A Stunning Admission From A BOE Central Banker: This Is What The Coming "Helicopter Money" Will Look Like

Tyler Durden's picture

Back in early 2009, just around the time the Fed announced it would unleash QE1, we warned that any attempt to reflate the debt (a pathway which ultimately leads to hyperinflation as monetary paradrops are the only logical outcome as a result of the deflationary failure of the intermediate steps) would fail, and instead would saddle the world with even more debt, making monetary financing, i.e., paradropping money, the inevitable outcome.

We said that instead, the right move would be to liquidate the excess debt, and start anew - a step which, however, would wipe out trillions in (underwater) equity, something which the status quo would never agree to, as that is where the bulk of its wealth is contained.

7 years later, debt is well over $200 trillion, having risen by more than $60 trillion in the interim, and we are rapidly approaching the peak of the world's debt capacity as we noted a month ago in "The World Hits Its Credit Limit, And The Debt Market Is Starting To Realize That."

Today, we find that none other than Adair Turner, a member of the Bank of England's Financial Policy Committee and a Chairman of the Financial Services Authority, wrote a long essay in Bloomberg which admits everything we have warned about.

To wit:

Advanced economies' public debt on average increased by 34 percent of GDP between 2007 and 2014. More important, national incomes and living standards in many countries are 10 percent or more below where they could have been, and are likely to remain there in perpetuity.


The fundamental problem is that modern financial systems inevitably create debt in excessive quantities. The debt they create doesn't finance new capital investment but the purchase of existing assets, and above all real estate. Debt drives booms and financial busts. And it is a debt overhang from the last boom that explains why recovery from the 2007–2008 crisis has been so anemic.


... debt contracts also have adverse consequences: They're likely to be created in excessive quantities. And the more debt an economy assumes, the less stable that economy will be. The dangers of excessive debt creation are magnified by the existence of banks and the predominance of certain kinds of lending. Almost any economics or finance textbook will describe how banks take money from savers and lend it to borrowers, allocating money among investment options.


At the core of financial instability in modern economies lies this interaction between the infinite capacity of banks to create new credit, money and purchasing power, and the scarce supply of urban land. Self-reinforcing cycles of boom and bust are the inevitable result.

His punchline: "unless tightly constrained by public policy, banks make economies unstable."

If central banks increased interest rates to slow the credit growth, standard economic theory said lower real growth would result. The same pattern and the same policy assumptions can now be seen in many emerging economies, including China: Each year, credit grows faster than GDP so that leverage rises and credit growth drives economies forward.

And then this:

But if that is really true, we face a severe dilemma. We seem to need credit to grow faster than GDP to keep economies growing at a reasonable rate, which leads inevitably to crisis, recession and debt overhang. We seem condemned to instability in an economy incapable of balanced growth with stable leverage.

Hmm, this sounds exactly like what we said in 2010: "Why The Staggering U.S. Debt Load Is Sure To Prevent Economic Growth." But what does a fringe, tin-foil blog know.

So, yes, the very top echelon of central bankers finally admits what we have said all along: creating excess debt creates asset bubbles, slows down growth, recurring crises and leads to even more "unconventional", and taxpayer funded systemic bailouts.

Hardly a surprise.

What does Turner recommend?

For the answer we have to go back to what he said yesterday in an IMF paper titled "The Case for Monetary Finance – An Essentially Political Issue." But before going into it, here is what the WSJ reported the IMF new chief economist, Maurice Obstefld, said:

“I worry about deflation globally,” new IMF Economic Counselor Maurice Obstfeld said in an interview ahead of an annual IMF research conference that focuses this year on unconventional monetary policies and exchange rate regimes. “It may be time to start thinking outside the box.”


Weak—and in some cases falling—price growth has plagued Japan, Europe, the U.S. and other major economies since the financial crisis. Plummeting commodity prices are exacerbating the so-called “lowflation” and deflation problems that curb investment, spending and growth.


Surveying several dozen of the largest economies around the world, Mr. Obstfeld said the number of countries experiencing low inflation is rising. Combined with slowing emerging market output, ballooning government debt and monetary policy constrained by the lower limits of interest rates, the deflation risk is fueling fears the global economy could be fast stuck into a deep low-growth mire.

Yes, this comes as the Fed is desperately pushing for a rate hike, just so it can telegraph that "things are better than they seem." It remains to be seen how successful this experiment will be: we know that every single country that has been at ZIRP or below, and has tried to hike rates, has promptly failed most notably the case of Japan in August 2000 when it, too, hiked by 25 bps from 0% only to lower 7 months later.

Which brings us back to Adair Turner, and his note on "monetary financing." This is what he says:

“Monetary finance” is defined as running a fiscal deficit (or a higher deficit than would otherwise be the case) which is not financed by the issue of interest-bearing debt, but by an increase in the monetary base – i.e. of the irredeemable fiat non-interest-bearing monetary liabilities of the government/central bank.


The easiest way to think about this is in terms of Friedman’s “helicopter money”, [Friedman, M. 1960] with the government printing dollar bills and then using them to make a lump-sum payment to citizens.

But in modern reality:

  • It could involve either a tax cut or a public expenditure increase which would not otherwise occur. 
  • It can be one-off or repeated over time.
  • And it would typically involve the creation of additional deposit rather than paper money. This would be initially in the form of deposit money in the government’s own current accounts which would then be transferred into private deposit accounts either as a tax cut or through additional public expenditure.

And the punchline: this is what the upcoming monetary paradrop will look like:

There are a number of ways in which the money could be “created” with different precise implications for the central bank balance sheet. They include:

  • The central bank directly credits the government current account (held either at the central bank itself or at a commercial bank) and records as an asset a non-interest-bearing non-redeemable “due from government” receivable
  • The government issues interest-bearing debt which the central bank purchases and which is then converted to a non-interest-bearing non-redeemable “due from government” asset
  • The government issues interest-bearing debt, which the central bank purchases , holds and perpetually rolls over (buying new government debt whenever the government repays old debt), returning to the government as profit the interest income it receives from the government. In this case the central bank must also credibly commit in advance to this perpetual rollover.

But the choice between these different precise mechanisms has no substantive economic consequences, since in all cases:

  • The consolidated balance sheet of the government and central bank together is the same.
  • The monetary base of irredeemable non-interest-bearing money is increased
  • And the government is thus able to cut taxes or increase expenditure without incurring any future liability to pay more interest, or to redeem the capital value of the money created.

And so on: there is more in the paper which we suggest everybody reads as it lays out precisely what will happen once the next attempt to reflate fails.

What is more disturbing, is that this is now effectively policy: with this paper by one of the most respected economists among the intellectual oligarchy, which expressly endorses "monetary financing" it is just a matter of time before it goes from theory to practice, first in Japan within the next five years. Quote Turner:

Monetary finance in today’s economic circumstances. I argue that monetary finance should be an available policy tool, and that in at least one country – Japan - it not only should be but inevitably will be used within the next five years.

First in Japan, then everywhere else and... on a "continuous basis."

I also consider whether money finance should be used only as an emergency measure in the face of a post-crisis debt overhang, or whether, faced with possible secular stagnation, we will have to use it on a continuous basis.

So the blueprint for what is coming has now been laid out and only those who willingly refuse to see what is before them, will be surprised when "monetary financing" is finally unveiled.

In conclusion we go back to Turner's op-ed in Bloomberg from this morning in which he says:

Many people are legitimately angry that few bankers have been punished. Some were incompetent, others dishonest. Yet they were not a fundamental driver of the crisis any more than the misbehavior of individual financiers in 1920s America caused the Great Depression.

The hypocrisy is astounding: in one paper Turner promotes a policy that will perpetuate, and reward, the banking status quo, and in another letter he urges punishment for the very same bankers who will benefit the most from having robbed the middle class for the past 7 years thanks to policies enacted by people like him!

The sad truth, however, is that after reading the above, one barely even has the energy to feel disgust.

But perhaps just to help spark if not disgust then a little bit of anger, we will conclude with the quote used by Turner at the very top of his paper which confirms that at least one person knew how it was all going to end a long time ago:

“Consider for example a tax cut for households and businesses that is explicitly coupled with incremental Bank of Japan purchases of government debt – so that the tax cut is in effect financed by money creation”

Ben Bernanke, Some Thoughts on Monetary Policy in Japan, 2003

* * *

Source: The Case for Monetary Finance – An Essentially Political Issue.

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Tonald J Drump's picture

show me the helicopter !

NoDebt's picture

YOU will not see the helicopter.  Like I've said since the very first time this issue came up, the helicopter will only drop money on Washington DC.  Why should we rely on individuals when everyone agrees the government has greater wisdom how that money should rightly be spent?

Welcome to hell, by the way.  You think cronyism, welfare/warfare politics and police state tactics are bad now?  You ain't seen NOTHIN' yet.  People will be renouncing their citizenship to move to North Korea.


BandGap's picture

Shit, I was wondering whether one of my big fishing nets would work or if I would have to get something else for the big drop. Are they announcing the times for the drop?

HowdyDoody's picture

They really should take control of the central bank outside the hands of uncrupulous politicians and put it under the control of the private sector who are clearly much more responsible and subject to the firm control of the market.


FreeMoney's picture

Hmm....so the adrenline injection ( fiscal deficit ) and the defibrilator paddles ( NIRP, QE ) aren't enough.  We need a lighting bolt right to the dick ( Moneitization ) for growth.

Has monetization ever been tried before?  Did it work?  How are those civilizations/societes doing now?  We are fucked.  Humanity can not learn from the past if it involves pain in the present.

lasvegaspersona's picture

verily I say unto you...a quick bout of hyperinflation will fix all this shit. Yes it will destroy the illusion of wealth but in truth the wealth will still be there. We will just have to figure out a better way to account for it.

Wealth, get you some while it is on sale.

Theosebes Goodfellow's picture

~"“It may be time to start thinking outside the box.” 

How about this:

1.) Cut the size of government by 50%. 

2.) Let insolvent backs go out of business. 

3.) Make federal/state balanced budgets mandatory everywhere forever.

4.) Prosecute financial crimes of bankers as crimes against humanity with commensurate prison/capital punishment terms.

5.) convert all existing federal/state debt to gold backed bonds.

6.) Devalue the currency to make #5 possible and then convert to a new currency (non Euro, non US$) that is gold-backed.

7.) Peg currency to historical 16:1 silver to gold ratio.

Okay, the last one is for me. I have a heck of a lot more silver the gold. I don't think it will hurt gold as much as it will help silver. I mean really, 75:1 these days? Yer' killin' me here!


QQQBall's picture

#5 - convert worthless debt to gold-backed bonds.... so where does the gold come from? Oh, the issue more debt to buy some? idjit

Ghordius's picture

NoDebt, I disagree, and would write your point differently: "You will see the breadcrumbs of this". then those who don't care about taxes still care about things like smartphones

about this list, pardon my probably butchered, ignorant attempt from afar, but as far as I understand the traduction into Democraticanese and Republicanese would be like this:

1) cut military spending in half - cut social spending in half

2) let your friends, the corporations that supported you go bust - let your friends, the public oligarchs that supported you go bust

3) copy the EU approach, don't mind that it's not working perfectly, yet. with an entity that never existed before - make seriously hard decisions

4) prosecute your friends - prosecute your friends

already those 4 points look at me, when translated, a bit... hard to sell to core constituencies and common opinion of the two US parties

Haus-Targaryen's picture

Translation -- this will go on a lot longer than any of us can imagine, and it will be the last bubble of this economic system. 

LawsofPhysics's picture

Yes, because this time around we have a global market, hence GLOBAL WEIMAR.

Kirk2NCC1701's picture

There is an infinite supply of binary numbers, and Debt can always be graphed on a semi-log scale (for the MSM and sheeple).  Plan accordingly.

I.e. All you need to worry about is...

1. Keep your Revenue Streams coming (job, biz, Gov, investments...)

2. Have your finances in firm control:  Budget, min. debt, live modestly

3. Be Resilient at home:  Well-maintained home, in a safe area with decent climate; stocked with Stuff Of Life (Foods, H2O source+filtration, Toiletries, Tools, G&A), have Sources of Energy (Heat: coal, gas, wood.  Electricity: solar, water, wind)

4. Have a sensible mix of Primary, Secondary and Tertiary assets -- located in 2 or more countries, if possible.

5. A solid network of Family, Friends and Tribesmen -- united in a Common Cause (that is not dictated by the High Priests/Priestesses on TV).


Don't forget to Live, Laugh, Love.  And Forgive, inasmuch as Quid Pro Quo justice allows.

FreeMoney's picture

You forgot....learn to brew beer and ferment wine.

Debeachesand Jerseyshores's picture

Very essential items indeed....

firstdivision's picture

This is what happens when you threaten to move your company overseas https://www.washingtonpost.com/news/checkpoint/wp/2015/11/06/boeing-protests-northrops-win-of-long-range-strike-bomber-contract/   

At least we can now bring global stealth qe to those terrorist markets.

Dr. Engali's picture

We had helicopter money twice under the Bush administration in the form of rebate checks. The problem with that approach is that ist was a one off and once people bought their flat screen teevee they were out of money to spend. If the really want to create some inflation they need a constant stream of fiat going to the proles. 

Tyler Durden's picture

"I also consider whether money finance should be used only as an emergency measure in the face of a post-crisis debt overhang, or whether, faced with possible secular stagnation, we will have to use it on a continuous basis."

NoDebt's picture

I think the two of you are in agreement, Tyler.

Martial's picture

5 years??? No way they make it that far.

froze25's picture

I heard an interesting idea to eliminate income taxes for people that have children.  I think that in the long run that might actually be a solution.  After all people are the drivers of all economic growth and right now we have a shortage of people being born.  People are the producers, people are the consumers and people are the innovators.  Bottom line if you want your economy to grow you must have a growing population.  Immigration helps but how many unskilled people do you really need in a age where robotics is going to rapidly make them obsolete.  Make no mistake debt based money needs to go as well.

stewie's picture

Well I have two kids for sale if that ever comes about.  I have 3 but I have to keep one for the tax rebate.  Man those Muslims will make a killing ;o)

AGuy's picture

"I heard an interesting idea to eliminate income taxes for people that have children. I think that in the long run that might actually be a solution."

Bad idea. The World needs to downsize the population. Too many people consuming a dwindling supply of natural resources. Second most of the people having children will end up collecting wealthfare and other resources. Producers with out child pay taxes since they focus more time on making money then raising children


giggler321's picture

WTF - Helicopter money in Japan in the next 5years?  Wow this thing aint tomorrow then?

Zoomorph's picture

North America and Europe need to increase population, though. If the world needs to downsize, then Africa, the Middle East, and Asia should be forced to.

PT's picture

The childless are already the drone worker bees for those with children.  No need to rub even more salt in the wounds.  There's several reasons why there is a "shortage of people being born".  I've got no interest in providing slaves for the boss's kids.  His kids will have to do their own dirty work.

"Oh, there's a shortage of people but we're all destroying the environment."  If I was dumb enough to have kids, I'd like them to grow up in an environment where, if they choose, then can all drive around in five litre V8s without the rest of the world making them feel guilty for being alive.  Not possible?  Then fuck off.  Do your own filthy work.  Stop expecting me or my offspring to be your slave.

Dr. Engali's picture

Yep, I read that. I'm simply illustrating the fact that history shows us the one-off approach doesn't work. 

Panafrican Funktron Robot's picture

Sold to the proles as "basic income".  Already in play. 

eltxamo's picture

hence ZIRP, get the goverments issue negative rate bonds to prevent their debt to GDP ratio to skyrocket.

flysofree's picture

This is NOT what happened! Stop lying you piece of walking garbage. The Bush's rebates went to payoff DEBT!!!

Dr. Engali's picture

Yeah, that's what happened. People paid off debt. And those people that paid off debt, what exactly did they do with their new buying power?

froze25's picture

Spend it on the food that became much more expensive at the supermarket.

AGuy's picture

"This is NOT what happened! Stop lying you piece of walking garbage. The Bush's rebates went to payoff DEBT!!!"

Consider that one man's debt paydown was a collective gov't increase since the gov't debt went up since the gov't didn't cut spending to afford the tax cuts. Overall the debt increased even if some people used the tax cuts to paydown debt. In many instances, people use the tax refunds for a home downpayment that helped fuel the housing bubble.

That said I wholy endorse tax cuts!

BandGap's picture

I remember the time around 2002, the $600 smackers they were kind enough to give me back. I also remember telling my ex-wife that this is the beginning of the end if they have to go to these lengths to save "capitalism".

WTF are they going to do this time? I could use the cash to buy some Au, Ag and Pb. Uncle Sam Santa Claus or is that too soon?

Bunghole's picture

I used that $600 from the shrub to buy my first handgun (CZ75) and 30 ASEs.

Terroristic activity, I know.

KashNCarry's picture

Yeah I remember that, but then the following year it had to be claimed on one's taxes, thereby nullifying the whole usefulness of the whole idea, at least for the proles & their new flat screens anyway...

AGuy's picture

"Yeah I remember that, but then the following year it had to be claimed on one's taxes, thereby nullifying the whole usefulness of the whole idea, at least for the proles & their new flat screens anyway"

Bush got congress to reduce the tax rates. Between 2001 and 2009, Fed Taxes were the lowest in 40 years. Taxes started increasing in 2010, as Barry's agenda's began to kick in. In 2013 the marginal rates on Fed. Income tax when up, and Obamacare also kicked in.



RadioFlyer's picture
RadioFlyer (not verified) Nov 6, 2015 3:01 PM

Kind of like eating your own crap and repeating.  At some point you will die.

Duc888's picture




RadioFlyer : "Kind of like eating your own crap and repeating.  At some point you will die."

Not before you eat a lot of shit.

Human centipede.  Look it up.  That's what banks are.


RadioFlyer's picture
RadioFlyer (not verified) Duc888 Nov 6, 2015 3:13 PM

Perhaps this is the diet the TPTB, politicians and bankers need...


have another Crap Sandwich Mr. Gore.  Yes, today it is dried crap patties with a freshie in the middle.  Enjoy!  Enjoy!

matinee55's picture

F, my head is going to "blowed up real good"

Urban Roman's picture

Why should there be taxes at all, on anything, if they can just print?

Amish Hacker's picture

Sensible explanation here:


Short version: because then everyone would see through the scam that is at the heart of fiat money.

explosivo's picture

The tax creates the incentive (or threat rather) for people to earn the fiat instead of real money.

RopeADope's picture

Or central banks could let fails actually fail and prevent their poor genetics from being passed on to the human race.

Nah, forget that idea. Let's all be dodo birds instead.

Grandad Grumps's picture

“I worry about deflation globally,” new IMF Economic Counselor Maurice Obstfeld said in an interview ahead of an annual IMF research conference that focuses this year on unconventional monetary policies and exchange rate regimes. “It may be time to start thinking outside the box.”

OK, thinking outside the box. Don't hate deflation, love deflation. Just as with inflation, costs will decrease faster than wages decrease. Write off the bad debts on personally owned houses, cars and credit cards and foreclose on hedge funds and Wall Street banks.

Problem solved.

ptoemmes's picture

I'm no PHuD Ekonomiss, but I sorta feel like this isn't going to help the likes of most of us.

No one wants to get knee capped, but as long as the "elite" get their heads chopped off I'll take one knee cap for the team.


PoasterToaster's picture
PoasterToaster (not verified) Nov 6, 2015 3:05 PM

Why is there a private "bank" in total control of government funding?