Helicopter Money Has Arrived... And Nobody Noticed: Here's Why

Tyler Durden's picture

Deutsche Bank's Jim Reid is one of the few strategists on Wall Street to admit he was wrong (although he may still end up being right). Previewing his annual credit outlook titled "Volatility Ahead", Reid confesses that "we’ve long felt that as we approached 2017 we would likely be at the turning point of the credit cycle. Indeed our forecasts are for wider spreads in our annual outlook for the first time since the Euro Sovereign crisis earlier this decade. However in the course of writing this outlook much has changed." 

The strategist admits that, alongside virtually everyone else on Wall Street, he became bullish, overnight on just one catalyst: the election of Donald Trump, which was universally panned by most experts (if not here) as a major selloff catalyst only for everyone to pull a "Bill Ackman" and realize the next morning that (as we explained) that Trump is actually extremely bullish for risk assets.

"The forecasts are less bearish than they would have been when we started writing this publication in late October partly because spreads have widened notably since and also the probabilities of a US recession in 2017 have lessened given the possibility of aggressive fiscal spending from the new US administration."

Naturally, this is the bullish assumption which in the past two weeks has been adopted by all, namely that Trump will unleash a trillion dollar (or more ) debt issuance spree, aka "massive" fiscal stimulus, an assumption which we explained yesterday will soon be challenged by Congressional Republicans. However, more than a simple political hurdle, a greater gating factor is what happens to interest rates, a traditional buffer to risk assets any time the economy is on the verge of overheating: should they rise too high, the entire stock market house of cards falls.

It is here that Reid points out something truly fascinating, namely the interplay between monetary and fiscal policy, however not at the national level, but at the international, where the US is injecting hundreds of billions in debt in the global system, which then is soaked up not by the tightening (for now) Federal Reserve, but courtesy of foreign central banks such as the ECB and BOJ.

This is how the Deutsche Bank strategist explains the "post-Trump" flow of funds:

The main driver of 2017 will again be policy and we’re left with an intriguing combination where the US will likely implement serious fiscal stimulus but without Fed QE supporting it whereas Europe will have no meaningful fiscal stimulus but lots of QE. Japan is a hybrid as it will have monetary policy that easily allows for more expansionary domestic fiscal policy but without clear evidence – at the moment at least – that we’ll deviate too far from the status quo. However there is some evidence to suggest that we’ll effectively have cross border helicopter money.

So there it is: helicopter money is here... and nobody is talking about it because it is not national helicopter money but cross-border, i.e., between central banks, something which makes perfect sense in a globally interconnected world of fungible money, and yet because it does not comply with conventional models, has flown right under the economists' radar.

So how will the next stage in the global monetary-fiscal experiment look like, one in which cross-border helicopter money has now essentially arrived? Well, the answer will determine if Trump's attempt to make the American economy great again with trillions in investments (funded by individual investors in Europe and Japan) will succeed or fail.

Assuming the ECB continues sizeable QE all year, and perhaps more importantly if Japan defends the zero 10 year JGB rate, then this could easily help cap UST yields at lower levels than they would naturally be at given President-Elect Trump’s aggressive fiscal plans.

Ultimately, it all goes back to Trump:

Given his protectionist leanings it’s perhaps ironic that the President-Elect’s biggest global allies might end up being the BoJ and the ECB. The biggest risk to his plans and to market stability might be if the BoJ decides to abandon the defense of zero and/or if the ECB signals a taper earlier than expected.

Ironic indeed, that Trump who hopes to effectively isolate the US from the world, will be the one president more reliant on the rest of the world, than any of his predecessors, to bring his plan to fruition.

Finally, as to what all this means for the year ahead, Jim Reid is cautious. Here is his forecast.

We therefore think it’s a transitional year ahead with many contradictions. Transitional because with debt so high across the globe, expansionary fiscal policy without your own domestic central bank propping up yields is risky and only half way towards what still seems the inevitability of broader helicopter money. Much might depend on the ECB and BoJ continuing current large scale purchases of government bonds. For 2017 we think they will but the debate over the funding of increases in US (and perhaps UK) fiscal spending will increase over the next 12 months and is likely to lead to more volatility as the financial market swings from believing that fiscal spending will lead to higher growth, inflation and higher yields for a period of time to perhaps then believing that global central banks are likely to cap the rise in yields.

To be sure, this is a simplified model: one should also consider the risk of ongoing (and record) US Treasury liquidation by the likes of China and Saudi Arabia. Should they proceed to sell off US paper more aggressively, all bets are off. Which means that Trump will have to remain friendly with not only Japan and Europe, but also China and Saudi Arabia.

Or, another way of putting it, Japanese and European bond investors will now be unwittingly funding Trump's vision to "make America great again", while China and Saudi Arabia can hold the US hostage with threats of Treasury liquidation.

* * *

So can Trump do it? For now the market is happy to answer in the affirmative, although as Jim Reid concludes, "the days of one-way dovish monetary policy, with no fiscal spending and low volatility in asset prices and growth are likely over."

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
FedFunnyMoney's picture

Buy silver, buy gold...now.

I made a killing off the last Repub.

Pairadimes's picture

None of this is going to work. It's building a house of cards on top of a house of cards. It is also necessary to factor in the political agenda of the CB ownership. None of them are fond of the idea of Trump - after all, the people are supposed to vote for the approved candidate. I anticipate some blowback from the elites that will be designed to dash the hopes of the little people.

max2205's picture

Cripes the fed has been doing trillion dollar swaps for the last 9 years to prop up the EU and everybody else except the USA 

JRobby's picture

Call Benny will you. He has a hard time verbalizing what exactly those are.


Handful of Dust's picture

Despite all the fancy analysis, all I know is food prices are still rising. Take frozen veggies, for example.

Kroger now sells a 10 freaking oz bag of them for $1.35. Used to be 16 oz for $1 at most. I'm bad at maff but that's a 216% increase in price.

And it goes on for other essentials. I won't even get into Soweto Osama's Obamacare increases. 

Throw in property tax increases, homeowner's insurance, and on and on....


"Shit Sandwhich" is what both Bush and Obama left for Americans.

markmotive's picture
Peter Schiff: Making America Great Again will be much harder than voters think



Joe Trader's picture

Hell if we're all going to share links, I might as well join in:


This is the Go Fund Me page for David Wilcox - he's the guy who's car was sideswipped in Chicago, accused of voting Trump - then got beat up and had his car stolen.


This Go Fund Me page is trying to get him enough for a new car - it's hit a rough patch and needs more momentum



underman's picture

$7k isn't enough for a new car?  He was driving a clunker.  Yet the gofundme goal is $33k?  Doesn't add up.  Might explain the "rough patch".

ToSoft4Truth's picture

Consider a plantation on your (suburban?) lot. 


Enter into a 'community program'.  Get the drunk drivers, shoplifters, druggies and such out working your land for their 'service' to society. 


You could probably find whores this way.  Pay them to fight in your basement.  Sell the video. 

Paul Kersey's picture

And let's not forget, the Swiss National Bank bought and still owns $64 billion in US stocks. Wonder if other central banks are propping up stock markets in countries other than their own.

new game's picture

each 1/4 pt increase cost merica n taxpaying stiffs 50 billion in addtl interest. yea 50 billion/yr

ok, hail the holders or finaciers of all this behind the curtains debt- central bankers where all fiat originates. THEY ARE LUVIN IT! MOAR INTEREST ON MONEY THEY FREASHLY PRINTED WITHout much LABOROUS WORK. a wrinkle in the suite, therefor out of this present day from 1913 system we have two classes,them and us. until we kill themto end of story, all else trumpty dump bullshit...

chief's picture

so ecb QE finds its way to fund US infrastructue spending? German voters are gonna love this...

Tyler Durden's picture

Yes, although technically it comes down to European and Japanese investors funding Trump's economic plan, while hoping China doesn't rock the boat with a violent selloff.

post turtle saver's picture

" while China and Saudi Arabia can hold the US hostage with threats of Treasury liquidation"


and when they sell, what do they get in return...

it's more likely China, Saudi Arabia, Japan et al are selling to either prop up their currency due to growth headwinds (China) or to get much needed cash & T-bills (Saudi Arabia and, the obvious elephant in the room, Japan)...

does this impact the ability of the US to borrow? certainly... are the Chinese / Saudi / Japanese economies still tied strongly to the hip of the US economy? most definitely...

the problem I have with these and many other articles like them is that they always assume that China and others like them are going to rush to cut off their nose to spite their face... I doubt very much that will happen

Tyler Durden's picture

It's called political leverage in a time when every other economist is predicting trade war. 

What do they get in return? A political statement appealing to the base nationalism of 1+ billion Chinese. 

post turtle saver's picture

and to that I must reiterate, that means nothing when the rice bowls aren't filled...

"we rise at sunrise, we rest at sunset, dig wells and drink, till our fields and eat, what is the strength of the emperor to us?"

I have yet to see a rice bowl filled by a political statement, only by fruits of labor... selling treasuries isn't being done to make a political statement in the case of China, it's being done because their economy is _weak_

NoDebt's picture

I agree, China's got their own problems.  Defend that peg, you bastards.  Sell them TSYs.  We poofed them into existence, we can poof them back out.   

"Now witness the power of this FULLY OPERATIONAL Federal Reserve battle station."  A high energy stream of weaponized money particles that can destroy entire world financial systems comes shooting out the roof of the Marriner Eccles building, arcing and heading westward at nearly the speed of light.


Arnold's picture

The problem with poofing them out, ND, is that they will never sell another batch in our lifetimes.

And it gives every one else ideas above their station.

NoDebt's picture

Oh, come now, Arnold.  You put an endless, permanent bid under ANYTHING and people will value it and want more of it.

Arnold's picture

I get my house furniture as castoffs on the sidewalk, as do many others.

Yet there is always some left for the trash guy.

Not really, but I was trying an inscrutable response to your theory of 'there is always a buyer'.

new game's picture

only thing stopping that bid would be extreme vilence, as in ww111 or econ w3.

but wait the dolla has gotten too strong. so soaking up a trillion treasuries behind the curtain? calling ben? janet is delilict of duties...

SoDamnMad's picture

And Donald can raise import duties on a host of Chinese products that are state supported and Europe and S America will gladly follow to protect their countries industry.  China is feeling the slowdown and those masses aren't the ones buying 2nd and 3rd apartments (or shipping their cash overseas)

but yes, feeling the inflation in their food bowls.

sister tika's picture

The Chinese spent billions (estimated $42 billion) hosting the 2008 Summer Olympic games. Just a guess, but I'll bet they'd like to have that money back right now.

DontWorry's picture

I just don't get it - use smaller words.  Just thankful for a TD post that harkens back to the glory days of 2009-11.


in4mayshun's picture

Oh I understand the words, I just don't always understand the correlation between his words and economics. I mean unless you're a forex trader, who the hell understands how " the BoJ's defense of zero and/or if the ECB signals a taper..." relates to US interest rates and treasury yields. This is serious finance geek shit. I guarantee not 1 in 10 financial advisors could explain this stuff to the average person.

JRobby's picture

Financial advisors are salespeople. 

BandGap's picture

You left off "for the time being".

Base nationalism can also be used as time to prepare for the inevitable.

shovelhead's picture

If they're selling then there is a buyer.

What changes? I see the political advantage to the seller but what difference does it make to the US who holds the IOU?

_mike123_'s picture

China must always consider how their actions impact the US consumer. To harm the US consumer is to harm Chinese trade.

Arnold's picture

Internal revolution is their biggest problem.

Commodities have popped a bit lately, but coal miners and steel producers gotta eat too.

Diminishing demand for what China makes in huge quantities puts them in a rough spot.

Maybe the IMF will loan them a buck or two to buy our debt.

Arnold's picture

Or to go with the flow of the thread,

we will be purchasing steel, cement, copper products, and heavy equipment from the lowest qualified bidder.


We don't have the production capability to supply ourselves any more.


LawsofPhysics's picture

LOL!!  So it could go up or down or sideways...  How insightful.


The only thing that we can count on is the destruction of the currencies that all this "wealth" is priced in...

Global fucking Weimar.

Hedge accordingly.

GreatUncle's picture

It is amusing ... you noticed how each change of policy noticed only speeds up the rate of destruction.

Soon the 0.1% will own 100% of the world and nobody has any worth to exist.

equity_momo's picture

So the premise of your argument revolves around this statemenet :


Assuming the ECB continues sizeable QE all year, and perhaps more importantly if Japan defends the zero 10 year JGB rate, then this could easily help cap UST yields at lower levels than they would naturally be at given President-Elect Trump’s aggressive fiscal plans.



For those of us who still try to follow reasonable financial analysis here , please back up that statement with some detail as to how.  The Primary Dealers acting as lubricant for the Central Bank monetary policies do not care about "fundamentals". They care about "risk free returns" aka "front running".

The Fed have not given anyone anything to front run. The ECB and BoJ have. Ergo stupid , depressed yields in Europe. There is nothing to stop the spread between bunds and treasuries widening to levels you never thought possible.

YHC-FTSE's picture

Mate, this should surprise nobody since we all know Belgium, yes tiny Belgium, has been buying US Treasuries hand over fist for awhile now. Remember all the mysterious treasury buyers last year? Belgium is the third largest foreign holder of US treasuries. They are probably proxy holders which complicates matters as to who exactly will be funding Trump's plans next year and therefore who Trump will act friendly towards. China, EU, Japan or the fucking Fed. They're all contenders. The actual money printers/lenders, let's call them the establishment, have America's balls in a vice and it's a leverage that is going to be a big policy maker in Trump's cabinet. I just hope he is as crazy and unpredictable as I think he is and goes for the fucking Fed and brings the whole disgusting edifice down.

Uncertain T's picture

It's all speculation.... Trump is a 'wild card'... I'll take a 'wait-and-see' approach.

bada boom's picture

But the TV analysts are telling me to buy now because there won't be any stocks left before christmas.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) bada boom Nov 22, 2016 5:38 PM

They were talking about "Stronger Together" campaign buttons, (which, on a log scale, ultimately achieve about the same value as any fiat currency that has ever existed in human history).

1980XLS's picture

And they were telling you to sell 2 weeks ago, in the event of a Trump Victory.

WillyGroper's picture

OT:  i'm sure many here have beat their brains out trying to awaken some.

i find saying nothing & piquing curiosity effective.

i have some purple xmas lites that i'm going to place in my son's window say "wikileaks pedo-gate."

i'm also going to print links where they can see allllll the ugly if they dare.

Herdee's picture

The President has the power to lock down any removals. He can freeze it up if he wants. What that would do to the Dollar or the global economy is another matter.

Jack's Raging Bile Duct's picture

Any ECB money traveling across the pond will just be returning home anyway. Where the hell do you think Brussel's got all of that money to buy USTs with? Where do you think the ECB got it from? It's all just one big game of incest. Let's see who goes full retard first.

Orly's picture


Wasn't it the Fed who was running around making "loans"- and massive ones at that- to European central banks in 2008?

The global helicopter money has been here.  Correct me if I am wrong but I don't see anything new here.


THE DORK OF CORK's picture

Loans is not helicopter money.

True helicopter money would involve dilution of claims.

It would be in fact deflationary of prices.


Call me when prices  match income again.


Everything the Fed does is inflationary.

It's job is to maintain financial concentration 

The true cause of inflation is collateral seizure.

Not helicopter money.

Irish national accounts prove this in extremis.

Nobody ( with the exception of the connected corporates)has cashflow yet prices (Gdp) keeps rising.


post turtle saver's picture

and we're back to the refrain... selling off assets of worth to get much needed liquidity...

we're going to see what we saw about 9 to 10 years ago all over again... the selling of that which has worth to prop up that which is rapidly becoming worthless, all in the reckless hope there's a chair left to sit in when the music stops...

bankruptcy and shorts exist for a reason, nature should have been allowed to take its course then and sure as hell needs to be allowed to take its course now... only this time, the pain will be much worse...

DontWorry's picture

Its not helicopter money if its firewalled in the banking sector and can't get to the consumer to cause inflation.