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Hedge fund manager Daniel J. Arbess calls for direct money printing to Treasury
Posted on 5/19/13 at 7:42 am
Posted on 5/19/13 at 7:42 am
Wow! And yet another idea that I have been arguing for years suddenly makes its way into the WSJ, this one from last Wednesday: " Bring on the 'Helicopter Money'."
Arbess is a hedge fund manager and general partner at Perella Weinberg, and here's what he writes about the idea, which actually goes back to my hero Milton Friedman (I didn't even know this!):
EDIT: I also didn't realize that Bernanke had recommended this to Japan. I sure as shite wish he could have done it here in the U.S. instead.
Sounds pretty spot on to me.
Arbess is a hedge fund manager and general partner at Perella Weinberg, and here's what he writes about the idea, which actually goes back to my hero Milton Friedman (I didn't even know this!):
quote:
There is another possible solution. A decade ago in a widely noted speech, Ben Bernanke, then a Federal Reserve governor, encouraged Japan to finance tax cuts with money printed by the central bank and credited directly to the budgetary arm of the government without issuing any more interest-bearing debt. This idea was first proposed by Milton Friedman in 1948, who likened it to a "helicopter drop" of money for combating deflation. Today "helicopter money" is more politely called "overt monetary finance."
The Fed has already printed about $2.5 trillion of new money. Overt monetary finance might offer a more direct way to channel that money into the economy than trying to push debt through banks to the private sector. Such an approach would bypass the credit channel and send cash straight to the Treasury, where it would be deployed as directed by Congress.
The Fed would be making the equivalent of an equity investment in the Treasury, which is important because it is prohibited by law from directly buying Treasury debt. This mechanism might offer an optimum combination of fiscal and monetary stimulus without increasing private or public debt.
EDIT: I also didn't realize that Bernanke had recommended this to Japan. I sure as shite wish he could have done it here in the U.S. instead.
quote:
Overt monetary finance is only a crisis-fighting tool. Once the economy stabilizes, the nation's elected leaders must find a responsible way to correct the nation's long-run budgetary imbalances.
Sounds pretty spot on to me.
This post was edited on 5/19/13 at 7:47 am
Posted on 5/19/13 at 8:07 am to Doc Fenton
Love milton....but this is over my head
Posted on 5/19/13 at 9:58 am to Doc Fenton
quote:This may be the reason it hasn't been done before. The Fed needs to have some control over where the funds end up. As they have far more control over the banks compared to Congress, putting The Big Money directly into the hands of Congress would not be Plan A. JMHO.
Such an approach would bypass the credit channel and send cash straight to the Treasury, where it would be deployed as directed by Congress.
Posted on 5/19/13 at 11:57 am to Doc Fenton
quote:
and send cash straight to the Treasury, where it would be deployed as directed by Congress.
quote:
That really doesn't make any sense.
Congress controls the budget either way.
Posted on 5/19/13 at 12:26 pm to Doc Fenton
quote:
Once the economy stabilizes, the nation's elected leaders must find a responsible way to correct the nation's long-run budgetary imbalances.
Posted on 5/19/13 at 12:59 pm to Doc Fenton
Doc, you know coupons paid to the Fed get immediately remitted back the the Treasury already. The only thing that is actually paid is the principal which can be rolled pretty easily. We've gone at this enough you know I'm one of the biggest Fed supporters and QE defenders, but this situation just creates the biggest moral hazard in history. Interest is controlled by supply/demand of our debt so the Fed can smooth out the economic and market thirst for our debt but principal is still controlled by the budget. The budget is controlled by politicians, and if you think Keynesiasm creates a blank check for the government this would be creating a money tree. Politicians are short sighted enough.
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