Word of the Day – Helicopter Money

Definition of Helicopter Money

“Helicopter money is a proposed unconventional monetary policy, sometimes suggested as an alternative to quantitative easing when the economy is in a liquidity trap”. Wikipedia

This term, invented by Milton Friedman, conservative Economist at the University of Chicago in 1969 to explain how economic stimulus works works, means just what this image brings up. A whole lot of minted money dropped out a helicopter which blows it around to those on the ground.

But where is that ground and who is getting that money?

When we got out of the Financial Crises in 2007, the Fed had $3 to $4 trillion in debt on its books. Get ready for what it has on its balance sheet now—6.37 trillion dollars!

“Since March 11, the Fed created $1.77 trillion and handed it to Wall Street either by purchasing financial instruments or as loans. The sole purpose of this was to inflate asset prices and bail out asset holders.” (Wolf Street, “QE 4 Cut in Half….Fed’s Helicopter Money for Wall Street & the Wealthy Hits $1.8 Trillion in 4 Weeks” 4-9-2020)

QE 4 apparently wasn’t enough for the rich to get richer. Recall that QE meant big banks received money from government bond sales in order to give loans to businesses and consumers.

But you may suspect, if you don’t already know, that this isn’t quite what is happening with helicopter money right now.

Recently the current administration used economic stimulus of tax breaks for wealthy corporations. President Trump also leaned on the Fed to lower its rates of interest charged to banks and big corporations. 

This move by the Fed left our government vulnerable to a liquidity trap again like the one in 2007-2009. 

And liquidity trap is exactly what we have right now, in part because the Fed remains so deeply in debt from the Great Recession and how helicopter money is being doled out.

Pork has returned to the Hill with a vengnence!

Who has gotten “small business” funds? Big banks and big corporate chains! The ones who pay lobbyists the highest money.

By March 2020 the Fed funds rate was cut twice – all the way down to a range of 0 to 0.25 percent. There is nowhere to go now but minus that Fed rate. 

Many European Central Banks have done that in recent years. Those with a lot of money paid the negative rate government bonds to safeguard their money in case of another liquidity trap. Most others have relied on credit.

Blinded by good job reports and rising stock market reports every week, no one in the Administration was paying attention to the possible risk that the economy might again freeze up. And freeze up it has, way worse than during the Great Recession!

In plain English: there’s not enough money in the coffers of the U.S. or state governments to deal with this Coronavirus, now the second largest killer in the U.S. behind heart disease. 

The problem with using helicopter money in this case is that (1) Americans’ total credit card and mortgage debt is so high already because of inadequate wage growth and easy credit over decades (2) The U.S. government debt is bloated because of  tax cuts and dropping helicopter money on the wealthy (3) Workers are either too busy working to consume much or unemployed by virtue of sheltering in place, thus without enough money to spend, (4) We’ve alienated trade partners and cannot get things we need from them (5) The costs of the virus are mounting up daily with the expansion of the virus due to infections of first responders as well as lack of testing.

By not acting quickly enough we have entered the Twilight Zone when it comes to the field of economics. We are all trapped in a global liquidity trap by Covid-19.

Unless we change how we battle this virus there is not going to be enough capital left to get out of the economic stagflation the virus brings us every day as goods and services become scarcer, and the money to buy them dries up as well.

(1) It would take a strong leader now to force the manufacturing and proper distribution of enough PPE supplies and testing kits for first responders who are slowing the growth of the virus or re-opening (2) It would take a strong leader now to regulate the helicopter stimulus so that it is better targeted to those who need it and save taxpayers’ money for the future. (3) It would take a strong leader now to make credit card companies and banks reduce their fees and write off bad debt as much as possible. (4) It would take a strong leader to force landlords to freeze rents and evictions. (5) It would take a strong leader now to enforce social distancing for as long as needed to stop this virus from killing us and our economy (6) It would take a strong leader to big force corporations to work for the good of the people, pay higher taxes or contribute to paying for healthcare in this country so that no virus decimates our population again like this one has:

The way out is a steep climb. I’m afraid a lot more of us are not going to make it.


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