Zero Hedge Does Not Understand Helicopter Money

 This article was first published by me on my personal blog at Talkmarkets: http://www.talkmarkets.com/contributor/gary-anderson/blog/zero-hedge-does-not-understand-helicopter-money?post=93251&uid=4798

Zero Hedge does not understand the concept of Helicopter Money. I am a fan of the blog, and it has very interesting and informative articles. Also, Michael Snyder is afraid of the concept. I am here to help! For one thing, it would be used to prevent NIRP and a cashless society. Helicopter money would certainly be preferable to those ideas.

If you want to fear something, Michael, fear NIRP, fear the destruction of cash. I can help you fear those things because they scare me. As far as Snyder's fears, the central bank can always be protected when times are good, for sacrificing a little base money for the people when times are bad.

Tyler Durden has said that helicopter money is Keynesian. But it really isn't. It is not a fiscal stimulus. Yes, it stimulates fiscally, but that is simply a by-product. Helicopter money, or HM, is simply a monetary stimulus using no additional debt, no cut in taxes, no cut in government spending, and no treasury bond transfers. Quite simply, HM is the passing out of money, preferably to everyone equally in society, that is created by the Federal Reserve Bank.

It is either a one time gift, or given out in a short window of time, from 12 to 18 months according to Eric Lonergan, guru of the concept. He has thought it out far more than the father of the idea, Milton Friedman. So, When Zero Hedge says, in the article Why Helicopter Money Can't Save Us: We Have Already Doing It for 8 Years, the blog doesn't get it. Durden goes on to say we have been doing that for 8 years. He says:

The government prints one paper liability and buys it from itself with another paper liability that the government also prints.
 
Sound familiar? It’s called QE.

The only difference is who the bonds are bought from. With QE, the central bank buys in the secondary market in an absurdly transparent attempt to pretend like there’s some degree of separation between the central bank and the government.

In so-called “helicopter money,” the central bank simply drops the bullshit facade (pardon the language) and buys directly from the government. But it’s all deficit financing. Need proof? Just compare changes in government deficits to the changes in bank reserves (i.e. where QE shows up) as shown in the table below.
Sorry, Tyler, that definition of HM is unacceptable. It means more debt, ie, treasury bond transfers, possibly tax cuts, or cuts in spending or all of the above. That is not HM. That is not Milton Friedman's vision. That is not Lonergan's vision.

Zero Hedge brings in Deutsche Bank, which also misleads:

The argument that monetary easing has run its course and it is time to enact fiscal stimulus is starting to be heard around the world. The most eye-catching of such views is a call to deploy ‘helicopter money’, which we define as monetary financing of fiscal deficit.
But DB, helicopter money is monetary, it is not fiscal policy. It has a fiscal benefit but is not fiscal. It is a purely monetary policy! Sheesh people, get it right. This is not rocket science. 

So, to further blow your little minds (mine is), after Zero Hedge misses on the definition of HM, giving people a mistaken view of what it is, saying that it is Keynesian and fiscal, the blog discusses, at the end of the article, what they think is a really crazy idea, real HM. By then you have been convinced that it is just more debt, more interference with the GDP, more tax cuts or spending cuts. Then you are told that really wasn't HM after all! 

It is simple, the Fed prints base money and gives it to the people. No bonds exchange hands, no fuss, no mess. If the central bank wants a little bond collateral, fine. But that isn't what it is about. I don't see the necessity of any bonds being involved. There is already a shortage of long bonds already.

I am amazed, truly amazed that Zero Hedge has such a warm spot in its blog heart for central banks. After all, it rants that QE has transferred wealth to the wealthy without helping the regular guy. Well, now we have a plan to help the regular guy and ZH gets cold feet and comes to the rescue of central banks who need no such rescue! And if they do you can read the next paragraph for ideas on how to save the poor central banks.

If your central bank is willing to do HM, you may want to love your central bank when times get better.

The central banks are not going to go insolvent by sharing a little base money. There will not be hyperinflation like Snyder says, it is done correctly. Hyperinflation may not be monetary based anyway, according to the Dallas Fed.

And if there is some inflation and the central banks cannot raise rates because of bank weakness and bets, then the central banks just need to raise the capital leverage requirements and lending will slow down.

Better yet, when times are good, the government just recapitalizes the central bank if it is necessary. The Economist has a great article about this entitled Helicopter Money and the Government of Central Bank Nightmares.

Anyway, helicopter money is an idea whose time is already here in Europe and in Japan, and could be needed in the USA, as the stock market declines and business slows and GDP growth slows.


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