By Bill Bonner
Oh la la! Things are heating up. Subjects that used to be confined
behind closed doors… discussed only in whispers… and only among
rogues and scalawags… are now right out in the open.
Politically, we’ve got the Obama administration openly “legalizing” the right to kill Americans
without first charging them with a crime. It used to be called
“murder.” Now, according to administration lawyers, it’s completely
legal!
Asked whether this gave the agency the authority to kill an American citizen on American soil without any due process of law, the CIA’s new director wouldn’t say. He mumbled.
Sen. Rand Paul threatened to block the nomination if he doesn’t get a
straight answer. But what difference will an answer, straight or
crooked, make? The feds are out of control… and there isn’t anyone
with the will or the power to bring them to heel.
Out of Control
Financially, the feds and the Fed are out of control too. And not
just in the U.S. Central bankers all over the world are loading their
drones with cash.
And now we’ve got the world’s leading opinion mongers openly advocating things that used to be a joke… or a crime.
Last week, Adair Turner, head of Britain’s Financial Services
Authority (equivalent to the SEC in the U.S.) came out in favor of
“helicopter money.” CentralBanking.com has the story:
“Overt monetary financing'” —
printing money to pay the government’s bills — should not be considered
a taboo subject, and in many cases is a viable stimulus option,
according to Adair Turner, the chairman of the UK’s Financial Services
Authority (FSA).
Speaking last night at the Cass
Business School in London, Turner — who was a candidate to succeed
Mervyn King as governor of the Bank of England, before the appointment
of Mark Carney — focused on the controversial topic of “helicopter
money,” a term coined by economist Milton Friedman, who once suggested
governments could fight deflation by scattering newly printed notes out
of helicopters.
While Turner was careful to hedge his
remarks with considerations of the various risks surrounding monetary
financing, he came down clearly in its support. “I think there are some
circumstances — they may be extreme circumstances — where you should
use helicopter money,” he said.
Then, yesterday, Martin Wolf — the lead economist at the Financial Times, and one of the “100 Most Influential” people on the planet — weighed in heavily:
First, it is impossible to justify the
conventional view that fiat money should operate almost exclusively
via today’s system of private borrowing and lending. Why should
state-created currency be predominantly employed to back the money
created by banks as a byproduct of often irresponsible lending?
Why is it good to support the
leveraging of private property but not the supplyof public
infrastructure? I fail to see any moral force to the idea that fiat
money should only promote private, not public, spending.
Second, in the present exceptional
circumstances, when expanding private credit and spending is so hard,
if not downright dangerous, the case for using the state’s power to
create credit and money in support of public spending is strong.
The quantity of extra central bank
money required would surely be smaller than under today’s scattergun
quantitative easing. Why not employ monetary financing to recapitalize
commercial banks, build infrastructure or cut taxes? The case for
letting fiscal deficits facilitate private deleveraging, without undue
expansion in overt public debt, is surely also strong.
Cancer sufferers have to undergo
dangerous treatments. Yet the result can still be a cure. As Lord Turner
[chairman of the Financial Services Authority] notes, “Japan should
have done some outright monetary financing over the last 20 years, and
if it had done so would now have a higher nominal gross domestic
product, some combination of a higher price level and a higher real
output level, and a lower debt to gross domestic product ratio.”
The conventional policy turned out to
be dangerous. Whether this is also true of troubled countries today can
be debated. But the view that it is never right to respond to a
financial crisis with monetary financing of a consciously expanded
fiscal deficit — helicopter money, in brief — is wrong. It simply has
to be in the tool kit.
The Gono “Solution”
How do you like that? Wolf thinks an economy is a machine. He reaches into his tool kit and what does he find? A drone!
So the banks won’t lend? People won’t borrow? Consumer demand doesn’t
increase? Jobs aren’t created? No worries — we’ll take out the
drones… load them with cash and drop it all over the world. Spend,
spend, spend until the economic problem goes away.
Is this a dangerous treatment? Yes, of course. But “cancer sufferers
have to undergo dangerous treatments,” says Wolf, so why not an entire economy?
And think of the benefits. Money goes directly to worthwhile
projects… and into consumer pockets. People get jobs. Things get done.
Bridges get built. And the federal deficits disappear. The feds don’t
borrow from the Fed. They just spend the money.
Dear readers will recognize this as the policy of Mr. Gideon Gono of
the Central Bank of Zimbabwe. They will also recall that it was
disastrous. But Wolf must imagine that he and the other elite
policymakers and policy implementers are much smarter and more
disciplined than Gono.
Gono’s money drones took off from Harare and headed directly for the
army barracks. Then, when inflation was getting out of control, his
monetary policy was out of his control too. He couldn’t stop paying the
army!
How will it be any different in London or Washington? Mr. Wolf doesn’t say.
Release the Choppers!
But here’s another voice, Anatole Kaletsky, with more support for “helicopter money”:
Public discussion of helicopter
money has been taboo among economic officials. The one exception was a
speech by Ben Bernanke in 2002, before he became Fed chairman. This
speech offered the most detailed and eloquent justification of monetary
financing prior to Turner’s, and it earned Bernanke the Wall Street
nickname “Helicopter Ben.” Since then, however, helicopter money has
never been seriously mentioned by any senior official in any advanced
economy. Until this week.
Ten years after the Helicopter Ben
speech, Turner has broken the taboo about monetary financing. The
effect on economic debate around the world could be irreversible and
profound. Turner’s 70-page paper presents the arguments for the many
variants of helicopter money with unprecedented academic sophistication,
financial detail and historical context.
Now that Turner has broken the taboo
on helicopter money, the sound of monetary salvation should soon be
heard round the world.
Our guess is that the helicopter money will come. So will the
drones. Serious money policies and decent people… will both get blown
up.
Regards,
Bill
http://www.billbonnersdiary.
