Citi's Buiter On Plan Z: Unleash The Helicopter Money

Tyler Durden's picture

All is (once again) failing. What to do? Much more of the same of course. Only this time whip out the nuclear option: the Helicopter Money Drop. This is the logical next step that Citigroup's Willen Buiter sees as "Central Banks should also engage in 'helicopter money drops' to stimulate effective demand" - temporary tax cuts, increases in transfer payments, or boosts to exhaustive public spending - all financed directly by the willing central bank accomplice in the monetization gambit. In his words: "This will always be effective if it is implemented on a sufficient scale." It is not difficult to implement, would likely be politically popular (nom, nom, nom, more iPads), and in his mind need not become inflationary. He does come down to earth a little though from this likely-endgame scenario noting that "helicopter money is not [however] a solution to fiscal unsustainability." It is just a means of providing a temporary fiscal stimulus without adding to the stock of interest-bearing, redeemable public debt. Any attempt to permanently finance even rather small (permanent) general government deficits (as a share of GDP) by creating additional base money would soon – once inflation expectations adjust to this extreme fiscal dominance regime - give rise to unacceptably high rates of inflation and even hyperinflation. His estimate of the size of this one-off helicopter drop - beyond which these inflation fears may appear - is around 2% of GDP - hardly the stuff of Keynes-/Koo-ian wet dreams. The fact that this is being discussed as a possibility (and was likely always the end-game) by a somewhat mainstream economist should be shocking as perhaps this surreality is nearer than many would like to imagine.


Citigroup's Willen Buiter: Helicopter Money

In cooperation with the fiscal authorities, the central bank can engage in helicopter money drops, as described by Milton Friedman (1969, p. 4). This is a temporary tax cut, increase in transfer payments or boost to exhaustive public spending (including infrastructure investment), financed through a permanent increase in the monetary base. This will always be effective if it is implemented on a sufficient scale. Consider the thought experiment where the Chancellor of the Exchequer sends a £1000 cheque to every man, woman and child in the UK and funds this by borrowing from the Bank of England, which monetises the debt and commits not to reverse this ever. Now consider the following negative economic environment: the British public has become Teutonic in its attitudes towards thrift or caution and decides to save the entire windfall. The solution is simple. Repeat the exercise with a £10,000 cheque for one and all and keep going adding zeros until the consumer cries uncle and starts spending. Ben Bernanke (2002), citing Milton Friedman’s original helicopter money drop parable, listed helicopter money drops (aka money-financed tax cuts) as one of the options open to the monetary authorities at the zero lower bound – as any well-informed monetary economist would have done. He was riled with the epithet “Helicopter Ben” as a result, and has not discussed the merits of the proposal since then, unfortunately.

...It may well be the most effective form of stimulus currently, in particular if directed towards public investment which has taken the brunt of public spending cuts in those countries that have begun fiscal consolidation in earnest (i.e. not the federal government of US or Japan). If the helicopter money were at the pure discretion of the central bank (it could simply say ‘no’), it need not imply weaker incentives for governments to manage their own finances prudently.

...A helicopter money drop is not difficult to implement. It would most likely be politically popular. It just requires cooperation between the central bank and the Treasury. In the US and the UK, helicopter money may in fact turn out to be the true face of the QE we are supposed to have seen these past years. If the asset purchases and monetisation are not reversed at some point in the future, QE will turn out to have been helicopter money after all, if either it brought down government borrowing rates in the primary and secondary markets or if it just provided a subsidy to government funding in the primary markets. Unless the central bank makes a credible non-reversal commitment today, however, the asset purchases and monetisation may be interpreted as temporary – as QE - and their effectiveness therefore less than would have been the case had it been recognised for what it is (or may be) – helicopter money.

Helicopter money, even in huge amounts, need not become inflationary ever. The increase in the government deficit associated with the fiscal stimulus is temporary because the fiscal stimulus is temporary. The associated increase in the size of the central bank’s balance sheet may be large, but it is finite. As long as the current quasi-liquidity trap, high leverage for sovereigns, banks and households endure, much of the money transferred to households (should they be the primary beneficiaries of the helicopter money drop) could well be saved by households, to be deposited in banks who add it to their excess reserves. Should consumers get their confidence back and decide to spend the part of the helicopter money drops they initially saved, fiscal tightening is the solution. Should banks get their confidence back and decide to push their excess liquidity towards the private sector by offering loans on irresistible terms, any inflationary increase impact of the enlarged stock of base money on the stock of bank credit or broad money can be neutralised either by raising bank reserve requirements, or by raising the remuneration rate on excess reserves held by banks with the central bank to levels that would induce banks to keep their money at the central bank rather than lend it out to the private sector.
In Japan and in the euro area, central bank independence tends to be interpreted by the central banks as not answering the telephone when the fiscal authorities call. Such a rejection of cooperation between monetary and fiscal authorities and of coordination between monetary and fiscal policies reflects an elementary but damaging misunderstanding of the meaning of independence, in our opinion. If an escape from this self-imposed state of impotence is deemed to require an amendment of the Bank of Japan Law and of the European Treaties, then we would encourage it. We actually believe that the European Treaties, including Article 123, permit the funding of sovereigns by the ECB and the national central banks in the secondary sovereign debt markets. That’s good enough to make helicopter money drops feasible even in Euroland. In any case, good monetary and fiscal policy should not be blocked or inhibited by a blanket or even a partial prohibition of the monetisation of public debt and deficits. If done properly, and subject to the consent of the monetary authority, a monetary authority which we can presume to take its price stability mandate seriously, it would not cause inflation. Instead, we think it would help prevent inflation falling below the level deemed consistent with price stability in the medium term, or even deflation, and the risk of recession or even depression.

Finally, helicopter money is not a solution to fiscal unsustainability. It is just a means of providing a temporary fiscal stimulus without adding to the stock of interest-bearing, redeemable public debt. Any attempt to permanently finance even rather small (permanent) general government deficits (as a share of GDP) by creating additional base money would soon – once inflation expectations adjust to this extreme fiscal dominance regime - give rise to unacceptably high rates of inflation and even hyperinflation. Our estimates of the maximum general government deficit for the euro area and the US that can be financed without a surging rate of inflation are around 2% of GDP at most – hardly the stuff of which permanent monetisation dreams are made. Although unanticipated inflation can reduce and, at the extreme, wipe out the real NPV of servicing a given stock of domestic currency debt, once inflation becomes embedded in expectations, the ability to extract additional real resources through the anticipated inflation tax is very limited.

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markmotive's picture

Need a real antidote? Then support Dr. Ron Paul.

Ron Paul on Gold Standard vs Paper Money Moral Hazard:

Fukushima Sam's picture

Fuck yeah, bitchez, helicopter money time!  Keep the gold under wraps until the meltdown occurs!

Gully Foyle's picture

Fukushima Sam

"Keep the gold under wraps until the meltdown occurs!"

Do you live in Utah? Maybe some RPG world?

After the crash bottle caps may be just as valid a currency as Gold.


Dicite justitiam's picture is what the sovereign's guns and courts say the money is...this won't change (only the sovereign may change).

Winston Churchill's picture

Until you try to  pay the police and army with bottlecaps.

Water,food,ammo,gold and silver,then bottlecaps.

Hope you've got a lot of bottlecaps, how many to the ton ?

How manys tons=water  and one meal ?

Good luck with that.

Matt's picture

canning jar lids might be a better investment than already-used bottle caps.

Jack Napier's picture

Gully Foul, just because an episode of Duck Tales had some indigenous people go money crazy over Scrooge's bottle caps doesn't mean that real life will work that way. Don't you remember the moral of that one? He dumped a plane load of bottle caps on them and devalued the currency. Nobody wants bottle caps except maybe you and people who just figured out how to make a wheel.

FEDbuster's picture

You can keep your bottle caps.  Buckets of food and bullets are in my barter bank (no counterparty risk).

Paul Atreides's picture

Money is what the people say is money, there is no stopping the return of precious metals as currency and anyone not paying attention is missing the opportunity to enter the next paradigm very well off.

P.S. bottle caps don't have intrinsic value...

Carl Spackler's picture

Awful idea. Frought with enexpected consequences.

This will end up like, well.... the Helicopter Frozen Turkey drop episode on "WKRP in Cincinnati"  (one of the all-time great episodes of any sit com)

"As God is my witness, I though turkeys could fly!"

Fukushima Sam's picture

I'm sure you're right, Gully, gold will never be valuable again!  That and ammo and food.  Those will never be valuable either.  I'd better liquidate now while I still can!  Thank you for opening my eyes, sir!  ZH I'm outta here, you people are nutz!

Michael's picture

I hope The Bernank stretches the rubber band a little further so it hurts a lot more when it snaps.

Bansters-in-my- feces's picture

Gully Fool,I thought they did not come any dumber than Mitt romney,then you opened your mouth.

AGuy's picture

"After the crash, <strike>bottle caps</strike> Canning lids may be just as valid a currency as Gold."

Fixed that for you!



The Navigator's picture

Google reusable canning lids - for those that haven't canned lately, lids are usable once - reusable lids cost more but can used for years.

FreedomGuy's picture

This is the fiat currency equivalent of alchemy and turning lead into gold. They will turn linen and paper into real value.

CPL's picture

Yup...and pensions into ashes nearly instantly.  Nobody can move the interest rate because if they do their debt obligations eat them alive.  So the helicopter drops the money bomb...zimbamwe time.


Alternatively market drops like a stone and margin bubbles pop all the way back to 1978 and pension values are reduced to the investment values.


Damned if you do, damned if you don't.  At this point bull or bear, completely fucked binary sum game situation.  Either option results in the destruction of value because of more worthless capital by proxy every credit market as well.

FreedomGuy's picture

This is the fiat currency equivalent of alchemy and turning lead into gold. They will turn linen and paper into real value.

Id fight Gandhi's picture

I'm voting for Paul even if I have to write him in.

I HOPE he decides to break away to a third party and let the others shit themselves.

shuckster's picture

Reverting to the gold standard will cause a huge contraction (and starvation)

hamurobby's picture

And staying on the current path will eventually create an even larger starvation and contraction, worldwide revolutions, wars, and a dawning of a new dark age.

lasvegaspersona's picture

if by 'gold standard' you mean that in which the government tells people how much gold is worth...I agree...didn't work before and will not even be tried again.

Thomas Anderson's picture

Can Uncle Ben please make it rain so the party can start???

max2205's picture

Ben give me money. I will pay off all my debt, promise.

JeffB's picture

Don't you get it. That's a form of saving... the exact opposite of what he wants you to do.

He wants you to SPEND the money, and borrow some more when you run out of that. He has plenty more. Be happy!!!! Don't worry!!!

Saving, AKA "hoarding" is the root of all evil, and the cause of our economic crisis!

Sheesh! Zero interest rates haven't gotten people to spend us out of this mess, so now they're going to have to do the darn helicopter drop.

When's that election anyway?



GeneMarchbanks's picture

Notional GDP targetting. End of story. 'Boom' times are ahead.

Bastiat's picture

Do I hear the whine of turbines?

NotApplicable's picture

I can hear the rotors starting to turn.


Sudden Debt's picture

Just a one off event... Just once... Than we'll stop... Promise.... Pinky swear...

LouisDega's picture

Na, That was me.  I just fucking farted

Moneyswirth's picture

Speaking of helicopter money (ie Obamabucks), in other off-topic, but not so off-topic news:

FHA New Foreclosures Jump As Modified Loans Default

The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later. [...]

Borrowers with mortgages for homes bought in 2010, the FHA’s peak lending year, now owe almost 7 percent more than their homes are worth if they used the minimum down payment, according to S&P/Case-Shiller home price index data. [...]

Lenders initiated foreclosures on 36,400 FHA-backed mortgages, twice the number in April 2011, according to Lender Processing Services. The increase for Fannie Mae and Freddie Mac loans was 13 percent.

Cue up the printing press, there's an election to be won!

DosZap's picture


Too bad for them, if their loans were Robo signed w/ SChityBank, they could have lowered their purchase prices up to $150,000........................Handed over FREE.

I cannot fathom a tax cut on Prop taxes, and a lowered pricipal pmt, if my home was given a 150k freebie.................what a Country.

What a BANK!!!!!!!!!..............WOW!!!

(trying to get real SIGNED contracts this is bait.


FreedomGuy's picture

Unemployed and underemployed cannot pay any note at any price.

DosZap's picture

Unemployed and underemployed cannot pay any note at any price.

They dont have to.

If they are in Robo signed mansions, their living there free already for 2-3 yrs.


FinalCollapse's picture

They tried to give money to corporations and it didn't work out. The next step is to give money to people to stimulate the demand.

This will not work as well. The money will go into consumer products which are made in China. It will be straight pass through to Chinese. I am sure the goverment of China is already sending their lobbyist to Washington DC to support this idea.

Demand is dead for other reasons that economists like Krugman or politicians just cannot understand.

Ron Paul 2012. 

catacl1sm's picture

Or into deleveraging. That's where I'd put it. Oh, and grub, gold, and guns.

Stuck on Zero's picture

Ben's idea of a money drop is a bit one-sided.  He keeps damn thing hovering over Wall Street.

Benjamin Glutton's picture

should I paint a bulls-eye on the roof or build a landing pad?

Matt's picture

But the Chinese will then take that money and buy UST. Basically, this plan lets citizens replace the Primary Dealers in the QE model. Which would you rather have, an iPad, or what you get when the Fed does QE and the bankers get bonuses? 

Plus, it helps get Obama re-elected, and it gives people choices on what trinkets they will buy. win-win-win! Except the stimulus cards will have to be run through Goldman Sachs, Bank of America, et al to ensure they get their slice of the pie, or it wouldn't be fair!

hamurobby's picture

Yes we can!

And then we can change our currency and do it all over again and evwy one will be happy.

Iwanttoknow's picture

i READ SOMEWHERE THAT CLUNKERS FOR CASH IDEA  came from the Chinese embassy in Washington.They needed the steel.

slaughterer's picture

I have my bushels ready to scoop up the helicopter money from my lawn.

I will take it immediately to the gold shop to buy more gold.


DarthVaderMentor's picture

Unleash the Fraken Kraken!

slackrabbit's picture

dear god,

please let ben printer remain in good condition and allow ben to not change his mind

please let this charade go on for another year....another year where we may all stack, save, prep and be silently amused when our friends, family and neibours thingk we are all nuts.