MIDWAY: Helicopter money
The idea of dropping money from a helicopter sounds great, particularly if you are lucky enough to be standing under one. But surely it would only happen in a banana republic or some weird work of fiction? Well, maybe.
The term “helicopter money” is on everyone’s lips thanks to Ben Bernanke, the head of the United States central bank, the Federal Reserve (the Fed). Dubbed “Helicopter Ben” by his critics, he has been associated with the idea since he gave a speech in 1992 quoting legendary economist Milton Friedman as proposing it in extremis should deflation — or continually falling prices — ever grip a modern global economy of closely interdependent states.
There are now mounting fears that exactly that might be about to happen. Last Tuesday the Fed slashed interest rates to nearly zero in a bid to breathe some life into the collapsing American economy.
And consequently into the countries that are closely interlinked financially with the global economy, which depends on the US economy in one way or the other.
The Bank of England looks about to do the same thing in the United Kingdom. But both central banks are worried that cutting rates to zero may not on its own stop the rot so they are considering radical next steps to pump money into the economy to get people and businesses spending again.
The plan is known as “quantitative easing” which in layman’s language means increasing the quantity of money in the economy rather than lowering its price by cutting interest rates.
At first instance this will involve buying up government bonds, known as gilts, from individuals and pension funds, for an attractive price. As bonds are a form of saving, if you swap them for cash people are more likely to spend it.
If that does not work the government could simply give cash handouts. Poor pensioners or working people and labourers would be the given the highest priority, as they can be relied on to spend it and spend as soon as they have it. You can even issue time-limited spending vouchers for shops and departmental stores. You do not in reality, need helicopters to do that, but it is a nice image.