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IPFS News Link • Economy - International

Beware of the Chaos of Helicopter Money

• http://www.thedailybell.com

Indian central bank governor says helicopter money no panacea … Indian Central Bank Governor Raghuram Rajan said on Tuesday that he had doubts "helicopter money", or free cash given directly to citizens to stimulate growth, would be successful if adopted by developed world policymakers. -Reuters

Raghuram Rajan has come out against helicopter money and this is probably to be expected from India's version of US central banker Paul Volcker.

Both men hiked interest rates hard to halt rapid price inflation. In Rajan's case, the rupee was depreciating at 10 percent per year.

Now the rupee has stabilized and Rajan gets credit for monetary success and for working closely with India's Ministry of Finance.

Rajan is surely correct about central bank helicopter money but as the head of India's central bank, he is constrained from  taking the next step in the dialogue.

That would be to explain that central banks themselves are useless.

Ultimately, the ways that central banks can manage monetary economies are extremely simplistic.

Bankers either add or subtract currency from the money stock.

Lately, central bankers have started to push interest rates into negative territory but the results have not been encouraging.

Thus speculation about helicopter money – currency that is distributed directly to consumers and that circumvents bank lending.

We've covered the "basic income" movement in the past. The basic income can be distributed directly from governments to individuals. It's a great form of propaganda for populism aims.

The real reason for offering a "basic income" is monetary.

It is another way that central bankers hope to expand moribund economies.

But that, too, is propaganda.

Central bankers are well aware that a basic income will cause chaos wherever it is implemented.

From the article:

Governor Rajan also said helicopter cash could have the opposite of the desired effect of encouraging recipients to spend. The more aggressive a measure was, the less understood its consequences, he added.

"Somebody getting this money and seeing the central bank governor throwing this money out of the helicopter, saying 'is this guy crazy? Has the world gone nuts? I am going to save this, because I am not sure what is going to happen'."


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