Helicopter Money Flies To The Rescue In Eurozone

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Helicopter money is here for anyone to spend how they like but no one dares admit the truth, says HSBC Bank.

Helicopter money is often considered one of the fiscal tools of last resort for a central bank because everything else in their armoury has failed.

The concept is simple – print money and give it to people to spend in the hope that the injection of funds will kick-start the economy.

HSBC says central banks are stuck in a rut because all their traditional ways of stimulating their economies just do not work.

Looking at Europe in particular, the Eurozone is stuck in a rate of low inflation and economic growth.

Bolstering balance sheets

One of the problems is many countries can do nothing to improve their economies because they are stuck in the Eurozone, where the European Central Bank (ECB) handles interest rates and monetary policy.

Where a country such as Greece could have devalued the drachma in the past to boost the economy, the option is now unavailable and economy is dragged up and down by decisions and performance of the zone as a whole.

This is where helicopter money flies in.

HSBC points out that the ECB has tried to give money to banks in the hope they would lend the cash on at low rates, but so many have bad loans, they kept the cash to bolster their own balance sheets.

No freshly minted cash

So the ECB has tried to splash the cash in a more obtuse way.

Rates have been cut to discourage banks to keep cash on account and the bank bond buying program has been increased, pushing down yields.

Now governments can cut taxes and give people cash in their pockets without worrying about the consequences. Helicopter money in all but name.

“Governments do not have a supply of freshly minted cash, so the money they can put back into the economy is not helicopter money by definition,” said an HSBC spokesman.

“However, the drop in interest rates means governments can spend and cut taxes without incurring debt, which is effectively the same thing.”

The term helicopter money was coined by economist Milton Friedman to explain how central banks could channel cash directly to the economy rather than against debt held elsewhere.

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