Money From Heaven

money from heavanA term you’re likely to be hearing more of in economic reports is “helicopter money,” which might replace “QE” in our lexicon of Central Bank policy terms.

What is it?  “Helicopter Money” basically means dropping money out of the sky; the term is shorthand for a government printing money as a way to stimulate the economy, pay down government debt, create inflation as a protection against a threat of deflation—or all three.

Crazy, you say?  Mario Draghi, president of the European Central Bank, has called it “a very interesting concept,” and Haruhiko Kuroda, the Governor of the Bank of Japan, has only ruled out the option “for now.”  Jeremy Corbyn, leader of Britain’s Labour Party, has openly endorsed the idea of printing money and sending it to lower-income British citizens, calling it “the people’s QE.”

How would it work?  The government would create new spending programs, tax cuts or direct payments to citizens, and pay for these projects with the printing presses rather than borrowing or raising taxes.  Theoretically, more money flowing into the economy, through the pockets of consumers and companies, would boost spending, enhance economic growth and cause everybody to expect inflation in the future (which tends to boost spending and growth, creating a virtuous economic cycle).

So the theory goes.  The danger, of course, is that flooding the world with dollars, yen or euros would devalue the currency being printed.  Another is that politicians might shift their campaign strategies, promising to enact a helicopter policy, print money and give it away to citizens if elected.  Those dangers might not be as great in the U.S. as elsewhere, because the dollar is the global reserve currency, and so far that has ensured a global demand for dollars.

You probably won’t see helicopters dropping $20 bills from the sky when companies and the government can instead borrow at zero interest rates.  But you should know that the idea is now being looked at seriously around the world, and it could become the next version of QE the next time we experience an economic downturn.  This might be a good time to start thinking about how much money you’re willing to take from the government if politicians start promising to put some of it, hot off the presses and directly into your pocket in return for your vote.

Source:  http://www.economist.com/blogs/economist-explains/2016/05/economist-explains?fsrc=scn/tw/te/bl/ed/?fsrc=scn/tw/te/bl/ed/whycentralbanksaretalkingaboutthrowingmoneyfromhelicopters

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s