"Bankers Will Choose To Fly Instead Of Die" - Why Bill Gross Thinks Helicopter Money Is Imminent

Tyler Durden's picture

By Bill Gross Of Janus Capital

Culture Clash

A respected reporter recently asked me what were a few important things I had learned from all this and all of that during the past decade and I surprised myself and perhaps him by answering that I now realized that younger generations – the Xers and Millenials – were far different generations from my own. “How so?” he asked. They are ephemerally connected as opposed to hardwired, I replied. They hold history less dear and appreciate freshly baked inclusiveness more; they are inclined to move on instead of settle and build, perhaps because employer loyalty has weakened as well; they are more temporary residents than architects. But they are the future.

The challenge for me as a Boomer, I said, was to understand this, yet not sacrifice my generation’s heritage that had made these evolving differences possible. This generation gap, I continued, was just that – a far distance from one side of a chasm to the other. And yet, I thought, (having concluded the interview) culturally we were much the same: making positive, sometimes obsessive contributions at work; loving our families, our pets. No chasm there to bridge. A common culture. But common cultures themselves morph and sometimes quickly so, producing substantial gaps from one figurative day to the next. Most humans who walked this Earth were alive inside a culture that was constant for centuries, yet now it seemed that technology was mutating standards like a cytoplast or perhaps at worst – a cancer cell. Who could say whether this new life form was positive or negative? Who could say that an older generation was any less an ideal than the succeeding one? My experience of the divide between Boomers and Xers is like that; I recognize that youth will be served, but not always for the better.

Yet, if I (you) understood that to be somewhat true, what should I (you) do differently? How to live a life – this Shakespearian brief candle? Should I listen to the beat of a bass drum instead of an ancient tom-tom? Would I dare dance to strange new music with a different step? “Forward” is my futile response. Forward – with difficult questions. John Denver expressed it succinctly, “If there’s an answer, it’s just that it’s just that way”.

Change propels economies as well as cultures, and sometimes before we are even aware of it. We listen to Trump and Bernie, then Cruz and Hillary as if one of them might be the mythical Wizard of Oz, guiding us down that yellow brick road to reinvigorate growth. They all try to emulate the Wizard of course. “Change you can believe in” was Obama’s mantra and then there was Clinton’s “I come from a city called Hope” and so on. Eisenhower was probably the last honest politician. “I like Ike” was his promise for the future, and I think many voters actually did – like Ike. But back then and certainly now, it was the economy that was changing, not politicians’ promises for a better future, and government policies usually took years to respond. If Thatcher and Reagan sparked a “revolution” of tax policy, it was a long lagged response to decades of growth constricting government policies. If the Great Recession exposed holes in those free market ideologies, then to my way of thinking, seven years of Obama have not yet addressed the cracks in our global financial system. Our economy has changed, but voters and their elected representatives don’t seem to know what’s really wrong. They shout: (1) build a wall, (2) balance the budget, (3) foot the bill for college, or (4) make free trade less free. “That will fix it” they discordantly proclaim, and after November’s election some unlucky soul may do one or more of the above in an effort to make things better. Similar battles are being fought everywhere. Brazil and Venezuela approaching depression’s edge; leftist and right-wing government elections in Euroland; Spain without a government; Brexit; China’s ever-changing five year plan; Japan’s obsessional quest for 2% inflation. “Fix it, fix it, restore our hope for a better future”, beats the world’s tom-tom. Or is it a bass drum? It’s loud, whichever generational beat you dance to.

But here’s the thing. No one in 2016 is really addressing the future as we are likely to experience it, and while that future has significant structural headwinds influenced by too much debt and an aging demographic, another heavy gust merits little attention on the political stump. I speak in this Outlook to information technology and the robotization of our future global economy. Virtually every industry in existence is likely to become less labor-intensive in future years as new technology is assimilated into existing business models. Transportation is a visible example as computer driven vehicles soon will displace many truckers and bus/taxi drivers. Millions of jobs will be lost over the next 10-15 years. But medicine, manufacturing and even service intensive jobs are at risk. Investment managers too! Not only blue collar but now white collar professionals are being threatened by technological change.

Nobel Prize winning economist Michael Spence wrote in 2014 that “should the digital revolution continue…The structure of the modern economy and the role of work itself may need to be rethought.” The role of work? Sounds like code for fewer jobs to me. And if so, as author Andy Stern writes in Raising the Floor, a policymaker – a future President or Prime Minister – must recognize that existing government policies have “built a whole social infrastructure based on the concept of a job, and that concept does not work anymore.” In other words, if income goes to technological robots whatever the form, instead of human beings, our culture will change and if so policies must adapt to those changes. As visual proof of this structural change, look at Chart I showing U.S. employment/population ratios over the past several decades. See a trend there? 78% of the eligible workforce between 25 and 54 years old is now working as opposed to 82% at the peak in 2000. That seems small but it’s really huge. We’re talking 6 million fewer jobs. Do you think it’s because Millenials just like to live with their parents and play video games all day? I think not. Technology and robotization are changing the world for the better but those trends are not creating many quality jobs. Our new age economy – especially that of developed nations with aging demographics – is gradually putting more and more people out of work.

What should the policy response be? Retraining and education sound practical and are at the head of every politician’s promised ticket for the yellow brick road, but to be honest folks, I doubt that much of it will be worth the expense. Four years of college for everyone might better prepare them to be a contestant on Jeopardy, but I doubt it’ll create more growth; for the Universities perhaps, but not many good jobs for the students. Instead we should spend money where it’s needed most – our collapsing infrastructure for instance, health care for an aging generation and perhaps on a revolutionary new idea called UBI – Universal Basic Income. If more and more workers are going to be displaced by robots, then they will need money to live on, will they not? And if that strikes you as a form of socialism, I would suggest we get used to it. Even Donald Trump claims he won’t leave anyone out on the street – a liberal Republican thought if there ever was one. And they are on the street you know. Check out any major downtown in the U.S. if you want to see our future culture. Not the stadiums with the box seats; the streets with the tents and grocery carts. But the concept of UBI is not really new or foreign to capitalistic cultures like that of the U.S. We already have sort of a UBI floor. It’s called food stamps and the earned-income tax credit, but those alone will not keep the growing jobless and homeless off city and suburban streets. The question is how high this UBI should be and how to pay for it, not whether it’s coming in the next decade. It is. Strangely, the concept is endorsed more by conservatives than liberals and in Silicon Valley as well. Even with a theoretical $10,000 UBI per eligible citizen, the cost of $1-2 trillion dollars is seen as an income pool to consume many of the high tech products they produce.

Higher taxes are one way to pay for it, but let me suggest another – something that a Rand Paul or father Ron would have been good at. Drop the money from helicopters. Now, even though this idea sounds more fictional than Trump’s 15 foot wall, it really isn’t. Milton Friedman, then Ben Bernanke and now a host of respected economists including the conservative Economist magazine itself are introducing the idea. These advocates do not really intend to throw money out of choppers. In broader terms, they are advocating fiscal stimulus but stimulus that isn’t paid for with private borrowing or taxes. That last sentence is critical – “not with private borrowing or taxes”. Democrats and Republicans alike can endorse that.

Instead, the money can be printed by central banks as it has been recently. It’s a hard concept to understand and that’s why politicians never discuss it – nor do most central bankers, who want to preserve the sanctity of their “balance sheets” and independence of their institutions. But the independence between central banks and government is rapidly eroding – a new culture is forming if only by necessity. Printing money via QE is in effect a comingling of monetary and fiscal policy, of central bank and treasury. The Fed, the ECB, BOJ and BOE have in effect bought bonds from their treasuries for 6 years now in order to allow them to spend money in support of their sagging economies. They buy the bonds by printing money or figuratively dropping it from helicopters – expanding their balance sheets in the process. They then remit any net interest from their trillions of dollars or Yen bond purchases right back to their treasuries. The money in essence is free of expense and free of repayment as long as the process continues uninterrupted. Technically, the central bank will argue, they have not allowed their treasuries to finance for free because they will sell the bonds back to the free market one day. Not a chance. The only way out for Japan for instance with 350% of debt to GDP and much of it owned by the BOJ is to extend and extend maturities at 0% interest until private markets catch on. Which frankly is what they want. Global markets wising up to the scheme will precipitate the sale of the remaining JGB’s, weaken the Yen and create their magical 2% inflation!

Oh this sounds too good to be true. Just print the money! Well to be honest, a politician – and a central banker – should admit that increasing joblessness must be paid for somehow.

  1. Raising taxes (not lowering them, Donald) is one way.
  2. Issuing more and more debt via the private market is another (not a good idea either in this highly levered economy).
  3. A third way is to sell debt to central banks and have them finance it perpetually at low interest rates that are then remitted back to their treasuries.

Money for free! Well not exactly. The Piper that has to be paid will likely be paid for in the form of higher inflation, but that of course is what the central banks claim they want. What they don’t want is to be messed with and to become a government agency by proxy, but that may just be the price they will pay for a civilized society that is quickly becoming less civilized due to robotization. There is a rude end to flying helicopters, but the alternative is an immediate visit to austerity rehab and an extended recession. I suspect politicians and central bankers will choose to fly, instead of die.

Private banks can fail but a central bank that can print money acceptable to global commerce cannot. I have long argued that this is a Ponzi scheme and it is, yet we are approaching a point of no return with negative interest rates and QE purchases of corporate bonds and stock. Still, I believe that for now central banks will print more helicopter money via QE (perhaps even the U.S. in a year or so) and reluctantly accept their increasingly dependent role in fiscal policy. That would allow governments to focus on infrastructure, health care, and introduce Universal Basic Income for displaced workers amongst other increasing needs. It will also lead to a less independent central bank, and a more permanent mingling of fiscal and monetary policy that stealthily has been in effect for over 6 years now. Chair Yellen and others will be disheartened by this change in culture. Too bad. If there is an answer, the answer is that it’s just that way.

Investment implications: Prepare for renewed QE from the Fed. Interest rates will stay low for longer, asset prices will continue to be artificially high. At some point, monetary policy will create inflation and markets will be at risk. Not yet, but be careful in the interim. Be content with low single digit returns.

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So Close's picture

OT but how the hell is Hillary going to combat this?  Donald whips a field of 15 contenders and she can't even finish off an old, unispiring socialist?  https://www.youtube.com/watch?v=lxaKUo5naoY&feature=youtu.be&t=131  

SafelyGraze's picture

everyone deserves education and training.

college degrees for all.

masters.

doctorates.

professional degrees.

for everyone.

that is the solution.

hugs,
joe paycheck BS MS PhD JD PhD MD CPA CEO

 

TahoeBilly2012's picture

All the gold's in Israel. All money helicopters will be drones flying from there. They will look like insects, but with with lazer guided missiles on them.

Motasaurus's picture

So, serious question here, how do I go about borrowing the equivalent of a billion Australian dollars from a NIRP central bank? 
Even though Australia's cash rate dropped, it's still one of the highest in the developed world. If I could just figure out how to get that billion dollars I could start my own bank here, where there is a 0% fractional reserve requirement.

Then I could simply duplicate that billion dollars, loan it out to myself at 0% and spend it however I wanted, while the principle amount steadily decreases with the NIRP central bank I originally borrowed it from. I can think of so many things to do with a billion dollars. Then, when it comes time to pay the initial loan back, I simply default to myself (keeping whatever I have left from that billion), pay back the NIRP central bank the reduced amount and pocket the interest I earned for borrowing from them. 

It's win-win all round and free currency for me. 

More Ammo's picture

That senario reminds me of an idiot that I had to work with long ago that told me he made money by geting signature loans (about 12% interest at the time) and then deposit that in his savings account (maybe 5% at the time).  When I ask hit to show me the math he said he didn't understand all the interest stuff but that if he ever comes up short he can just pay the loan payment from his savings accout...

 

True Story...  I did not realize at the time that this is how smart most people are...

The Saint's picture
The Saint (not verified) More Ammo May 4, 2016 11:32 AM

Like Congress' unwillingness to deal with entitlement reform or stop the deficit spending, the Fed is unwilling to allow a recession to reset excesses.

More QE to prop up the market and the banks.  Negative interest rates and helicopter money if that's what it takes.

Where can this lead?  Two places.

1. A perpetual no growth economy like has happened in Japan, or

2. A sudden crash happening faster and more violent than the Fed can recover from.

Take your pick.

Vampyroteuthis infernalis's picture

"Technology and robotization are changing the world for the better but those trends are not creating many quality jobs."

 

This line is a load of sh*t. Jobs are vanishing because they are being shipped to third world hell holes and away from the US and Europe. What a moron.

ersatz007's picture

actually - it's both - the jobs have been shipping over to 'emerging' economies (for the last 30 years and will continue to do so for the foreseeable future) AND techonology/automation/robotization will do away with many more jobs in the near and especially distant future...

you have Bill Gross talking about universal subsistance allowance???  my take - they know shit is gonna hit the fan HARD (exactly when, remains to be seen)...

Doña K's picture

Saint..

Regardless of what anyone thinks about heli-dollars, it's better to end up in people's pockets than banks.

Maybe, just maybe, consumers will spend it and give a temporary boost as well as pacify some.

Motasaurus's picture

Did you guys happen to work for the government at the time?

Professorlocknload's picture

Not far off the mark, there ammo, I was in a conversation back when it was common knowledge the dot com bomb was starting to wobble. The guy stated he was safe,,,all his money was in mutual funds.

robertsgt40's picture

"Money ain't for nothin if the check's for free"---Dire Straits 

Pool Shark's picture

 

 

"We’re talking 6 million fewer jobs. Do you think it’s because Millenials just like to live with their parents and play video games all day? I think not. Technology and robotization are changing the world for the better but those trends are not creating many quality jobs."

 

Wrong, Bill!

Those jobs weren't replaced by robots; they were sent to Mexico, China and Bengladesh.

Our 'High-Tech Heroes' from the Silicon Valley love to sell us cheap electronic crap made by overseas slave labor.

That's where those jobs went...

11b40's picture

Yes, that is very true, but the major damage has been done to the manufacturing sector.  That is where the greatest number of middle class paychecks came from.  Now, technology is destroying jobs worldwide with pain to be felt in every country until finally humanity stands up and says no to robots.  Will that be ban or a tax?  I have no idea, but eventually the unemployment situation will become so bad that the concept of automation will be addressed.  It is a worldwide problem.

The Saint's picture
The Saint (not verified) 11b40 May 4, 2016 11:30 AM

To answer your question, I think it will be a tax.  A very large tax.  Robot workers will have to be taxed to provide for the large percentage of the population who will become unemployed.

Whether this will usher in a new era where mankind is given more freedom to do what he wants with his free time or a new giant population of forever poor is debatable.  But, in 50 years or so it will probably be one or the other or some mixture of the two.

Professorlocknload's picture

Tax the robots to help the unemployed,,,thereby raising the prices of the products they purchase?

Sounds like .gov math.

ussa's picture

Guaranteed basic incomes will have to be instituted at some point.  $30k per adult / $8k per minor in today's purchasing power if not higher.   Universal healthcare will have to be a right too.  Productivity gains have been so massive over the past fifty years and will continue to increase.  This should all be possible and economical as energy costs decline massively and robotics capabilties advance by orders of magnitude... 

Hitlery_4_Dictator's picture

Wheels are falling off the bus...we have had grocery store breakins recently, where 100s of pounds of meat have been stolen. This is in a very nice, affluent smaller city....120,000 people. Dell headquarters is here, tech area.  What does this portel?

TahoeBilly2012's picture

Steal before they are tossed across the border I guess...

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) TahoeBilly2012 May 4, 2016 11:53 AM

Someone told them to go beat their meat so they broke into the grocery store to get meat to beat on.  We have really stupid people nowadays.  Don't overestimate them.

new game's picture

did he overlook that the 1 percent got  99 percent of qe? take half of 8 trillion(8 years since bush) and divide by 320 million...

or take fed banace sheet expansion since bush on fire and take half of that. half, because that is realistic...

dynomutt's picture

Man, just CHL!

 

(... or LTC as the case may be)

Baa baa's picture

You would not want to steal what passes for meat at my local grocery.

illyia's picture

@So Close

Stop talking about that election!!!! And all those Jews !!!!! That was not the subject !!!!!

Geez - Who The Hell Cares About Trump, Clinton or Jews. Are they hiding in your bathroom? Are they checking your ID? Are they really about to change your life? No? Not so much.

Get a little perspective: Gross is talking about something.

I speak in this Outlook to information technology and the robotization of our future global economy. Virtually every industry in existence is likely to become less labor-intensive in future years as new technology is assimilated into existing business models.

Guess what that means... for you?

Baa baa's picture

I wonder, does that make my laser pointer (A powerful one) a potential lethal weapon? How hard can it be to crack the wavelength? Just sayin', they work fine over there but it seems one of the kid geeks in the US could snatch control of a laser guided munition without too much problem. At least from what I have seen.

Tom_Pain's picture

So why should students (and professors) go to all this uncecessary work and expense to earn degrees for everyone, when the Fed could just print diplomas, and drop them from helicopters?

RockRiver's picture

Moar QE!!!

 

Awesome.... :-(

F0ster's picture

I'm calling it HELICOPTER EASING

Moar HE (Helicopter Easing) = Short the Dollar = Buy PMs.

Dubaibanker's picture

Anyone who gets paid USD 100m to USD 290m PER ANNUM, no less, should do austerity instead of all of us. 

Nice to preach from the perch at the top!

Asshole!

There is simply no way all of this ABNORMAL monetary policies will end well.

They have destroyed jobs, large corporations, the very ethos of capitalism. The only rude awakening will be when the Central bankers are burnt in their own offices along with this Bill Gross!

Guess How Much Money Bill Gross Made Last Year?
bbq on whitehouse lawn's picture

Money comes and goes at the point of a gun. Bill is talking about something else.
Building a future, when all that is left is sand.
Bill generation left nothing. No land, no water, no economy left untouched. The x and m, generation sees vertual world as sand on the beach that will undo anything they build. Everthing they build has no right of ownership. The intelectual proprty is owned by companies. Everything that can be created, can just as easily be undone. Without a "hardwired" ownership stake in the future. What does a future even mean. Simple there isnt one. Nothing to stop them from just re-writeing the world and starting a new.
Like droping in a new OS maybe even an open source one.

Antifaschistische's picture

as for me....I'm tired of the helicopter drop analogy.  Primarily, because it's a sucky analogy.  Helicopter drop sort of infers that people on the ground who are quick enough have a chance to grab money...like a money truck rollover on the freeway.   But, what the Fed/Treasury will do is anything but that.  Freshly "dropped" money will be delivered straight to TPTB in Washington and WallStreet Bankers for them to perpetuate their spending and lavish lifestyles.

 

chunga's picture

Yeah, if anything it won't be FRNs that get dropped on the plebes. It would be some gimmick like MyRa stawks, something that can be skimmed by the likes of Gross; pkgd as a good hearted effort to help main street.

Bro of the Sorrowful Figure's picture

agree completely. it's also important to note that the next QE, which as you pointed out will likely go straight to TPTB or as chunga said will allow them to extract their rentier "profit", will only happen after the great deflationary shock that is fast approaching. we can see that the banks already positioned themselves to unload their derivatives onto depositors and the taxpayer. once savings accounts are stolen and the stock and bond market deflations cause pensions, retirement savings, social security, etc etc to evaporate, people will be begging for QE and itll be given to them, but the banks will extract their toll before it ever gets to the muppets.

GeezerGeek's picture

How the hell is Hillary going to combat this? Easy; proclaim her campaign theme loudly: "I have a vagina! Vote for me!"

 

Gilnut's picture

This article is a great example of the typical myopic view that Boomers have.  Xer's know the game is rigged, we've lived in the vacuum left by the Boomers our whole lives, having to play the game but not liking it one bit.  We passed that little tid-bit of information to our children, now the Millenials aren't playing the game like we did.  Good for them.

 

Everything is cyclical in nature, not linear.  Boomers think linear, the cycle has been reaching up and biting them in the ass for decades yet they soldier on in their linear/myopic way.  I see the future in a much different light.   I see a return to "small town" and "local economies".  The Great Depression saw a mass migration from small towns/farms to large cities, the Next Depression will see the great reversal of this trend.

 

Listen to Millenials, they hate the "city grind" in "office cube land".

r101958's picture

Let's try not to indulge in sweeping generalities, eh -

With regard to the 'typical boomer view':

by r101958
on Mon, 04/04/2011 - 11:24

"I'll say it once (last year before the elections) and I'll say it again now:

"Current politics is best represented by a two headed dragon. Politicians pay lip service to opposing ideologies but both the Republican and Democratic parties are part of the same big government dragon body. The body is moving in one direction; bigger and more powerful government. More control over the electorate. Having the two parties serves a greater purpose though....it divides the populace (sheeple?) into two camps that are always at each others' throat. This tactic is called divide and conquer. Until we wake up and get away from the 'Repubs this....' or 'Dems that....' blame game then we will be slowly boiled...just like the frog in the frying pan...all while the dragon stands by watching and laughing."

And .....the sheep continue bleating."

With regard to the blame boomers for all things:

by r101958
on Thu, 07/07/2011 - 17:30
#1434229

"I don't see how we can blame the 'boomers' for this (amongst other things):

'The government adopted a unified budget in the Johnson administration in 1968. This change resulted in a single measure of the fiscal status of the government, based on the sum of all government activity.[47] The surplus in Social Security trust funds offsets the total debt, making it appear much smaller than it otherwise would.'

....I couldn't vote when I was 10 years old so I obviously did not vote the clowns into office that made this decision.....nor the closing the gold window decision....nor the 'Great Society' programs decisions..etc, etc ad nauseum."

innertrader's picture

Great!  How would you like to buy some old main street buildings in a small USA town?  Simply let me know how much money you want to invest.

Id fight Gandhi's picture

Fuck the boomers. They have that I got mine mentality, I keep mine. They'll juice a broken system on the back of the youth while telling them how if they try harder they would be well off like them. One figure YOU NEVER HEAR ABOUT in finanical world is the nursing home crisis. In the next 10 years they'll be stuffed with boomers who's families don't want them around. $150,000 year minimum - there goes the pensions and iras

 

 

 

Baa baa's picture

You and your little buddy above have the perspicacity of a wharf rat. Just grow up already and take some responsibility for your own pathetic life. The Boomers are at fault...Geez, how vacuous.

ZH Snob's picture

I'll be visiting Silver Doctors with my helicopter money, to be sure.

GoldIsMoney's picture

Let them fly, the higher the better, the impact will be harder and that means they'll die. The higher the flight the more likely they'll be dead after the impact. And that is in my book, a good thing (tm)

Baa baa's picture

Contaminate the fuel onboard all G 5's. Hell, just get the rumor rolling. That'll ground 'em.

101 years and counting's picture

fiscal stimulus.  get those $5K "tax rebates" going for all families.  $2500 for single.  the fed needs bonds to buy, which means to US needs to add another $1 trillion in inflation....i mean debt.

Thoreau's picture

Business as usual... reward all the douche-bags still feeding the dogs of war. Screw the tax rebates... in fact, screw tax payers... give the freebies to those with balls enough to starve the beast.

j0nx's picture

Yep a '$5k tax rebate' that you have to pay tax on as income the following year...And after the inflation hits, the $5k will actually be a break even on the increase of prices on everything else. If you're lucky. Pass.

NEOSERF's picture

Which is why every financial political dollar will be put against Sanders...and then Trump...

Spungo's picture

They can fly and die at the same time like that guy in Scarface

https://www.youtube.com/watch?v=CqphlLgOlEM

doggis's picture

HYPERBOLE MUCH?? OMG ALL THIS GARBAGE FROM A PAID SCHILL OF A BILLIONAIRE - LONG BEREFT OF ETHICS, MORAL OR INTEGRITY......... YES TO HAVE A RECESSION IS DEATH ALRIGHT - DEATH TO THE FRONT RUNNING BILLIONAIRE GAMBLERS WHO MAKE NOTHING, ARE LEAKED INSIDE INFO, AND INDEBT THE SHEEP.

I suspect politicians and central bankers will choose to fly, instead of die.