Helicopter money: Central Banks should directly fund government deficits

- Peter Myers

Date: March 27, 2020

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(1) WaPo publishes Michael Hudson call for Debt Jubilee as Only Way to Avoid a Depression
(2) Fed helicopter has to go to the people, not Wall St - Ellen Brown
(3) Massive Government Spending without incurring a Debt Burden
(4) Governments must act now to avert a Depression - Martin Wolf in the Financial Times
(5) Helicopter money: Central Banks should directly fund government deficits - Martin Sandbu in the Financial Times
(6) Debt Forgiveness for Poor Countries
(7) Debt Forgiveness needed to save Millions in poor countries
(8) The State must act as a Shock Absorber - Ambrose Evans-Pritchard

(1) WaPo publishes Michael Hudson call for Debt Jubilee as Only Way to Avoid a Depression

This is the first time, as far as I know, that the WaPo has published an article by renegade economist Michael Hudson - Peter M.

Hudson: A Debt Jubilee is the Only Way to Avoid a Depression; coronavirus outbreak mind-expansion exercise, making hitherto unthinkable solutions thinkable


A debt jubilee is the only way to avoid a depression

By Michael Hudson

March 22, 2020 at 7:18 a.m. GMT+10

Michael Hudson, author of "É and forgive them their debts" and "Killing the Host," is president of the Institute for the Study of Long-Term Economic Trends and is distinguished research professor of economics at the University of Missouri at Kansas City.

Even before the novel coronavirus appeared, many American families were falling behind on student loans, auto loans, credit cards and other payments. America's debt overhead was pricing its labor and industry out of world markets. A debt crisis was inevitable eventually, but covid-19 has made it immediate.

Massive social distancing, with its accompanying job losses, stock dives and huge bailouts to corporations, raises the threat of a depression. But it doesn't have to be this way. History offers us another alternative in such situations: a debt jubilee. This slate-cleaning, balance-restoring step recognizes the fundamental truth that when debts grow too large to be paid without reducing debtors to poverty, the way to hold society together and restore balance is simply to cancel the bad debts.

The word "Jubilee" comes from the Hebrew word for "trumpet" - yobel. In Mosaic Law, it was blown every 50 years to signal the Year of the Lord, in which personal debts were to be canceled. The alternative, the prophet Isaiah warned, was for smallholders to forfeit their lands to creditors: "Woe to you who add house to house and join field to field till no space is left and you live alone in the land." When Jesus delivered his first sermon, the Gospel of Luke describes him as unrolling the scroll of Isaiah and announcing that he had come to proclaim the Year of the Lord, the Jubilee Year.

Until recently, historians doubted that a debt jubilee would have been possible in practice, or that such proclamations could have been enforced. But Assyriologists have found that from the beginning of recorded history in the Near East, it was normal for new rulers to proclaim a debt amnesty upon taking the throne. Instead of blowing a trumpet, the ruler "raised the sacred torch" to signal the amnesty.

It is now understood that these rulers were not being utopian or idealistic in forgiving debts. The alternative would have been for debtors to fall into bondage. Kingdoms would have lost their labor force, since so many would be working off debts to their creditors. Many debtors would have run away (much as Greeks emigrated en masse after their recent debt crisis), and communities would have been prone to attack from without.

The parallels to the current moment are notable. The U.S. economy has polarized sharply since the 2008 crash. For far too many, their debts leave little income available for consumer spending or spending in the national interest. In a crashing economy, any demand that newly massive debts be paid to a financial class that has already absorbed most of the wealth gained since 2008 will only split our society further.

This has happened before in recent history - after World War I, the burden of war debts and reparations bankrupted Germany, contributing to the global financial collapse of 1929-1931. Most of Germany was insolvent, and its politics polarized between the Nazis and communists. We all know how that ended.

America's 2008 bank crash offered a great opportunity to write down the often fraudulent junk mortgages that burdened many lower-income families, especially minorities. But this was not done, and millions of American families were evicted. The way to restore normalcy today is a debt write-down. The debts in deepest arrears and most likely to default are student debts, medical debts, general consumer debts and purely speculative debts. They block spending on goods and services, shrinking the "real" economy. A write-down would be pragmatic, not merely moral sympathy with the less affluent.

In fact, it could create what the Germans called an "Economic Miracle" - their own modern debt jubilee in 1948, the currency reform administered by the Allied Powers. When the Deutsche Mark was introduced, replacing the Reichsmark, 90 percent of government and private debt was wiped out. Germany emerged as an almost debt-free country, with low costs of production that jump-started its modern economy.

Critics warn of a creditor collapse and ruinous costs to government. But if the U.S. government can finance $4.5 trillion in quantitative easing, it can absorb the cost of forgoing student and other debt. And for private lenders, only bad loans need be wiped out. Much of what would be written off are accruals, late charges and penalties on loans gone bad. It actually subsidizes bad lending to leave them in place.

In the past, the politically powerful financial sector has blocked a write-down. Until now, the basic ethic of most of us has been that debts must be repaid. But it is time to recognize that most debts now cannot be paid - through no real fault of the debtors in the face of today's economic disaster.

The coronavirus outbreak is serving as a mind-expansion exercise, making hitherto unthinkable solutions thinkable. Debts that can't be paid won't be. A debt jubilee may be the best way out.


Michael Hudson: A Debt Jubilee is the Only Way to Avoid a Depression

Posted on March 22, 2020 by Jerri-Lynn Scofield

(2) Fed helicopter has to go to the people, not Wall St - Ellen Brown


Socialism at Its Finest after Fed's Bazooka Fails

Posted on March 21, 2020 by Ellen Brown

In what is being called the worst financial crisis since 1929, the US stock market has lost a third of its value in the space of a month, wiping out all of its gains of the last three years. When the Federal Reserve tried to ride to the rescue, it only succeeded in making matters worse. The government then pulled out all the stops. To our staunchly capitalist leaders, socialism is suddenly looking good.

The financial crisis began in late February, when the World Health Organization announced that it was time to prepare for a global pandemic. The Russia-Saudi oil price war added fuel to the flames, causing all three Wall Street indices to fall more than 7 percent on March 9. It was called Black Monday, the worst drop since the Great Recession in 2008; but it would get worse.

On March 12, the Fed announced new capital injections totaling an unprecedented $1.5 trillion in the repo market, where banks now borrow to stay afloat. The market responded by driving stocks 8% lower.

On Sunday, March 15, the Fed emptied its bazooka by lowering the fed funds rate nearly to zero and announcing that it would be purchasing $700 billion in assets, including federal securities of all maturities, restarting its quantitative easing program. It also eliminated bank reserve requirements and slashed Interest on Excess Reserves (the interest it pays to banks for parking their cash at the Fed) to 0.10%. The result was to cause the stock market to open on Monday nearly 10% lower. Rather than projecting confidence, the Fed's measures were generating panic.

As financial analyst George Gammon observes, the Fed's massive $1.5 trillion in expanded repo operations had few takers. Why? He says the shortage in the repo market was not in "liquidity" (money available to lend) but in "pristine collateral" (the securities that must be put up for the loans). Pristine collateral consists mainly of short-term Treasury bills. The Fed can inject as much liquidity as it likes, but it cannot create T-bills, something only the Treasury can do. That means the government (which is already $23 trillion in debt) must add yet more debt to its balance sheet in order to rescue the repo market that now funds the banks.

The Fed's tools alone are obviously incapable of stemming the bloodletting from the forced shutdown of businesses across the country. Fed chair Jerome Powell admitted as much at his March 15 press conference, stating, "[W]e don't have the tools to reach individuals and particularly small businesses and other businesses and people who may be out of work É. We do think fiscal response is critical." "Fiscal policy" means the administration and Congress must step up to the plate.

What about using the Fed's "nuclear option" ­ a "helicopter drop" of money to support people directly? A March 16 article in Axios quoted former Fed senior economist Claudia Sahm:

The political ramifications of the Fed essentially printing money and giving it to people ­ there are ways to do it, but the problem is if the Fed does this and Congress still has not passed anything É that would mean the Fed has stepped in and done something that Congress didn't want to do. If they did helicopter money without congressional approval, Congress could, and rightly so, end the Fed.

The government must act first, before the Fed can use its money-printing machine to benefit the people and the economy directly.

The Fed, Congress and the Administration Need to Work as a Team

On March 13, President Trump did act, declaring a national emergency that opened access to as much as $50 billion "for states and territories and localities in our shared fight against this disease." The Dow Jones Industrial Average responded by ending the day up nearly 2,000 points, or 9.4 percent.

The same day, Democratic presidential candidate Rep. Tulsi Gabbard proposed a universal basic income of $1,000 per month for every American for the duration of the crisis. She said, "Too much attention has been focused here in Washington on bailing out Wall Street banks and corporate industries as people are making the same old tired argument of how trickle-down economics will eventually help the American people." Meanwhile the American taxpayer "gets left holding the bag, struggling and getting no help during a time of crisis." H.R. 897, her bill for an emergency UBI, she said was the most simple, direct form of assistance to help weather the storm.

Democratic presidential candidate Andrew Yang, who made a universal basic income the basis of his platform, would go further and continue the monthly payments after the coronavirus threat was over.

CNBC financial analyst Jim Cramer also had expansive ideas. He said on March 12:

How about a $500 billion Treasury issue É [at] almost no interest cost, to make sure that when people are sick they don't have to go to work, and companies that are in trouble because of that can still make their payroll. How about a credit line backstopped by É the Federal Reserve. I know the Federal Reserve is going to say they can't do that, Congress is going to say they can't do that, everyone is going to say what they said in 2007, they can't do that, they can't do that - until they did it. É [W]e heard all that in 2007 and they ended up doing everything.

And that looks like what will happen this time around. On March 18, as the stock market continued to plummet, the administration released an outline for a $1 trillion stimulus bill, including $500 billion in direct payments to Americans, along with bailouts and loans for the airline industry, small businesses, and other "critical" sectors of the U.S. economy.

But the details needed to be hammered out, and even that whopping package buoyed the markets only briefly. In the bond market, yields shot up and values went down, on fears that the flood of government bonds needed to finance this giant stimulus would cause bond values to plummet and the government's funding costs to shoot up.

Extraordinary Measures for Extraordinary Times

There is a way around that problem. To avoid driving the federal debt into the stratosphere, the Treasury could borrow directly from the central bank interest-free, with an agreement that the debt would remain on the Fed's books indefinitely. That approach has been tested in Japan, where it has not generated price inflation as austerity hawks have insisted it would. The Bank of Japan has purchased nearly 50 percent of the government's debt, yet consumer price inflation remains below the BOJ's 2 percent target.

Virtually all money today is simply "monetized" debt ­ debt turned by banks into something that can be spent in the marketplace ­ and the ultimate backstop for this sleight of hand is the central bank and the government, which means the taxpayers. To equalize our very unequal system, the central bank and the government need to work together. The Fed needs to be "de-privatized" ­ turned into a public utility that serves the taxpayers and the economy. As Eric Striker observed in The Unz Review on March 13:

The US government's lack of direct control over the nation's central bank and the plutocratic nature of our weak state means that common sense solutions are off the table. Why doesn't the state buy up majority shares in large corporations (or outright nationalize them, as happened with the short successful experiment with General Motors in 2009) and use the $1.5 trillion at low interest to develop American industrial independence?

Interestingly, that too could be on the table in these extraordinary times. Bloomberg reported on March 19 that Larry Kudlow, the White House's top economic adviser, says the administration may ask for an equity stake (an ownership interest) in corporations that want coronavirus aid from taxpayers. Kudlow noted that when this was done with General Motors in 2008, it turned out to be a good deal for the federal government.

While traditionally considered "anti-capitalist," the government taking an ownership interest in bailed out companies may be the only way the proposed bailouts will get approval. There is little sentiment today for the sort of no-strings-attached "socialism for the rich" that the taxpayers shouldered in 2008 without reaping the benefits. Bloomberg quotes Jeffrey Gundlach, chief executive officer at DoubleLine Capital:

I don't think government bailouts of over-leveraged companies that got over-leveraged by share buybacks at all-time highs, enriching executives and hedge fund investors, will sit well with the American people.

The Bloomberg article concludes with a quote from another chief investment officer, Chris Zaccarelli of Independent Advisor Alliance:

I like how [the administration is] thinking a little bit outside of the box. Something big and bold like that could potentially be what turns the market around É.

Long-term Solutions

Rather than just a stake in the profits, the government could think a bit further outside the box and turn insolvent airlines, oil companies, and banks into public utilities. It could require them to serve the people and the economy rather than just maximizing the short-term profits of their shareholders.

Concerning the banks, the Fed could do as the People's Bank of China is doing in this crisis. The state-run PBoC is giving regional banks $79 billion in stimulus money, but it is on condition that they lend it to small and medium enterprises and forgive late payments, so that economic damage is reversed and production can recover quickly.

Another model worth studying is that of Germany, which also has a strong public banking system. As part of a package for coronavirus aid that the German finance minister calls its "big bazooka," the government is offering immediate access to loans up to ¤500,000 for small businesses through its public bank, the KfW (Kreditanstalt fuer Wiederaufbau), administered through the publicly-owned Sparkassen and other local banks. The loans are being made available at an interest rate as low as 1%, with interest only for the first two years.

Contrast that to the aid package President Trump announced last week, which will authorize the Small Business Administration to offer business loans. After a lengthy process of approval by state authorities, the loans can be obtained at an interest rate of 3.75% ­ nearly 4 times the KfW rate. German and Chinese public banks are able to offer rock-bottom interest rates because they have cut out private middlemen and are not driven by the insatiable demand for shareholder profits. They can lend countercyclically to avoid booms and busts while supporting the economy as a whole.

The U.S., too, could create a network of publicly-owned banks backed by the central bank, which could lend into their communities at below-market rates. And this is the time to do it. Times of crisis are when change happens. When the Covid-19 scare has passed, we will have a different government, a different economy and a different financial system. We need to make sure that what we get is an upgrade that works for everyone.

(3) Massive Government Spending without incurring a Debt Burden

Subject: [BULK] Is coronavirus leading to a revolution of the system? From: "Stan, Positive Money EU" <info@positivemoney.eu>

An incredible amount has happened in the last few weeks and changed all our lives quite dramatically. Just like most people the Positive Money Europe team is working from home, however, we have never been busier!

Covid-19 has pushed politicians and central bankers into making decisions that would've been unthinkable just a few weeks ago:

Governments have put hundreds of billions on the table to support companies and SMEs. How can they suddenly afford to spend all that money after years telling of us we should tighten our belts to reduce deficits?

One reason for this is they have the support from central banks. In an unprecedented move, the ECB has announced a new 750 billions euros of quantitative easing.

Meanwhile, EU leaders are discussing the possibility of joining forces by issuing common European debt ­ a concept known as « Eurobonds » which used to be a taboo in the EU.

All these measures were unthinkable even a few weeks ago and strongly contradict past decades of mainstream neoliberal policy making in Europe. We've been told for years that we must tighten our belts to reduce the deficit; and now they want to spend like crazy.

Has economic orthodoxy suddenly been turned on its head?

But let's not fool ourselves: most of this money will not end up in the hands of ordinary people, and, after governments spend this amount of money, they will find themselves left with a tremendous pile of debt.

Unless we truly shift the economic paradigm once and for all, then the deadly mentality of austerity is bound to return with a vengeance afterwards.

To stop this from happening, European governments and institutions should implement alternative measures so that they can tackle the economic fallout of Covid-19 whilst avoiding a massive unsustainable debt burden in the future.

Helicopter Money is the best of these key measures as it would give the right boost to the eurozone economy in the long term, when the current health crisis is over. Why? Because it puts money directly where it is most needed and can be easily spent from: people's pockets. And it does it without increasing the debt burden!

Not acting now would dramatically worsen the recession we've already been thrown into and likely result in an economic crisis the likes of which Europe has not experienced since 2008. That's why Positive Money Europe will fight tooth and nail in the coming weeks to push the EU into taking the kind of transformational measures we desperately need.

We will continue releasing articles as the situation develops so please do keep an eye on our blog and follow us on Facebook and Twitter to stay up-to-date.

Other great reads:

The virus is an economic emergency too and governments must act now to avert a depression, warns Martin Wolf, chief economics commentator at the Financial Times

Coronavirus has shattered the myth that the economy must come first, writes Adam Tooze in The Guardian

The ECB Must Finance COVID-19 Deficits, writes Paul De Grauwe in Project Syndicate

Coronavirus: the moment for helicopter money - a great article by Martin Sandbu in the Financial Times

The ECB's Pandemic Emergency Purchase Programme is a big deal, suggests Jens van 't Klooster

COVID-19 Is an Opportunity for Europe, argues Lucrezia Reichlin, a former director of research at the European Central Bank

Helicopter Money "would provide strong stimulus without increasing the public debt burden", writes Adair Turner

Higher public debt levels will become an economic feature and be accompanied by private debt cancellation, Mario Draghi, former ECB President writes in the FT

Italy will be Europe's canary in the coalmine for the post-Covid economy, opinion from Marchel Alexandrovich, The Guardian

"Though the ECB is rightly aiming at addressing the coronavirus crisis, there is a risk that fossil fuels free-ride on those measures gain even cheaper financing to maintain their activities," our Stan Jourdan told Climate Home News

Quote of the month

"Another option would be for fiscal support to be financed by a permanent increase in money supply, created by central banks, which could substitute for debt-financed programmes. This approach should not raise fears of inflation as long as growth remains below potential, and central bank independence is respected. And it would reassure markets about the capacity of governments to support the economy."

Laurence Boone, Chief Economist at the OECD

Stay healthy and safe, and we will keep you informed!

Stan Jourdan

Executive Director, Positive Money Europe

(4) Governments must act now to avert a Depression - Martin Wolf in the Financial Times


The virus is an economic emergency too

As borrowers and spenders of last resort, governments must act now to avert a depression

Martin Wolf

March 17, 2020

The pandemic was not unexpected. But reality always differs from expectations. This is not just a threat to health. It may also be a bigger economic threat than the financial crisis of 2008-09. Dealing with it will require strong and intelligent leadership. Central banks have made a good start. The onus now falls on governments. No event better demonstrates why a quality administrative state, led by people able to differentiate experts from charlatans, is so vital to the public.

A central question is how deep and long the health emergency will be. One hope is that locking down countries (as in Spain) or parts of countries (as in China) will eliminate the virus. Yet, even if this proved to be true in some places, it will clearly not be true everywhere. An opposite extreme is that up to 80 per cent of the world's population could be infected. At a possible mortality rate of 1 per cent, that could mean 60m additional deaths, equivalent to the second world war. This calamity would probably also take time: the Spanish flu of 1918 came in three waves, over a year. Yet it is more likely that this ends up in the middle: the death rate will be lower, but the disease will also not disappear.

If so, the world might not return to pre-crisis behaviour until well into 2021. Younger people might behave normally, sooner. But older ones will not. Moreover, even if a few countries do eliminate the disease, quarantines will be maintained against others. In sum, the impact of the coronavirus is likely to be severe and prolonged. At the very least, policymakers must plan on that.

The pandemic has already squeezed both supply and demand. Lockdowns halt essential supplies and a wide range of purchases, especially entertainment and travel. The result will be a sharp fall in activity in the first half of this year.

Above all, a depression threatens. Many households and businesses are likely to run out of money soon. Even in wealthy countries, a large proportion of the population has next to no cash reserves. The private sector - above all the non-financial corporate sector - has also gorged itself on indebtedness.

So consumer demand will weaken even more. Businesses will go bankrupt. People will refuse to sell to businesses deemed likely to go bankrupt, unless they can offer payment in advance. Doubt about the health of the financial system will re-emerge. There is a risk of a collapse in demand and economic activity that goes far beyond the direct impact of the health emergency.

It will also be particularly hard to contain the spread of disease in countries with limited social insurance and weak social control. This will affect the US above all: many sick people will refuse to go to hospital and will also be forced to work. Social insurance is efficient.

As lenders of last resort, the central banks must ensure liquidity by keeping the cost of borrowing low and financing credit supply, both directly and indirectly. But central banks cannot deliver solvency. They cannot underpin household incomes or insure businesses against this collapse in demand. As borrowers and spenders of last resort, governments can and must do so.

Long-term government debt is so cheap that they need feel no fear of doing so, either: Germany, Japan, France and the UK are now able to borrow for 30 years at a nominal rate of less than 1 per cent, Canada at 1.3 per cent and the US at 1.4 per cent.

This, then, is a time-limited crisis, with economic and health consequences that governments must manage. Domestically, the bare minimum is generous sick pay and unemployment insurance, including to freelance workers, for the period of the crisis. If this is too difficult, governments can just send everybody a cheque.

Yet even this will not be enough if the costs of mass bankruptcy and a depression are to be avoided. Emmanuel Saez and Gabriel Zucman of Berkeley argue that: "The most direct way to provide ... insurance is to have the government act as a buyer of last resort. If the government fully replaces the demand that evaporates, each business can keep paying its workers and maintain its capital stock, as if it was operating ... as usual. Anatole Kaletsky of Gavekal has recommended a similar response.

Providing such relief will not create moral hazard. Being helped through a once-in-a-century pandemic will hardly encourage egregious irresponsibility. If businesses have borrowed too much, they will still go bankrupt, in the end.

This plan is far better than loans and loan guarantees, as proposed by the German government. Businesses will take up loans only to ensure their survival through the crisis, not necessarily to pay their workers. Moreover, loans will have to be repaid, creating a burden when the pandemic ends. In this proposed programme, however, payments can be made conditional on keeping workers. The programme will also end naturally, with the pandemic itself. Governments can then impose additional taxes to recoup their outlays.

Maintaining incomes and minimising the long-term costs of collapsing businesses are essential. In addition, within the eurozone it will be essential to help governments whose ability to borrow is limited. Globally, vulnerable emerging countries will also need help managing the health and economic crises. It will be vital, too, to roll back the zero-sum nationalism of today's policies, which will make it difficult to rebuild a co-operative and healthy global order.

This too shall pass. But it will not do so tomorrow. The pandemic risks creating a depression. Salus rei publicae suprema lex (the safety of the republic is the supreme law). In war, governments spend freely. Now, too, they must mobilise their resources to prevent a disaster. Think big. Act now. Together.


Follow Martin Wolf with myFT and on Twitter

(5) Helicopter money: Central Banks should directly fund government deficits - Martin Sandbu in the Financial Times


Coronavirus: the moment for helicopter money

Economic taboos are being broken to finance the huge government deficits needed to fight the crisis

Martin Sandbu in London

March 20, 2020

The Covid-19 pandemic that is ravaging lives and livelihoods around the world has also claimed a more subtle victim: conventional taboos in economic policy thinking are swiftly being swept away.

Economic proposals that a week ago looked radical now appear timid. Fiscal packages bigger than anything seen in years are considered too small only a few days after they were announced.

Robert Chote, the head of the watchdog charged with monitoring UK fiscal discipline, said this week the government should not worry about short-term deficits because it was facing something like a "wartime situation".

"This is not a time to be squeamish about one-off additions to the public debt," he told MPs.

There has been a "recognition that this shock is absolutely different" from previous crises, says Beatrice Weder di Mauro, an economics professor and president of the Centre for Economic Policy Research. "Things are moving very fast, and minds are too."

The result is that a series of policy ideas which were once the province of a small number of mavericks and limited to purely theoretical discussions are taking centre stage.

The most important of those unorthodox approaches is the "helicopter drop" - printing money and handing it out to everyone, with no strings attached.

Ms Weder di Mauro has co-edited two ebooks on the economics of the virus crisis in as many weeks. She observes that the mainstream of economics has moved very fast towards the view that the best policy would assure that "nobody should lose their job or their income because of the virus".

Even supporters of this once unthinkable approach acknowledge it will be expensive. "We have to be willing to accept fiscal deficits on the scale of 2009," says Adair Turner, the former head of the UK's Financial Services Authority.

Given the need for large fiscal deficits, the debate about helicopter money really involves two separate policy questions, he says. The first is how to finance the stimulus - should the central bank pay for it through direct monetary financing, effectively printing money, or should governments borrow in the usual way? The second is how the money is then distributed, whether through cash handouts or other government spending.

As it is, economists and policymakers are warming to radical answers to both questions.

Central banks have not yet explicitly offered to monetise deficits, but they have opened the taps on big new asset purchase programmes to buy the glut of bonds governments will soon issue. In the eurozone, there are live discussions about issuing a joint "corona bond" or ramping up credit lines from the European Stability Mechanism, the monetary union's rescue fund for sovereigns, in the expectation that the European Central Bank would keep the cost of such borrowing low.

Some economists now call openly for explicit helicopter money in the sense that central banks should directly fund government deficits. "I do think the time is right for monetary finance," says Lord Turner. "There would be a clarity of assuring people that there is no limit on the money available."

Monetary finance was popularised as a theoretical possibility by Ben Bernanke, former US Federal Reserve chair. Since leaving the Fed, Mr Bernanke has publicly argued that "under certain extreme circumstances" monetary financing of fiscal deficit spending "may be the best available alternative".

This had long been an unacceptable view among economists, who were scarred by the stagflationary 1970s and worried about the dangers of hyperinflation that had ravaged countries in interwar Europe and more recently in the developing world. This changed with the global financial crisis, when central banks engaged in massive money creation without inflationary effects. Warnings about hyperinflation lost their bite.

As for direct cash handouts, they are already happening. In February, the government of Hong Kong decided to transfer HK$10,000 ($1,270) to all residents financially affected by the virus outbreak. Singapore's latest budget, too, provides for small cash payments to all adult Singaporeans.

In the US, support is building for sending cheques directly to all Americans. Former economic advisers to presidents Barack Obama and George W Bush support the idea. President Donald Trump and his Treasury secretary Steven Mnuchin have proposed it, and senators have included it in the stimulus bill currently going through Congress.

One reason why these unconventional ideas are gaining traction is because the financial crisis, growing inequality and the fear of technological automation causing unemployment had already triggered growing interest in new policy approaches. "There is a bit of ÔI always wanted this'," says Ms Weder di Mauro.

Betsey Stevenson, an economics professor at the University of Michigan and a former economic adviser at the Obama White House, points to the broad coalition of people all supporting cash handouts: "People on the left ... saying this is great, people on the right ... wanting to help the middle class; those who like the administrative simplicity of it; and then people who realise time is of the essence."

A second factor behind the interest in these ideas is that they are not entirely without precedent. The financial crisis and its aftermath forced central banks to take actions that brought them closer to monetary financing.

Helicopter money is already here in the sense that "a central bank gives transfers to the private sector", says Eric Lonergan, a macro fund manager. He adds that the ECB now offers loans to banks at a lower interest rate, under certain conditions, than banks receive on reserves held on deposit with the ECB. That margin is an outright money-financed fiscal transfer. Mr Lonergan argues this can be expanded and tied to conditions that in effect would transfer the subsidy to individuals.

Lord Turner says that there is no hard distinction between outright monetary financing and central banks' existing practice of buying government bonds. "Every year the Bank of Japan buys Japanese government debt equal to the government deficit. So the volume of bonds owned by the private sector does not rise. That is permanent monetary finance," he argues.

Governments have also sent no-strings-attached cheques to all citizens before. "[President George W] Bush did direct cash handouts," says Ms Stevenson. The difference is that in the 2001 and 2008 recessions the intention was to stimulate demand, today it is to "put money in the hands of people who will lose their jobs" and prevent a "cascading economic downturn".

Aside from precedent, the most important reason for the interest in helicopter drops - both as monetary finance and as direct cash payments - is the scale of the economic challenge.

If anybody had told you at Christmas that this year would be one [with] an enormous symmetric shock hitting all the advanced countries and that this would cost something like 50 per cent of GDP for a few months or maybe longer ... the kind of thing that happens in a war, everybody would have said you are crazy," says Ms Weder di Mauro. "There was no imagination to see where something like this could come from."

Governments now find themselves needing to spend much more, and to do so much faster, than they are accustomed to. "The attitude should be we're at war with this pandemic, we're going to win this war," and double-digit deficits are a price worth paying, says Ms Stevenson. "If we win the war, we can recoup that money."

(6) Debt Forgiveness for Poor Countries

- by Peter Myers, March 26, 2020

Below is an email from George Soros' activist list Avaaz; I subscribe to it to keep tabs on them. Usually I just delete their emails, but in this particular case, I agree with what they're saying - and that it's important.

Poor countries are poor because rich countries use Tax Havens. That is, companies based in the West ostensibly have their head office located in a Tax Haven, and arrange their transactions so that third-would countries get paid little for their resources, although they are sold for high prices in the West. As a result, they are in debt.

Tax Havens and Transfer Pricing are an invisible form of piracy. My remedy is that countries should repudiate debt owed to entities based in Tax Havens, and deny the legitimacy of asset ownership based there.

The consequent poverty of third-world countries is one of the main drivers of mass immigration from the third-world to the West.

The people who operate the Tax Havens are the 1% of the West, the Rulling Class - based mainly in the City Of London, New York City, Chicago, Seattle, San Francisco and LA.

The Open Borders policy they push threatens the livelihood of the 99% in the West. This is truly a case of Class War.

The Identity Politics they promote, with the co-operation of the 'Progressive' Left, keeps the 99% divided. However, in this crisis, such divisions are diminishing.

Michael Hudson says the IMF loots the Third World by foreclosing on $ loans:

In the video below, he explains how the IMF makes loans to other countries, always in $ not local currency. The goal is not to help them out, not to get interest on the loan, but to foreclose and seize the assets which are collateral for the loan. These might be railroads, water supply systems, electricity or other utilities. When the recipient country's currency collapses, and it can't pay, the IMF seizes the collateral, forcing Privatization of the asset. In that way, the USA lives off the rest of the world.

video at https://www.youtube.com/embed/xluStDQp9yE

text at http://www.globalresearch.ca/austerity-and-its-consequences-america-threatens-to-self-destruct-if-other-countries-dont-obey-it/5698953

(7) Debt Forgiveness needed to save Millions in poor countries

Subject: [MARKETING] Covid-19: Stop the next wave From: "Sarah Morrison - Avaaz" <avaaz@avaaz.org> Date: Wed, 25 Mar 2020 02:01:56 -0400

Dear friends,

"If the virus comes here, it's going to kill everyone."

South African electrician Nicholas Mashabele is terrified his poor neighbourhood won't be able to cope with a Coronavirus outbreak.

Nicholas is not alone. If the virus spreads through some of the world's poorest countries in Africa, Asia and South America, it is thought MILLIONS of people could die.

In some of these places, healthcare systems are fragile. And people simply can't afford to stay home!

But, the G20 leaders are meeting in days to work out a global response to this crisis -- and there's something experts want them to do right now to protect people like Nicholas: forgive the debt of the world's poorest countries, and let governments use it to save lives.

Let's join this global call for debt forgiveness in the time of coronavirus -- when 1 million sign, we'll deliver our voices directly to decision-makers. Sign now!

Poor countries worldwide are saddled with billions of debt to rich countries and institutions like the IMF. But right now, it makes much more sense for them to inject this cash into their healthcare systems, and help their people stay at home, so we can stop this virus spreading.

Pakistan and Ethiopia have already called for debt relief, and even the World Bank has asked G20 leaders to offer debt relief to the world's poorest countries so they can spend their precious resources on the coronavirus pandemic.

Leaders have agreed to this before, but it took huge public pressure. In 2005, G8 finance ministers cancelled debt of the world's 18 most heavily indebted countries to the tune of $40 billion! And After Ebola, the IMF cancelled $100m debt for the world's worst hit places.

So, let's make this call massive, before it's too late! This is a global crisis and we'll only beat it if countries everywhere can contain the virus. Sign now and let's urge G20 leaders to urgently write-off debt and save lives!

Tragedy can birth some of the most beautiful moments of our time, but only if we take this time to join hands. After the II World War, 20 major powers wrote off most of Germany's debt, and the United Nations was created for international peacekeeping. We can create something visionary from this crisis, but we need to urge our world leaders to rise and be the heroes this moment needs. Let's do it together.

With hope and determination,

Sarah, Alaphia, Christoph, Alice, Nell, Bert, and the rest of the Avaaz team.

(8) The State must act as a Shock Absorber - Ambrose Evans-Pritchard


A global depression is avoidable, if we shun defeatism

Ambrose Evans-Pritchard

24 March 2020 o 10:58am

Our economic plight is desperate but not (inherently) serious, to misquote the Habsburgs. Doom loops are not foreordained. It would be a policy choice to let matters spin out of control.

If the Western democracies get a grip on Covid-19 with an immediate and total lockdown ­ which several are not yet doing ­ they can essentially overcome the pandemic within eight weeks.

An economic sudden stop for two months does not fundamentally matter ­ any more than a national holiday fundamentally matters ­ provided that the state acts as a shock absorber and keeps the productive system whole, avoiding mass bankruptcies and hysteresis.

Countries can then switch to the Korea/Taiwan/Singapore strategy of "test, trace, isolate" in order to manage fresh outbreaks, at far lower levels of economic disruption, until we know more about the virus, and as we fine-tune treatment while waiting for a vaccine.

Those that borrow in their own currency and have sovereign central banks can offer this backstop. Sub-sovereigns such as Italy and Portugal will be (are already?) in trouble, and so will fixed-exchange states such as Saudi Arabia, but that is a topic for another day.

Put crudely, a transfer of public funds worth 15pc of GDP to the private sector is an accounting mirage. Firms and households accumulate a surplus while in lockdown/survival mode. This prepares the ground for a V-shaped recovery once pent-up demand is unleashed. The money flows back to governments later as fiscal windfall payments arrive. The debt ratio gradually comes back down. Bingo.

Britain's last three recessions

It is not a pure round-trip. There is leakage: the proverbial haircut that never happens. But it need not lead to an explosive rise in debt ratios if done properly, and by properly I mean the sort of wage subsidies we are seeing in a string of North European countries rather than just emergency loans.

The UK's Sunak umbrella is one of the best anywhere. It is still missing key components, but the Chancellor is plugging the gaps fast.

The much greater danger is to succumb to the canard that we cannot afford these actions, and it is worse yet if leaders listen to those liquidationists eager to send whole sectors to their ruin in a Schumpeterian clearance of "dead wood". This is no time for moral hazard. These firms have been hit by a black swan event that nobody could have predicted ­ unlike the Lehman crisis, which was foreseeable in broad terms 18 months before it happened, and in fact was foreseen.

Free market purists are a danger to society at this juncture. They are also a danger to the free market itself since the outcome of their policies would be a depression, a political revolution, and mass nationalisation of the means of production.

As Franklin Roosevelt understood (read Conrad Black's biography, a capitalist defence of FDR), there are moments when you need a shot of socialism as a vaccine against the real thing.

I assume that Washington will quickly approve trillions in fiscal aid once the Democrats secure their shopping list of social measures and impose terms. It is Donald Trump and the Republicans who face the greater reckoning if they let economic collapse occur after having already let the pandemic run wild.

The immediate risk is that the economic "holiday" will turn into a financial bust, setting off dangerous feedback loops.

Helicopter money is therefore imperative. The Rubicon dividing fiscal and monetary policy was crossed long ago in Japan. It is now being crossed definitively in the US.

The Fed has shifted through all its crisis gears at lightning speed, last week putting up firewalls for the US Treasury market, and for commercial paper and money market funds, and extending its currency swap lines to fellow central banks to backstop the dollarised global system.

This week it went beyond its 2008 or 1930s rescue menu after securing legal consent from Congress for outright purchases of corporate debt, "Muni" bonds, and ETFs, and with pledges to mop up unlimited amounts of Treasury debt if need be.

Both Morgan Stanley and Evercore ISI say the Fed's balance will soon double to $9 trillion or $10 trillion. Tom Porcelli from RBC Capital said it is in effect the Fed's "whatever it takes" moment. "The pigot is open," he said.

It comes in the nick of time. The key stress point right now is the US corporate debt market, including the $3.4 trillion of BBB-rated bonds perched above junk and vulnerable to a cascade of downgrades and forced firesales.

I suspect that the safety net will be extended soon enough to junk bonds, leveraged loans, and much of Wall Street. Economic Intelligence newsletter SUBSCRIBER (article)

Former Fed chief Janet Yellen has already called for direct purchases of equities, and to cover fiscal spending that goes into the veins of the economy and reaches ordinary people.

The Bank of England is already funding the UK fiscal deficit in all but name. Its latest £200bn blast of QE is pure monetisation of government debt. Markets know that it will never be reversed and they don't seem to care. Indeed they applaud it because they can see that Fisherite debt deflation is the greater danger. There was no flight from Gilts after the latest move. Ten-year Gilt yields fell by half and the pound rallied.

Is helicopter money a Faustian bargain that will come to haunt in the future? Maybe, although I am suspicious of morality metaphors in economics. Opponents of QE have been warning for 11 years that there is no free lunch and that inflation would take off, or that something awful would happen. Yet the pathologies of secular stagnation overwhelmed all else.

Have those pathologies changed? Perhaps. Professor Tim Congdon from the Institute of International Monetary Research ­ and the doyen of British monetarists ­ is already predicting an "inflationary boom" of sorts for 2021 and 2022, but he also thinks that this may not be such a bad development if it gets us through the current crisis.

So yes, in the long run there will be an inflationary denouement. Real interest rates will rise in earnest. The extraction process could be tricky. But since I am basically a "wet" Keynesian, I cleave to the great master's 1923 dictum: in the long run we are all dead.


My other pages on the Coronavirus are

Coronavirus was developed in a Wuhan lab as a BioWeapon: coronavirus.html .

Coronavirus Remedies - Chloroquine and Herbal Medicines: coronavirus-remedies.html . Bureaucrats Fiddle while Rome burns

Copyright: Peter Myers asserts the right to be identified as the author of the material written by him on this website, being material that is not otherwise attributed to another author.


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