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Helicopter Janet, Mario and Mark Cometh - "Central Banks Should Give Money Directly To The People"

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“Central Banks Should Give Money Directly To The People” – Gold Bullish CFR Proposal

 

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Helicopter Janet?

Last week, a very radical proposal appeared in the pages of the influential ‘Foreign Affairs’ magazine, the publication arm of the equally influential Council on Foreign Relations (CFR) think-tank based in New York.

 

An article “Print Less but Transfer More - Why Central Banks Should Give Money Directly to the People”, that has been picked up widely in the media argues that given that monetary stimulus measures such as quantitative easing and near zero central bank interest rates have failed to boost economic growth, a new radical monetary approach is needed.

That approach is to print currency and give the cash directly to consumers and households as required so as to remedy insufficient consumer spending and in order to prevent recessions.

 

The article is authored by Mark Blyth and Eric Lonergan. Blyth, originally from Scotland, is an economist at Brown University in Rhode Island. Lonergan, originally from Ireland, is a fund manager of global macro strategies at M&G Investments in London.

 

Although ‘Foreign Affairs’ publishes various sides of important debates, policy articles in ‘Foreign Affairs’ have tended to influence US economic and political policy over the years, so the ‘cash transfer proposal’ is worth watching.

 

Hoped For Benefits Of "Free Cash"
Blyth and Lonergan argue that the slow economic growth and low inflation rates being currently witnessed in Western developed economies call for more extreme government and policy maker approaches so as to get people spending again, thereby stimulating economic growth and encouraging inflation.

 

To them, deflation is a key threat that the unconventional low interest rates and quantitative easing has not managed to tackle. Therefore in their eyes this needs to be countered by directly making consumers spend more by actually handing over cash to them.

 

Blyth and Lonergan draw on Ben Bernanke and Milton Friedman to support their cash transfer argument and openly say that it is now “well past time” for policy makers in the US and also in other developed countries to try the helicopter cash drop approach.  

 

carney_helicopter.jpg
Helicopter Mark?

In 1998, after Japan suffered a lost decade of growth, Ben Bernanke, a then university economist at Princeton, advocated that Japan provide direct cash transfers to consumers in order to encourage them to spend more.

Previously, Milton Friedman had viewed direct money transfers as analogous to dropping cash from helicopters. This would go on to create the famous expression of Helicopter Ben (Bernanke) dropping cash from a helicopter.

 

Blyth and Lonergan advocate direct cash transfers either to all households equally, or possibly just to the lowest 80% of households. They say that lower income households would use this cash in a variety of ways, either to repay consumer debt, or to spend and consume, or to save. If a certain cash sum, say $1000, was not seen to be effective, households could, in their view, be given more, for example $3000 or $4000.

 

Blyth and Lonergan say that it’s hard to measure the direct impact on consumer spending of instruments such as lower interest rates, but that the impact of direct cash transfers are more measurable.


In their view, inflation won’t be an issue since central banks can continue inflation targeting.

 

Real Risks Of “Free Cash”

However, in our view, there are a number of flaws with this proposal.

Direct cash transfers have a danger of putting consumers further into debt. If a cash transfer is not effective, and an even bigger transfer is then handed out by governments, this will create the danger of consumer dependency on the cash transfer mechanism.

 

draghi_helicopter.jpg
Helicopter Mario?

The argument that the level of inflation created by cash transfers can be controlled is untested. Since this direct cash transfer approach has never been used, it is in uncharted territory and could lead to unanticipated inflation. How the measurement of direct cash transfers is more accurate than the measurement of the effect of low interest rates and quantitative easing is unclear.

 

With economies already facing record money supply growth from expanded central bank balance sheets, new cash transfers flowing into the global economy could lead to an out of control velocity of money and possible hyperinflation. How would this extra liquidity ever be drained from the system again?

 

This new cash transfer money would also be printed out of thin air, thus diluting the existing money supply and eroding its purchasing power. Since all fiat currency is merely debt anyway, the creation of new money to finance the direct cash transfers would add to the existing debt burden of already struggling nation states.

 

GoldCore Conclusion
In many austerity hit countries, there are is an increasing tax burden with very high income taxes, sales taxes and many stealth taxes.


Does it make sense for central banks to be printing money that will in many cases be used to pay taxes, stealth taxes or even pay down credit card, loan and even mortgage debt?

This measure will likely further worsen the debt to GDP ratios in many already indebted industrial nations. With interest rates set to rise in the coming months and years, giving free money to consumers may bankrupt already vulnerable states.

Would it not be more prudent to have debt write offs and debt forgiveness at sovereign level so that countries can lower the tax burden on suffering citizens? Rather than compounding the problem by increasing sovereign debt levels through giving out "free" cash to indebted consumers?

There is a real risk that this could end up being another ‘soft bail-out’ for banks as much of the cash would probably end up being used to pay down the huge debts incurred in recent years  and would come full circle to banks in the form of debt repayments and governments in the form of taxes.

The real solution to the global debt crisis is not more debt in the form of “free currency” and increasing sovereign debt. The real solution remains to implement significant debt forgiveness for consumers and debt restructuring for institutions, banks and nations in a modern debt jubilee.

Were such an extreme scenario to be implemented and a further and deliberate debasement of currency, there is a real risk of significant inflation and stagflation. Even hyperinflation in a worst case scenario.

Alan Greenspan’s warning of “fiat money in extremis” becomes more real by the day. This underlines the vital importance of having an allocation to gold in a diversified portfolio.

Gold will maintain its purchasing power in the coming years, as it has always done throughout history.

by Ronan Manly, GoldCore Consultant. Editor Mark O’Byrne of GoldCore

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Mon, 09/01/2014 - 05:30 | 5166916 Comte d'herblay
Comte d'herblay's picture

A sizeable portion of the QE is going to the people who own paper assets. Witness the rise from abyss in 2008 til now at all time highs. 

It's stealthy but it's true. 

Mon, 09/01/2014 - 02:52 | 5166774 falga
falga's picture

Definitely better to give back money to consumers rather than banks who sit on it and act irresponsibly.  why not get rid of the corporate tax and dividend tax instead and increase personal income tax tresholds so that all persons earning less than 100k/year pays no tax? fund that with higher tax on persons earning more than $1.0 Million/year.  that could be effective policy...  can't solve everything with monetary policy!  Congress should do something radical now.

 

Sun, 08/31/2014 - 23:30 | 5166517 flyonmywall
flyonmywall's picture

If Bubba gets an extra $2000/month from Mamma Yellen, Bubba is gonna go spend it.

But, guess what? Retailers, McDonalds, Bass Pro and Walmart are all going to increase prices to keep up with the free money, because they will want some of that money also.

So Bubba is not going to get more purchasing power, because he's gonna be paying $10 per gallon of milk, and $12 per lb. of ground beef.

Bubba is gonna think he's getting his, but he ain't gonna be gettin' nothing !

Perfect plan ! When does it start?

Cuz Bubba is gonna be really pissed off when he figgers out he gotz nothin' on top of the nothin' he already had !!

Maybe the S&P will hit 4,000 !!

Mon, 09/01/2014 - 05:29 | 5166913 Comte d'herblay
Comte d'herblay's picture

The Coronary to that is:  A minimum wage increase would be directly aimed at the same demographic  and a corresponding increase in prices would follow.

Minimum wage advocates are rarely called on that basic economics 101 principle, to wit: any increase in wages that does not result from increases in productivity, will be inflationary.

 

Sun, 08/31/2014 - 23:11 | 5166449 benbushiii
benbushiii's picture

I have a better idea, let deflation take hold and allow the 99% to buy stuff at reasonable prices.  Oh wait, that would cause the Banks to go broke, because their model of loaning money on appreciating assets goes upside down, and all the loans would be upside down.  One has to ask the question, "Whom are the Central Banks working for?

Mon, 09/01/2014 - 09:42 | 5167170 Psquared
Psquared's picture

They should have done this in 2007-2009. The feds could have taken the TARP money and used it to seed new banks and transfer the good assets. Let the bad banks with the toxic assets fail. Couple that with common sense regulations and government ethics reform and we would be a lot healthier economically. Instead, we followed the Japansese example of zombie banks.

Wealth has accumulated in too few hands just like it happened in the 1920s, but deflation is the great equalizer. Cutting rates to 0% and growing the money supply to prop up paper assets makes income inequality worse.

Sun, 08/31/2014 - 21:46 | 5166260 atthelake
atthelake's picture

They would never give the masses enough to pay down/off their debt. Debt is how banksters make money.

Sun, 08/31/2014 - 21:47 | 5166259 atthelake
atthelake's picture

dup

Sun, 08/31/2014 - 21:09 | 5166167 Soul Glow
Soul Glow's picture

Economists are idiots.  Enough said.

Mon, 09/01/2014 - 07:19 | 5167016 Okienomics
Okienomics's picture

Kind of reminds me of the intellectual midget who declares "________ (whoever is POTUS at the time) is an IDIOT!"  To which I say, ... well, he did achieve the office of president so what's that make us?"

Well, bro, if the idiots are pulling the levers of the state and making a whole lot of money in the process, what's that make us?"

Sun, 08/31/2014 - 20:06 | 5166016 Ned Zeppelin
Ned Zeppelin's picture

Um. Why does article purport to discuss the pros and mechanics of a completely crazy idea? Puh-leze.

Sun, 08/31/2014 - 21:16 | 5166196 Jdillinger
Jdillinger's picture

This plan is beyond crazy if it was created to be a reasonable monetary policy. I can only believe they know the catastrophic consequences of such a policy and are working to bring about the collapse of the currency. The obvious answer that taxation is killing consumer spending contradicts the narrative of the Marxists pushing these destructive policies. They also know the masses are too stupid or self absorbed to worry about the consequences of this policy change. 

Mon, 09/01/2014 - 07:13 | 5167004 Okienomics
Okienomics's picture

Look at the source (below); they're dead serious and they defend it from any/all attacks in the comments section.  It's playing it as a remedy to the problems discused in Pickety's book which is all the rage in liberal policy circles.  Coming from the CFR, this is a policy initiative with gravity.  The shit being stirred up in Ferguson is a warm-up act for the "discontent of the masses" demonstrations to come, combining the "anger" of the FSA with the Occupiers to create a "movement for equality" in the form of "No more bank bailouts, give money to the 99%."  This is no trial balloon, this is setting the stage and there may be no way to stop it once enough academics and "serious minds" get behind it.  Conservatives will be cornered as curmudgeons trying to keep the common man down and enrich the bankers.  Community organizer indeed.

http://www.foreignaffairs.com/articles/141847/mark-blyth-and-eric-lonerg...

Sun, 08/31/2014 - 19:18 | 5165883 optimator
optimator's picture

Inflation will rear its ugly head shorly when the smart money takes their profits out of the market and starts spending it.  Give eveyone a few hundred bucks to spend and then blame inflation on it.

Sun, 08/31/2014 - 22:09 | 5165776 honestann
honestann's picture

Purpose:  This is an early setup, "just in case" Rand Paul (or other republicrat) is ahead of Hillary near election time.  All Hillary has to do is say "free cash", and the election is over.  The sheep bleat their votes for Hillary, and game over.  How transparent.

And, of course, when the cash holders read the fine print, they'll find all the money they receive must flow directly into the hands of any (home, car, college, other) lender they borrowed money from.  And so, pretend to be "for the people", but as always "actually be for the banksters".

PS:  Based upon their manipulations of gold and silver for two years, the manipulators must be so confident in their abilities to manipulate that they imagine they can keep the dollar from collapsing by buying endless dollar future contracts... with newly created fiat dollars.  The sad thing is, humans are so stupid today, it might work... for a while.

Mon, 09/01/2014 - 06:57 | 5166987 Okienomics
Okienomics's picture

Mark my words, it will be someone far worse than Hillary.

Mon, 09/01/2014 - 19:10 | 5169219 honestann
honestann's picture

For example?  Give us three names.

Let me guess one of them... Obomber.

Sun, 08/31/2014 - 16:48 | 5165492 andy_pandy
andy_pandy's picture

What the.. forget printing money... a bulls eye opportunity to release money into the economy is to pay for renewable energy installation for ordinary households, increasing disposable income, do the sums, it aint that much; thicky thicky government should have done that post 2008

Sun, 08/31/2014 - 15:03 | 5165200 world_debt_slave
world_debt_slave's picture

could, would, should, all helping verbs, thus no help from TPTB

Sun, 08/31/2014 - 14:49 | 5165157 Bam_Man
Bam_Man's picture

Sure, give it to the people directly, for free.

Just don't try to pay for imported oil (or other valuable, finite resources) with it after that. It will no longer be accepted.

Sounds like we will soon be returning to an international Gold Standard. Monopoly money for domestic use only.

Sun, 08/31/2014 - 14:24 | 5165100 cristo
cristo's picture

would you buy gold with this cash transfer ?

Sun, 08/31/2014 - 16:30 | 5165444 Panafrican Funk...
Panafrican Funktron Robot's picture

Yes.  Really, they should have been doing direct cash transfers to people all along, instead of direct cash transfers to Jamie Dimon and friends.  I don't agree with either policy, but if your going to use the bazooka, at least use it to benefit the citizenry that's paying for it.

Regarding paying bills, that would help stimulate the economy, insofar as it reduces the total shitty/unpaid debt and stabilizes a pretty terribly debt quality situation.

Sun, 08/31/2014 - 15:09 | 5165224 silverer
silverer's picture

Pay off debts, that makes sense.  Once that's done, save the rest (as a safe asset, such as metal).  See?  Still won't stimulate economy.

Sun, 08/31/2014 - 14:34 | 5165119 Deathstar
Deathstar's picture

LOL  Oh hell yea!

 

You can't fool everyone all of the time and the want-to-be masters of the universe cannot bribe me into believeing the USD PONZI SCHEME can last forever.

Sun, 08/31/2014 - 14:20 | 5165080 Deathstar
Deathstar's picture

If they drop a money bomb, I'll be buying something and it will NOT be shitcoin.

 

I can't wait for the days of free GOLD!

 

 

Sun, 08/31/2014 - 14:08 | 5165048 bugs_
bugs_'s picture

But they are already giving cash directly to "the people".  EBT, SSI, Earned Income Credit, on-and-on.  Have been for some time.

Mon, 09/01/2014 - 02:33 | 5166758 zebrasquid
zebrasquid's picture

Yeah and they are taking it from the rest of us who are on the paying, not receiving, end of things.
And the debt that is piling up will be paid by the payers not the receivers..
Until....Tax revolt coming!

Sun, 08/31/2014 - 13:36 | 5164935 logicalman
logicalman's picture

A poem from John Turmel, a Canadian campaigner for monetary reform.

Debt Cancellation, "Tobin tax," they're splashing in the pool,
The problem's in the money pumphouse. "Interest" the tool.
The vast solution takes all errant money-pumps in hand,
It's not a half-vast splashing in the money pool that's planned.
Relief could reach the whole wide world to ancient strife placate.
Imagine Earth as Eden with no feedback causing hate.
The Christians and the Muslims and the Nazis and the Jews,
Are in agreement L.E.T.S. conforms to everybody's views.

Sun, 08/31/2014 - 13:24 | 5164902 free_lunch
free_lunch's picture
Economist Margrit Kennedy speaks on the destructive effects of interest on society and suggests an interest free economy: http://www.youtube.com/watch?v=QuBy3BzCXwg
Sun, 08/31/2014 - 13:01 | 5164810 drdolittle
drdolittle's picture

Weimaresq or Weimar like?

Sun, 08/31/2014 - 14:22 | 5165097 Deathstar
Deathstar's picture

You forgot the "-ue" not to be confused with "QE"

 

Weimaresque 

Sun, 08/31/2014 - 12:38 | 5164718 boattrash
boattrash's picture

How about this? IF they want to pass $ to the people, they base it off of your prior income tax amounts.

That would allow them to Not pay over 50% of the population, which in turn could cause enough class warfare/rioting to maybe lead to some tax reform.

Or, just refund prior income tax to all citizens, for say, 3 years.

Better yet, abolish Fed. Income Tax (along with 90% of Fed Agencies) maintain the military off of Import/Export Taxes.

Oh well, for a minute, it's my coloring book and I can color it any way I want.

Sun, 08/31/2014 - 13:05 | 5164827 economicminor
economicminor's picture

As noted in the piece by the Council on Foreign Relations, those with the least will spend the most and that is what is needed to revive consumer spending and thus demand for goods and services produced by the rulers of the country, the corporations.  Anything else will just continue to exacerbate the wealth inequality and restlessness in the country.. To be fair, IF they were to do this it should be equal... $1000/month in to every worker/taxpayer or tax filer for say a year.. or until inflation actually shows enough forward momentum to satisfy who ever it is that thinks inflation is a good thing...  Make sure that the populous knows this is temporaty... OR Not as we all know any benefit given is hard to take away...

Wecome to the future where no taxes are collected and no one really works and we all live comfortable lives consuming all the benefits of modern society... And of course ISIS disbands and they and the Russians decide to buy Italian and Spanish condos on the Meditrerranean and bask in the sun.

Sun, 08/31/2014 - 13:27 | 5164906 boattrash
boattrash's picture

It's working out just great for France, huh?

Wealth inequality will never be resolved, as uqual opportunity does not guarantee equal results.

Take all property, divide it equally, give each person a pink house and a white car. Look at it 1 yr later, a landlord will have 9 pink houses and a used car lot, while 8 people are walking back to the bridge they live under.

Sun, 08/31/2014 - 14:56 | 5165175 economicminor
economicminor's picture

I think it would take longer than a year...and it I agree redistribution would happen but over time.

 

You can defend income inequity if you want but the last time it was this great in the US was before the Revolutionary War with the next time just before the Great Depression.  It isn't that hard workers or smart people shouldn't get ahead but that it is extremely unhealthy for the gap to grow this big. Our founding fathers understood this and one of the first taxes inacted was an inherritance tax so that family dynasties would have to survive on their hard work and ingenuity rather than just position and access.

Sun, 08/31/2014 - 16:33 | 5165456 boattrash
boattrash's picture

I agree with a lot of your comment. I don't know if we would agree on solutions though.

Speaking of founders, see my original comment Re; abolish Fed Income Tax. Founders placed a lot more trust in people being secure in the earnings and property. They did not take income tax.

Wealth inequality is HUGE, and (IMHO) can be placed at the feet of 3 primary sources working in collusion 1-Legislators 2-Lobbiests 3-Corp's that are buying them both.

If I could be King for a day, priority #1 would be a fleet of Dumptrucks to start hauling out loads of paper including Tax Codes, Codes of Federal Regulations, Library of Con-gress, and the Law Library with all it's F'd up precedence, which are nearly all created to support Wealth Inequality

A hardcore return to the Constitution(naturally, without slavery) and sound money would be a great start. (not that I expect to see ANY of this).

Sun, 08/31/2014 - 22:27 | 5166383 economicminor
economicminor's picture

Boattrash,  I agree with both your causes and solutions.  I don't know which is worse, the FED or the IRS.

 

Whether we see it or not some major changes are headed our way.  And as I have heard it said, when you stretch a rubber band and just keep stretching it, it will break.. the more it streches, the more the snap back.  It is going to be interesting to see the consequences.

 

Sun, 08/31/2014 - 22:26 | 5166382 economicminor
economicminor's picture

Boattrash,  I agree with both your causes and solutions.  I don't know which is worse, the FED or the IRS.

 

Whether we see it or not some major changes are headed our way.  And as I have heard it said, when you stretch a rubber band and just keep stretching it, it will break.. the more it streches, the more the snap back.  It is going to be interesting to see the consequences.

 

Mon, 09/01/2014 - 05:10 | 5166903 boattrash
boattrash's picture

Agreed, and I think the results will make the Great Depression look like a cake-walk. One example is food. In the 30's, practically every household in America produced and stored food, as compared to a small % today. I think next time we'll see many more "window jumpers".

Sun, 08/31/2014 - 12:04 | 5164631 paint it red ca...
paint it red call it hell's picture

For the sake of consistency the fed to public cash handout method could become similar to the lobbyist to politician cash handouts. Just hand out cash vouchers to the public at the electronic polling stations during election season.

Sun, 08/31/2014 - 11:47 | 5164598 moneybots
moneybots's picture

"Direct cash transfers have a danger of putting consumers further into debt."

 

It isn't a danger, it is a reality. The FED doesn't print money, it lends money. The national debt is now over 17 trillion and the government will have to borrow the money for these cash transfers.

Sun, 08/31/2014 - 12:53 | 5164780 economicminor
economicminor's picture

$17 trillion is beyond our ability to repay soooooooo......... the only real options will be to restructure (Argentina?) as in deflation and a collapse of the currency or default and have a collapse of the currency.

The only way to create inflation would be to just print and give away the currency. Didn't the Wiemar Republic try that,,, and Zimbawe and Argentina and ..... Didn't work then so why does anyone think it will work here...

But we have some really big problems with Russia and ISIS. 

Things seem pretty unstable and uncertain to me.

Sun, 08/31/2014 - 23:54 | 5166572 Squid-puppets a...
Squid-puppets a-go-go's picture

because as with Zimb and Argent, a reset requires an honest accounting for wealth, and most people like to exaggerate their wealth or increase their wealth through passive mechanisms

In other words, a reset means the oligarchy have to get off their asses and start working again if they want to increase/maintain their wealth. And they would violently depose a democraticall elected official before they get off their asses

 

Sun, 08/31/2014 - 14:40 | 5165138 disabledvet
disabledvet's picture

It should be behind our ability to repay...say hello to the biggest energy boom in history.

Even the dollar isn't acting worthless anymore. "Ban Americans from growing their own corn and having chickens" is the next logical step. God forbid if people start marketing their own products. "Hey Sally Sue, you got a permit for that lemonade stand?"

Sun, 08/31/2014 - 11:44 | 5164592 moneybots
moneybots's picture

'Alan Greenspan’s warning of “fiat money in extremis” becomes more real by the day.'

 

Greenspan's warning? He took the rate to 1% himself, paving the way.

Sun, 08/31/2014 - 11:42 | 5164587 Yancey Ward
Yancey Ward's picture

Since this direct cash transfer approach has never been used, it is in uncharted territory and could lead to unanticipated inflation.

But it isn't uncharted territory- governments almost from first fiat currency have been using such money production to pay for their spending.

Sun, 08/31/2014 - 11:41 | 5164582 moneybots
moneybots's picture

"This new cash transfer money would also be printed out of thin air, thus diluting the existing money supply and eroding its purchasing power."

 

But it isn't printed out of thin air, it has to be borrowed and paid back with interest.

Sun, 08/31/2014 - 16:26 | 5165433 OC Sure
OC Sure's picture

"But it isn't printed out of thin air, it has to be borrowed and paid back with interest."

But is it borrowed from Factual Reserves (Full Reserve System) or Fictional Reserves (Fractional Reserve System)?

Money comes from productive work that has already been performed and not from the expectation that productive work may be performed.

Full Reserve will not a fool preserve.

Sun, 08/31/2014 - 13:31 | 5164924 free_lunch
free_lunch's picture
Why is there so much Debt? http://www.youtube.com/watch?v=lrQX4CF6Bxs
Sun, 08/31/2014 - 13:28 | 5164910 free_lunch
free_lunch's picture

Disinfoagent or just ridiculous uneducated that's the question..

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