Financial repression, either by means of quantitative easing programs or negative interest rates, is nowadays becoming ubiquitous. However, the benefits that the early adopters –US and UK – of these unorthodox monetary policies could enjoy are currently failing to bring inflation and stimulate economic growth in other parts of the world. Explanations for the diminishing returns of these policies are many: some argue that the impact across countries lies in the transmission channels used, others that the ultimate effect of these policies is currency debasement, which, after all, is a zero-sum game. A competing rationale is that the benefits of ultra-loose monetary conditions have accrued only to rich individuals by reflating the price of financial assets, thus resulting in increasing social inequality and failing to stimulate a broad economic recovery.
Either way, as the monetary elixir is losing its power, a growing number of voices are turning their eyes back to fiscal stimulus. However, with public finances broadly in the red, and government financing constrained by debt ceilings and austerity measures, the idea of distributing “helicopter money” is increasingly receiving attention, as can be observed by the increase in searches of this term in Google:
The concept behind it was advanced by Milton Friedman back in 1969, and would entail a central bank directly financing its government, who with the proceeds, will either increase spending, reduce taxes or directly distribute the money amongst its citizens (hence its name). As crazy as it may sound, the idea of a central bank printing money and distributing it on a per-capita basis is not morally inferior to reflating asset prices by increasing the monetary mass through the conventional banking channels; if the former policy benefits the less capital-endowed citizens at the expense of savers, the latter exclusively benefits the owners of capital. If central banks ever dare to cross this line – assuming they can, as some like the ECB are statutory prevented – monetary policy will effectively become a tool for directly implementing redistributive policies, which so far has only been the case as a side-effect of conventional monetary policies. The price to pay will be a loss of their political independence, but an independent central bank is after all an “unconventional” setup when looking through the lens of history.
Fernando de Frutos, MWM Chief Investment Officer
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