[Cover image from here.]
Some people have thought that guys like Carlos and me were being unduly alarmist for the last several years, when we kept warning that the Fed and other central banks were painting the world financial system into a corner. In that context, let’s consider a recent article from Ambrose Evans-Pritchard. In case you don’t know the name, he is not some crank writing for an obscure website. Nope, he is the international business editor of The Daily Telegraph, a UK newspaper.
Here’s the opening of Evans-Pritchard’s recent article:
“The world’s central banks should take a deep breath and step back from the calamitous misadventure of negative interest rates.
Whatever theoretical profit can be mined from this thin seam, it is entirely overwhelmed by the slow ruin of the banking system.”
Well that’s encouraging–this guy thinks negative rates are a bad idea, just like we do! He even recognizes that negative rates will entail a war on cash:
“It is a step to Franklin Roosevelt’s gold embargo and Emergency Banking Act of 1933, when Americans were ordered to hand over their bullion or face 10 years in prison.
One policymaker in Davos this year let slip that drastic action to scrap cash would be needed to fight a decade-long war against “secular stagnation” once rates test the limits of -1pc or -2pc.
The Bank of England’s Andrew Haldane floated the idea in a speech last September, suggesting that central banks may have to take radical action to circumvent the constraints of the “lower zero-bound”.”
Ah, but Evans-Pritchard is no free marketeer. He also writes:
“The policy blunder is creating a false fear that central banks have run out ammunition. It is distracting attention from the real failings of the global policy regime: lack of willingness to launch a New Deal and inject money directly into the veins of the real economy through fiscal stimulus when needed, and arguably to do so with turbo-charged effect through central bank transfers rather than debt issuance.”
In other words, Evans-Pritchard simply disagrees with the particular mechanism of “stimulus.” Later in the article he gets to the helicopter stuff:
“A monetary policy committee can calibrate what is judged to be the proper level of debt monetisation needed to avert deflation in exactly the same way as the MPC or the FOMC calibrate interest rates.
The money creation must be permanent to avoid “Ricardian Equivalence”, where people anticipate that more spending now merely mean more debt in the future.
All debt accumulated by central banks under QE should be converted to perpetual non-interest bearing debt, and preferably burned on a pyre in public squares to the sound of trumpets to drive home the message that the debt has been eliminated forever. This will pre-empt the panic that might occur among investors and politicians should public debt ever cross some arbitrary totemic level.
Any New Deal should be funded in the same way – partly or in whole – with the same vow that the debt will never be repaid. The money creation should continue at the therapeutic dose until the objective is achieved.” [Bold added.]
And there you have it. Rounds of massive “quantitative easing” and even pushing interest rates negative hasn’t worked, so we now have a growing number of “reasonable” Keynesian pundits and academics calling for helicopter money.
For those who don’t know the term, the Telegraph put a picture of a helicopter on the article because “helicopter money” refers to the central bank handing out money permanently, as opposed to simply buying assets with it. (The name comes from the picture of a central banker dropping paper currency from a helicopter and letting the citizens keep it.)
We have somehow ended up in the place where “responsible” writers are saying world governments should run the printing presses in order to buy stuff–as a way to fix the economy. If you have a helicopter, by all means use it: Get to higher ground.