E Helicopter Money Is Being Misrepresented By Bill Gross And Others

I am happy that Bill Gross and others are speaking to the issue of helicopter money. It is an important issue if you believe the citizens need a bailout, but more important if you fear negative interest rates for bonds as is happening in Europe. We aren't speaking about negative interest on reserves. That is something different. Negative interest rates on bonds are a function of scarcity of supply and massive demand.

However, helicopter money is being misrepresented by Bill Gross and others as being a form of Quantitative Easing (QE). It is not. That view could very well just be from reading the views of others, creating a snowball effect. And Gross is a bond manager, after all. He thinks bonds.

Real helicopter money is a payment to people sans the use of treasury bonds. It could be a payment for infrastructure but that is not the proponents' main goal for HM. No, HM is simply a payment of base money, created out of nothing, to people in society in equal measure. It is useful in a deflationary environment. The money stays in circulation but there is a short window where payments are actually made.

QE is not involved in pure helicopter money plans. QE is the taking of bonds out of circulation and trading them to banks for excess reserves. That is not helicopter money. We have not done helicopter money in a QE environment. Bill Gross says we have been doing helicopter money for 6 years in the form of QE.

I assume his view of excess reserves created in QE, after reading his article that appeared at Zero Hedge and elsewhere, would just be funneled to the people or for infrastructure instead of to the banks. But again, real helicopter money has to be given a chance to work. I will explain why QE bond swapping for created money will not give HM a chance at all. Bottom line, we don't want more of this in the HM process:

 

Also, Bill Gross says that the payment to people would be permanent. But the HM purists like Eric Lonergan say it would be a payment in a window of 12 to 18 months, or Friedman said, one time, which would cause the money to circulate permanently. This is not what Bill Gross said in the Zero Hedge article.  He wants funding to families to be permanent. That could cause problems from a purist point of view.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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