Don’t look now! Helicopter money is already being deployed

Helicopter money is already here but it’s in stealth mode.

Apparently Federal Reserve Chairwoman Janet Yellen didn’t get the memo but helicopter money is already at work in the U.S.

Last week, Yellen conceded that the Fed may have to “legitimately consider” resorting to unconventional measures in the event of a severe economic downturn.

But Torsten Slok, Deutsche Bank’s chief international economist, argues that the Fed has been employing measures similar to helicopter money via its remittances to the Treasury.

“The Fed in 2015 paid the U.S. Treasury $117 billion and dividing that by the total number of households (125 million) shows that the Fed is already giving money to U.S. consumers,” he said in a note on Tuesday.

That comes out to each U.S. household receiving about $1,000 from the government and equivalent to a 2% tax relief for households falling in the $50,000 median-income bracket, according to Slok.

By law, the Fed is required to remit any excess funds remaining after covering for its expenses to the Treasury Department. Such payments have been made going back as far as 1917, four years after the Federal Reserve was established.

Helicopter money in its simplest form calls for a central bank to print money and give it to people, most likely in coordination with fiscal policy like a tax cut or to fund spending. Its an idea that was first articulated by Milton Friedman in his 1969 paper, “The Optimum Quantity of Money.”

Slok’s main point is that helicopter money isn’t always accompanied by fanfare.

“[It] is normally thought of as a big event where fiscal and monetary policy work together to kick-start the economy. Today’s version of helicopter money is more quiet. What the Fed is doing today corresponds to a situation where the Fed sent a check every year of $1,000 to every single household,” he told MarketWatch.

In other words, sometimes it’s “the communication of helicopter money that determines how effective it is in supporting GDP growth,” Slok said. Traditionally, the concept of helicopter money has been viewed as a policy tool of last resort and sometimes policy makers are reluctant to publicly embrace such drastic measures.

“What is at stake here is the risk that people lose faith in money and in the government having things under control. So there are good reasons why policy makers in the U.S., Europe, and Japan are hesitant to do full-blown helicopter money,” Slok said.

With the global economy shackled by anemic growth, more economists and Wall Street big shots have called on the Fed to explore creative means to resuscitate the economy. DoubleLine Capital’s Jeffrey Gundlach recently predicted the Fed will have to resort to the helicopters.

Economist Nouriel Roubini also has urged central banks to deploy more “unconventional” monetary policies as “desperate times call for desperate measures.”

By Sue Chang
Published: June 22
Market Watch