Central banks around the world continue to pump more stimulus into the economy as they anticipate the beginning of a new financial crisis. In the context of a sluggish economy, loosening of currencies, negative interest rates and ‘normalisation, the balance sheet is the name of today’s game. Now central banks are contemplating more unique monetary policy methods such as helicopter money to save the economy.
and Now Helicopter Money
The reserve banks are trying to guide the economy in the hope that they can avoid a financial crisis. There is a domino effect of monetary easing in which at least 19 central banks have cut interest rates, joined large-scale asset purchases, cut reserve ratios, bought debt securities and pumped billions. dollars into specific markets. For example, in the third week of September, over a two-day period, the US Federal Reserve pumped about $ 128 billion into markets through an acquisition deal.
This month, ECB President Mario Draghi revealed that he started printing more money to buy financial assets. According to the report, Lagarde, Draghi and other ECB members discussed monetary policy methods such as macroeconomic concept (MMT) and helicopter money.
Helicopter money or direct financing is a form of monetary policy that begins when central banks transfer money directly to the private sector and even to taxpayers. Basically, this process could be a direct distribution of capital into the economy and some people have called this idea dividends of citizens. Many years ago, helicopter money was considered a kind of final program and was considered worse than quantitative easing.
Deutsche Bank: It could be highly effective if properly implemented
In June 2016, the Bank of Japan (BoJ) planned to use helicopter money to stimulate the economy. According to reports at that time, the Japanese central bank was considering reducing payments below $ 100 for low-income residents. A month later, BoJ decided not to use the helicopter approach, but instead approved a $ 274 billion stimulus package. In 2016, Japan became the first modern economy to print money for direct distribution. Right now, I think helicopter money is still on the table. Fast forward today, and bankers and economists are starting to believe that ideas like helicopter money and MMT are creative economic concepts.
A recent report by Deutsche Bank that argues about helicopter money and financial institutions says that because the economy is so bleak, central banks are planning to explore more unique policies. Need more stimulation in their arsenal. The recent report emphasises that central planners using direct delivery methods can promote consumerism and more spending. [Helicopter money] can be highly effective if properly deployed, Deutsche Bank points out.
Current Easing Is “Organic”
There are many signs that bankers and central planners are uninterested and panicked before the horrific recession. However, it is the central banks that have to blame for the confusion they have caused when there are about 15 trillion dollars of sovereign debt and negative sovereign debt worldwide. Income below 0% has frightened economists for believing that negative interest rates are never equivalent to strong monetary policy.
A liquidity crisis, slow economic growth and inflation are the main reasons why central banks are scrambling to fix the problem they see developing into a financial crisis. Back in 2008, similar methods were used in the beginning of the economic crisis where short-term yields were extremely volatile and banks began participating in overnight acquisitions. The Fed and many other banks have begun to upgrade their overnight acquisitions. Once again, central banks think printing stimulation and bailout are the only way to help the situation.