[peripato]

Putting your money in the bank is like giving your life savings to your Uncle Frank who has a gambling problem.

And now that the BOJ has gone negative in interest rates, they are charging both banks and depositors to have excess reserves and savings.

Can you say capital flight?

Or, eat the rich, as they say...

[Rod_Cloutier]

I could use some helicopter money right now I'm broke.

[evilgenius]

First of all, it's a mistake to confuse hyperinflation with severe deflation. When we look at pictures of people with wheelbarrows full of money we look right past what is going on with money under a deflationary scenario. Under deflation money is harder to come by because it is more valuable. Under hyperinflation it has so little value that people make kites out of it, or build blocks with it, or burn it to heat breakfast. They are not two sides of the same coin. The solutions for one may, or may not, engender a reversal that could bring on the other if steps aren't taken to throttle back those solutions early enough in the recoveries that said solutions bring about. They are related in that way, but otherwise they aren't more weirdly conjoined.

That being said, isn't a lot of this discussion really about redistribution? People in the US, and most of the other First World States, are unhappy these days. Most of this unhappiness can be addressed to economics. Everybody is laughing, or angrily pointing at politicians over this. The thing they may be missing is that politicians can't do anything about what is going on. The system lacks some basic things in its design that would otherwise redistribute wealth. I'm not talking about robbing the rich to pay the poor either. I'm talking about how there is an 80/20 rule in business that has been violated over the long term because the system lacks the means to maintain wages amongst the working class, for instance, at a level commensurate with the overall rise in inflation seen over decades. And that is only an example of what has been happening over the long run. There has also been an aggregate transfer of power within corporations from capitalist owners to management. A lot of this is because wealth transfer along these lines has been understood in the context of an inherited office rather than ownership as a system of rights that extends from share to share and has identity across time. Helicopter money could provide a temporary fix to what ails us, but it won't address these other things, nor the myriad other systemic problems our system has.

[peripato]

I could use some helicopter money right now I'm broke.

I'm curious, were your circumstances better 15 years ago? Are you making more today than ever before, but still going backwards? Is your head filled with doubts about the future? Then welcome, to the end of tomorrow!

[Rod_Cloutier]

I'm curious, were your circumstances better 15 years ago? Are you making more today than ever before, but still going backwards? Is your head filled with doubts about the future? Then welcome, to the end of tomorrow

All of the above. I used to dream about making $20 an hour, and now that I make that I can't afford to buy anything. The kids were little 15 years ago, and now they don't want to have as much to do with me as young adults. There is so much lying and disinformation around I don't know what is real- how do you plan for the future when there are so many variables, and most of what passes as news is propaganda or outright lies.

You nailed that one!

[evilgenius]

I've been reading about "helicopter money", and here is what I think it all means.

Helicopter money involves the FED crediting your bank account with money they created out of thin air. No debt attached. Money supply is increased.

QE involved the FED swapping bad debt held by the banks for excess bank reserves they created out of thin air. No debt attached. Money supply remains the same, but the bond yield curve is affected.

QE involved a liquidity swap with the stated intention that the bad debt will at some time be sold back to the private sector when the economy picks up and there is the first sign of inflation above target. Which raises a few questions: Will the bad debt be good debt by the time the FED needs to sell it to rein in the money supply? Or will they sell other securities they hold and continue to hide the bad debt on their balance sheet? Are there enough good securities to do that?

Helicopter money would be put into reverse by raising taxes when the economy is doing better and inflation arises above target. What will people do with their “helicopter money”? Will they save the money or spend it? Let us suppose they buy government debt in the form of bonds. Then this is exactly the same as QE, except that consumers will hold government debt temporarily, instead of the central bank. The ROI will offset the tax bill when it comes. For the credit constrained folk, the central bank’s “check” is just like the loan they couldn’t get. So they use the “check” to make some tangible purchase and reduce their future consumption to pay the tax bill when it comes. Instead of buying government debt, they have bought something real, which will increase aggregate demand for sure.

Bottom line: Helicopter money won't be free. How much you have to pay back, I guess will depend upon how well the economy is doing. Anybody see something I am missing here? Kind of uncharted waters.

I don't think that will work. I believe Marx was right with his suggestion that if the people have more money relatively, then the landlords will take it from them. Increases in rent can be observed to happen very quickly when there is an increase in the local supply of money. Rent doesn't necessarily have to mean paying for a place to live. It can mean paying for anything that can be considered a necessity. These increases tend to suck the lifeblood out of the endeavors that people might otherwise make to go into business, or expand the businesses they are engaged in. By definition they take from those who are in business to provide novelty.

[MonteQuest]

I don't think that will work.

Then the jig may be up.

[evilgenius]

I don't think that will work.

Then the jig may be up.

Not necessarily. If they have to they can try this: subsidize the payments of borrowers who have borrowed to purchase land. They can set a rate, even a negative rate, which is their target. Then they can expect those borrowers to make their loan payments up to that amount that their loan at that rate would be, and they can pick up the rest. The banks would receive payment as if the loans were being paid at the original agreed upon rate. The money supply would not be destroyed. Of course the debt would be increased, but with less risk that the money used to do so would be ineffective at propping up the economy. As long as it is written in law that they won't ask these same people for the money back after the mess is over, don't let it lever back the other way but instead allow market forces to run as normal afterward, they should be able to expect those dollars to be spent where they will do the most good.

But they probably won't do that. I expect at some point down the line we will see negative rates alright, but used to try to force people out of their savings accounts and into the economy. Pretty soon we'll see how much success the Japanese are having with that. People have a way of building black and gray markets for things like that rather than do what the government thinks is good for them.

Mind you, there is another shock coming when the energy sector defaults en masse. Whatever they do they probably should wait until they can get a handle on what those defaults will mean. I want to believe the current rate raising regime is about forcing the banks to loan money rather than sitting on it at the Fed window, but that may just be wishful thinking. They may be after whatever recovery is coming, in the form of stifling wage increases, or they may be after positioning themselves for what will happen when the energy sector defaults all together. They may be looking for the bully pulpit of rate decreases used to instill confidence. Who knows?

[MonteQuest]

Not necessarily. If they have to they can try this: subsidize the payments of borrowers who have borrowed to purchase land.

Not much better. We have drank the water we use to prime the pump.

I expect at some point down the line we will see negative rates alright, but used to try to force people out of their savings accounts and into the economy. Pretty soon we'll see how much success the Japanese are having with that.

The European banks have seen their stocks crash 40% since NIRP.

I want to believe the current rate raising regime is about forcing the banks to loan money rather than sitting on it at the Fed window, but that may just be wishful thinking.

A lot of people have deleveraged, but now are running up student debt and subprime auto loans. Don't know how much demand for loans would exist.

[evilgenius]

Not necessarily. If they have to they can try this: subsidize the payments of borrowers who have borrowed to purchase land.

Not much better. We have drank the water we use to prime the pump.

The economy these days resembles a riot in certain ways, especially modern riots and how they develop with the help of social media. Everybody is jumping into the same solutions. There isn't enough pacing, nor segregation according to need/demand. Both student loans and health care costs are a function of how much money is available to chase after them, not of the cost of the components that make them up. And that is because, in both cases, politics has come in and skewed the equation outside of proportion to reason. The system eschews management. Instead it goes piecemeal into that good night, like a once driveable street that has turned into a monstrosity that you can't go a hundred yards on without having to stop for a red light, for miles on end.

The whole idea behind subsidizing mortgages is that it puts the money into the hands of a group that doesn't already have a call in place upon their money, such that any increase in it will simply balloon the price of those calls out of proportion. In doing so, and in placing the money into the hands of those who are invested in the economy rather than spinning around as wastrels, the hope is that businesses of all kinds would have to use marketing to persuade this group to spend their money with them. There wouldn't be any automatic increase in any one segment. Some people would improve their homes, others go on vacation, still others go out to eat more often, they would make the call based upon their own wants or needs and not those of a vice grip that is in place upon them.

The biggest danger I see is that too much of this money might go to big conglomerates doing business on the net, like Amazon, and too little of it get spent locally. It might not produce the number of jobs that a scheme like it would have not too many decades ago. And yet people live locally. In the end you have to trust people to be themselves, where they are both locally and nationally. Really, if the Amazons of this world begin to take too much, maybe it'd be time to consider something like a national sales tax of, say, one percent?

[MonteQuest]

The whole idea behind subsidizing mortgages is that it puts the money into the hands of a group that doesn't already have a call in place upon their money, such that any increase in it will simply balloon the price of those calls out of proportion. In doing so, and in placing the money into the hands of those who are invested in the economy rather than spinning around as wastrels, the hope is that businesses of all kinds would have to use marketing to persuade this group to spend their money with them. There wouldn't be any automatic increase in any one segment. Some people would improve their homes, others go on vacation, still others go out to eat more often, they would make the call based upon their own wants or needs and not those of a vice grip that is in place upon them.

Won't everyone who is underwater want the same bailout from student debt, auto loans?

[evilgenius]

The whole idea behind subsidizing mortgages is that it puts the money into the hands of a group that doesn't already have a call in place upon their money, such that any increase in it will simply balloon the price of those calls out of proportion. In doing so, and in placing the money into the hands of those who are invested in the economy rather than spinning around as wastrels, the hope is that businesses of all kinds would have to use marketing to persuade this group to spend their money with them. There wouldn't be any automatic increase in any one segment. Some people would improve their homes, others go on vacation, still others go out to eat more often, they would make the call based upon their own wants or needs and not those of a vice grip that is in place upon them.

Won't everyone who is underwater want the same bailout from student debt, auto loans?

Yeah, but the point isn't in giving a break to people who are in debt. Of course their debt ties them into the trouble as much as those holding mortgages, but the reason for the subsidy is a certain kind of stimulus and not a break. Besides, if it works, they would benefit from the money supply not collapsing and their debt not ballooning because dollars are so much harder to come by with which to pay off their debt.

[MonteQuest]

Won't everyone who is underwater want the same bailout from student debt, auto loans?

Yeah, but the point isn't in giving a break to people who are in debt.

That's even worse. Another bailout for the well-to-do? If they are not in debt, why wouldn't they just invest the subsidy. rather than spend it?

[evilgenius]

Won't everyone who is underwater want the same bailout from student debt, auto loans?

Yeah, but the point isn't in giving a break to people who are in debt.

That's even worse. Another bailout for the well-to-do? If they are not in debt, why wouldn't they just invest the subsidy. rather than spend it?

Break for the wealthy? Why characterize it like that? Mortgage holders are by definition in debt. What they are is in debt for a commitment to something that ties them to their locality. Have you decided to simply come out against the idea out of some preconceived notion? It doesn't tick checkboxes. Maybe you didn't think of it.

What it would do would be to put money into the hands of those with no prior call upon their gain because they are not subject to rentier capitalism. Into local hands and not macro-focused banks. As such they would be more likely to spend the money in ways that would benefit their local economy. Students aren't tied that way. They may also pay rent. Auto buyers may be local, but they may also pay rent.

You would simply have to trust the normal curve to take care of the savings problem. In other words, some people will save, but you should be able to expect that to be in numbers small enough compared to the rest that it wouldn't mean a severe restraint upon the stimulus. Like I said, my worry is Amazon.

Also, the reasoning behind negative interest rates is surprising to a degree. Why wouldn't you want people saving? Isn't saving the backbone of the banking system? It's true that fractional reserve banking allows for money supply expansion, but you have to have some kind of basic amount of reserves to start the ball rolling. The more should be the merrier, unless you allow your local banks to become swallowed up in what the much larger banking organizations are doing, where they get their reserve base from.

Small time players essentially participate in a negative interest rate environment today, btw, because of fees charged for services on accounts that today yield such low interest rates that their total amount in savings is actually going backward. That doesn't force people out of their savings accounts, though. There is also the relative safety issue to consider. If things get bad enough for helicopter money the relative safety issue will become even more important.

[MonteQuest]

Break for the wealthy? Why characterize it like that?

Because that is how the public would perceive it, is what I am saying.

Also, the reasoning behind negative interest rates is surprising to a degree. Why wouldn't you want people saving? Isn't saving the backbone of the banking system?

Yes. Which shows it to be an act of desperation to stimulate growth. Depositors hopefully withdraw their funds to spend. And banks lose money sitting on reserves, so are forced to lend.

[evilgenius]

I thought that's what you meant. The way this kind of communication works isn't exact. Sorry to push you, or make you think I wasn't understanding where you were coming from.

[MonteQuest]

I thought that's what you meant. The way this kind of communication works isn't exact. Sorry to push you, or make you think I wasn't understanding where you were coming from.

Yeah, chat has a lot of short-comings. We are cool. No offense taken.

[Revi]

I don't know if it will come to helicopter money. I think they'll cause the collapse to happen and we'll all be in abject poverty while the power elite are going to continue their lifestyles. It will be like any number of countries in the global south. The rich will live in compounds surrounded by the desperately poor.