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Bernanke’s Helicopter

Bernanke’s Helicopter

By: Charles Goyette


You won’t believe the idea that America’s quintessential foreign policy establishment organ is floating now.

Or maybe you will.

Foreign Affairs is the journal of the Council of Foreign Relations, the organization that seems to drive much of the consensus foreign policy of the country, and from whose membership the top officials of both Republican and Democrat administrations are regularly drawn.

In its September/October issue Foreign Affairs wanders away from the calamity of its interventionist foreign policy consensus to offer equally calamitous interventionist monetary advice.

The publication offers a piece instructing the Federal Reserve to give the money it prints directly to the people. 

To make sure there is no mistake about this, article is even entitled Print Less but Transfer More: Why Central Banks Should Give Money Directly to the People.

The Federal Reserve has already created trillions of dollars at the printing press, most of which ended up as bank reserves on deposit with the Fed.

Why isn’t that money being used in the economy making loans, funding new and expanding businesses, and creating jobs?

Because under the prevailing conditions of malinvestment and distorted credit conditions, capable borrowers are not lining up to take out loans.  Why should a business expand its plant and add to its employment when it can’t sell what it can produce with its existing capacity?

Why expect a business to borrow more when its existing debt is too great?  Why would lenders willingly make loans to borrowers who may not be credit worthy?

The distortion caused by the Fed’s interference with interest rates has concealed problems in the economy, and even enabled marginal and otherwise failing business to limp along a while longer thanks to artificially low rates.  Many of them will fall by the roadside when rates rise, succumbing to real market conditions.

In other words Fed policies have prevented the liquidation of bad debt and clouded real financial conditions.

Much of the economy is operating in the dark.

The Fed can print money, but it can’t force borrowers " households or businesses " to borrow when they are concerned with whether they can pay the money back.   And except for costly government guarantees, the Fed has a hard time making lenders loan money to risky borrowers.

Under these conditions, when banks won’t make loans, all the freshly printed money sits idly on the sidelines of the economy, parked in the present environment in the reserves the banks keep on deposit with the Fed.

That’s where Helicopter Ben Bernanke comes in.  Under such conditions Bernanke, citing Milton Friedman before him, said that if need be the Fed could simply drop cash from helicopter doors into the waiting hands of people below.  

The Fed, according to this incompletely thought-out option, could generate consumer spending in this way, bypassing financial institutions like banks and employers altogether. 

It is an idea of Keynesian absurdity.  What will make merchants willing to sell their goods, or businesses willing to sell their production, at yesterday’s price when they see today that free money is raining down from the skies above? 

What assures savings and capital formation when it rains money?  What assures productive effort " work " when money falls like manna from heaven?

Of course the business about shoving money out helicopter doors is just a metaphor, much as is the expression “printing money.”

The Fed actually creates money in a way that is the functional equivalent of just printing it up, except that it’s a more sophisticated sleight of hand.  And it is all done digitally, without even the expense of old-fashioned paper and ink.

In the same way, the provision of liquidity directly into the hands of the populous is not really dependent on a fleet of Fed helicopters.  Other more sophisticated means are available, like the negative income tax that envisions sending money directly to people below some fixed income level. 

The authors of the Foreign Affairs piece write, “The Fed should hand consumers cash directly.  In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money.”

While there’s no need for actual helicopters in this proposed mechanism, the authors make up for it by proposing another even more bizarre scheme.

The Fed should issue debt, they propose, and invest the proceeds in a global equity index.  “After around 15 years, the funds could distribute their equity holdings to the lowest-earning 80 percent of taxpayers.”

Now there’s a shell game for you.  Who pays the interest on all that money the Fed is supposed to borrow to make cost-free government speculation possible?  Who is impoverished by the currency debauchment implicit in these rackets?

Among the first victims are the lowest 80 percent.

The whole thing has the ring of adolescence, like little Mickey Rooney saying, “Hey kids!  Let’s put on a show!” 

In fact the authors even conclude with an eager sounding, “All it will take to change course is the courage, brains, and leadership to try something new.”

Hey, kids!

But there is nothing at all new about thimble-rigging and no brain power at work in helicopter money stunts.  Such schemes are older than John Law of the Mississippi Bubble, the assignats of the French Reign of Terror, or Gideon Gono.

Gono was the central banker who made the 100 trillion Zimbabwe dollar bill the currency of everyday commerce.  One can easily imagine Gono in 2003 bubbling with childish enthusiasm, “Hey kids!  Let’s increase the money supply by a factor of 20,000,000 times.”

That the editors of Foreign Affairs take seriously such puerile nonsense suggests how frighteningly close the governing classes of this country are to adopting something like it.

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Reprinted from

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