people talk about helicopter money is because they live in the USA. They know that Congress will not approve any more fiscal stimulus (just the opposite) so they want the Federal Reserve to implement fiscal stimulus.<br /><br />This would clearly be illegal under current law. Also unconstitutional under any law. I think the point is that those who advocate helicopter money wish the USA had a different fiscal authority, because the one we have is controlled by Republicans not named Bernanke.Roberthttps://www.blogger.com/profile/14455788499385673507noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-71062996121420856222012-10-13T10:43:45.384+00:002012-10-13T10:43:45.384+00:00The difference between Strategy (1) Helicopter Mon...The difference between Strategy (1) Helicopter Money, and Strategy (2) QE + dG=dB (where B = Gov. Bonds), is that the latter implies a higher public debt (although bought back by the central bank), and this would have an impact on expectations. And expectations are crucial. <br /><br />First, markets participants will observe an increase of the debt/GDP ratio; the bond vigilantes) will not like it. Do bond vigilantes exist? Well, in the Eurozone they do. <br /><br />Second, if you believe in non-Keynesian effects, the greater risks of your central bank turning like the BCE in the future, and thus the greater risks of future bond vigilantes action, macro instability and disruptions, may reduce aggregate demand today, even in countries such as US, UK, Japan. <br /><br />Third: an increase in the supply of B will look like a temporary expansion, so Ricardian consumers will save a lot. On the contrary, an increase in M will look more like a permanent choice, a permanent expansion: similar to the first strategy plus the central bank burning its bonds (see http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/06/why-its-a-really-good-thing-that-the-ecb-has-overpaid-for-greek-junk-bonds.html ): thus Ricardian consumers will spend more now. And yes, inflation expectations will be higher. I know: in QE + dG the supply your ideal government announced that the current fiscal expansion (whether dB or dM) will be financed by a future poll tax (not by a future increase of the inflation tax). But I believe it is an unrealistic, ad hoc assumption. More likely, a real government would not explain how the current expansion will be financed, and anyway there’s uncertainty: so dM (as opposed to dB) would increase the probability that in the future the financing would come from inflation. Yes, I see that in Strategy (2) the dB element is only apparent, since it is held by the central bank, which is a public institution. But public perceptions count.<br /> <br />So in the end Mr. Helicopter Money would be much more powerful than Ms QE+dB in the Eurozone, and only moderately more powerful elsewhere.<br />PierGiorgio Gawronskinoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-70052765327607620872012-10-13T09:37:40.980+00:002012-10-13T09:37:40.980+00:00Cash is not the form of money that matters in our ...Cash is not the form of money that matters in our modern economy. Credit - i.e.: numbers in bank accounts - is what matters.<br /><br />To stimulate the economy, we need to restore credit growth - so that the stock of credit keeps up with population growth, growth of economic activity and a low level of inflation. <br /><br />Credit grows when borrowing exceeds repayment. Borrowing is normally stimulated by low interest rates.<br /><br />However, low interest rates have not been sufficient to restore credit growth in the current environment of private sector deleveraging (the aftermath of a bubble in the private sector debt:income ratio). <br /><br />That is why the government must step in with additional fiscal stimulus to restore robust credit growth. Government borrowing creates both bonds (debt) and bank deposits (credit). <br /><br />The credit growth (a rise in the stock of money) will restore economic growth (a rise in the flow of transactions) and hence raise the governments tax revenue in the future - sufficient to cover interest payments on bonds. <br /><br />It is a political decision as to whether the fiscal stimulus is spent on public spending or on a tax cut (or a mix of both).BT Londonnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-2826866498438293912012-10-13T09:11:56.974+00:002012-10-13T09:11:56.974+00:00Re-read the article. Wren-Lewis says the governme...Re-read the article. Wren-Lewis says the government would send everyone a check, not build a bridge to nowhere.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-21517374238562683852012-10-13T07:31:08.592+00:002012-10-13T07:31:08.592+00:001) QE buys current debt, helping holders of those ...1) QE buys current debt, helping holders of those bonds. Helicopter money is QE wth the fresh deficit, distributively neutral.<br /><br />2) Fiscal stimulus is targeted by the govt and faces public choice issues. Helicopter money is person-blind.<br /><br />3) Though it ultimately comes down to what the monetary policy target of the central bank is, permanence of monetary increase is the default assumption in a helicopter drop. Reversal is the default assumption in pure QE. <br /><br />Infrastructure spending etc. are RoI and 'role of the state' decisions and must proceed in a normal fashion, without AD management as an additional consideration. AD management best left to PAYE/ consumption taxes/ bank transfers, or something equally wide-reaching and distributively neutral.Ritwikhttps://www.blogger.com/profile/00616694597577112758noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-16688587813297715902012-10-13T05:26:25.455+00:002012-10-13T05:26:25.455+00:00> We have the QE, so why not call for fiscal s...> We have the QE, so why not call for fiscal stimulus rather than helicopter money?<br /><br />That's easy! Because consumers spend money on things that they want, whereas the government spends money on bridges to nowhere. Sure, from an aggregate demand viewpoint, these are equivalent, but from an aggregate utility viewpoint, there is a big difference. You may as well ask why US consumers don't donate their money to the government to spend for them.<br /><br />Kenneth Dudahttps://www.blogger.com/profile/10593455504357461005noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-53686655651655347072012-10-13T04:19:57.067+00:002012-10-13T04:19:57.067+00:00Even without credit constraints direct transfers c...Even without credit constraints direct transfers can have large efficiency effects. For example, if a transfer allows someone who could not otherwise make their mortgage payments to remain in their home, the deadweight losses from foreclosure (which are substantial, as much as half the value of the loan) are avoided. This can even benefit creditors - in fact helicopter money can facilitate implicit loan modification. Fiscal policy cannot do this except in a very patchy and piecemeal way. Infrastructure spending, for instance, will be targeted at some locations and industries and leave most debtors unaffected until the effects of the policy gradually permeate through the system. Unless, of course, the fiscal policy itself involves direct transfers. <br /><br />More generally, no two policies with different distributive implications can be equivalent with respect to their macroeconomic effects. Highly aggregative models assume away these distributional effects. <br /><br />About the permanent/temporary issue, I don't see it. One could maintain an inflation target, and finance direct transfers by the sale of bonds (or the interest from bonds). You tolerate higher interest rates to maintain the given inflation target but counteract this with expansionary transfers. Why does the inflation target need to change? Rajivhttps://www.blogger.com/profile/13667685126282705505noreply@blogger.com