Helicopter money ‘the next step’ in monetary policy says Fed official Loretta Mester

Helicopter money ‘the next step’ in monetary policy says Fed official Loretta Mester, by the ABC.

A top official from the US Federal Reserve has said “helicopter money” could be considered to stimulate America’s economy if conventional monetary policy fails.

Dr Loretta Mester, president of the Federal Reserve Bank of Cleveland and a member of the rate-setting Federal Open Market Committee (FOMC), signalled direct payments to households and businesses to stoke spending was an option if interest rate cuts and quantitative easing fail. …

Dr Mester’s qualified support for the use of “helicopter money” – when stimulus is directly pumped into the real economy, not through the banking system – comes amid expectations that the Bank of Japan is poised to unleash a major fiscal stimulus package of at least 10 trillion yen ($130 billion) to kickstart its flat-lining economy.

Interest rate cuts and quantitative easing have been tried since 2008, but have failed to kick start western economies. Sounds like helicopter money is nearly upon us.

Helicopter money

Helicopter money is so named because it drops money directly into the economy. It is “unsterilized”, meaning that unlike all other modern money manufacture it is effectively created without matching debt — it is newly printed money, which helps to lower the debt-to-GDP ratio by growing the GDP without growing debt. And we all know where this sort of thing eventually leads to … inflation.

Wheelbarrow of money in 1920s Germany

In the huge inflation in Germany in the early 1920s, brought about by deficit spending after WWI that was financed by printing, cash became worth less and less and wheelbarrows were sometimes used to move it around for even modest payments. Hear the joke about the mugger who tipped out the cash and took the wheelbarrow?

Meanwhile Australian gold stocks are already rising:

Rising Austrlaian gold stocks in 2016