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I fail to understand why any economist would prefer QE over helicopter money. Give everyone a check. If they need it to purchase everyday goods and services, gr

I fail to understand why any economist would prefer QE over helicopter money. Give everyone a check. If they need it to purchase everyday goods and services, great. If their everyday needs are fulfilled already, they will invest that money into stocks, bonds, treasuries, etc, adding the needed liquidity to the market. I understand if you're against the idea of giving people money. But this is just giving money to mostly the rich. Neo-trickle down economics.

brenden2 7y ago
This is about making sure rich people don't lose money. It's not about helping people at the bottom.
- nocorpwelfare 7y ago
  And that, most of all, is what needs to stop.
OscarCunningham 7y ago
I asked a similar question in a similar thread recently. The answer that made the most sense was that the Fed feared future inflation. If you've done QE then you can just sell the stocks again when you want to limit inflation. But if you've done helicopter money then you're stuck.
- stephen_g 7y ago
  The Govermment has something called ‘taxation’ in case that happens.
  - AnthonyMouse 7y ago
    Really, the Fed has something called "raise interest rates" in case that happens. Something they've been wanting to do since the housing crisis and the primary reason they can't is that there hasn't been enough inflation, and raising interest rates against low inflation causes deflation (which is very bad). Congress could do everybody a huge favor right now by printing quite a lot of money and handing it out. Which would address the deflationary forces created by the demand destruction of the coronavirus in the short term and allow the Fed to actually raise interest rates after the pandemic is over.
throwaway55554 7y ago
Right. And I don't believe any "stock buyback exclusion" the President and/or Congress would ask for would have any teeth at all. We're definitely going to see the money being used for bonuses and buybacks. The rich can't help but use any opportunity to get themselves richer.
sf_rob 7y ago
The most recent episode of the Neoliberal Podcast covered this in layperson's terms. Despite being pro-helicopter money, they point out that the bureaucracy to do so isn't in place and that there isn't precedent/procedure for FED action of this kind. So for now the FED is using all of the tools it's used to and waiting on congress to act, hopefully with helicopter money but it will be slow even if the current arguments around constraints are resolved.
- asdffdsa 7y ago
  Is this, in some sense, by design?
  - sudosysgen 7y ago
    Absolutely.
  - marcosdumay 7y ago
    Not by design from the FED, but yes, it's by design. Helicopter money has many other desirable characteristic, like a much short lag to get into the real economy (so the government can adjust it with an easier to control bullwhip effect) and its wide distribution meaning that it distorts less one market or another. There are very few reasons to explain why a government would make money creating so unconstrained that banks actually do not create as much as they can, and allow interest rates to go negative, instead of going for the helicopters.
JumpCrisscross 7y ago
> Give everyone a check The Fed doesn’t have the legal authority to do this. That’s why the Congress is passing stimulus bills. The Fed is focussing on our liquidity problem. That keeps solvent companies from going under due to illiquidity. Congress, and helicopter money, are needed to solve the solvency problem prompted by demand destruction.
- dredmorbius 7y ago
  More specifically: - The Fed operates under a dual mandate. It is tasked with managing both inflation and unemployment. - Its mechanisms are "open market operations" (the purchase and sale of assets, usually government bonds, though occasionally other securities), "the overnight window" (a lending operation for banks needing cash, lent at a benchmark "prime" interest rate), and bank reserve requirements. These adjust the total amount of dollars in the financial system, the basis for interest rates (the cost of renting money), and the multiplier by which banks themselver create money through loans.
- chadmeister 7y ago
  Ah finally someone who understands basic economics. This is exactly right btw
- burroisolator 7y ago
  Why wouldn't helicopter money solve the liquidity problem? Imagine you're a rich investor and you get a check from the government. You see a Company X that is suffering from liquidity issues but otherwise is doing great. Company X's stock is now plummeting because of fears of its insolvency. You, along with other investors who also received checks from the government as part of this helicopter money policy, decide to buy Company X stock. Company X is now better able to do an equity capital raise thanks to the money that you have injected. Is the argument that the Fed is better than private households in being a distressed investor? Or that wealthy households would decide to cash in the check from the government and literally store it under their mattresses instead of investing it (directly or indirectly) and add to the liquidity?
  - 7y ago
throw0101a 7y ago
> I fail to understand why any economist would prefer QE over helicopter money. It's not either-or, it's both-and. * https://twitter.com/paulkrugman/status/1241690862448529408 https://twitter.com/paulkrugman/status/1241690862448529408
nostromo 7y ago
QE is revenue neutral or positive. They buy an asset with created cash, and sell it later for a small profit. Helicopter money is revenue negative and the created cash cannot be recovered.
- dredmorbius 7y ago
  Sure it can: tax it out of existence. Or apply deflationary monetary policy; braise interest rates, increase reserve requirements, or sell bonds.
- burroisolator 7y ago
  QE is revenue neutral in theory just like helicopter money along with taxing that same amount back on a future date is revenue neutral in theory. In practice it is more like "buy $4 trillion worth of assets with created cash and never be able to sell it for fear of creating a liquidity crisis": https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL.
  - bcrosby95 7y ago
    And they buy assets at whatever price is required for the financial institution to remain solvent. At least, that's what happened during the mortgage meltdown.
  - deleted 7y ago
    [deleted]
stevenwoo 7y ago
We're about to see what works best, it appears Denmark is doing a multipronged approach that includes paying reduced salaries for the entire working population of Denmark for three months. https://www.theatlantic.com/ideas/archive/2020/03/denmark-freezing-its-economy-should-us/608533 https://www.theatlantic.com/ideas/archive/2020/03/denmark-fr...

brenden2 7y ago

This is about making sure rich people don't lose money. It's not about helping people at the bottom.

nocorpwelfare 7y ago
And that, most of all, is what needs to stop.

OscarCunningham 7y ago

I asked a similar question in a similar thread recently. The answer that made the most sense was that the Fed feared future inflation. If you've done QE then you can just sell the stocks again when you want to limit inflation. But if you've done helicopter money then you're stuck.

stephen_g 7y ago
The Govermment has something called ‘taxation’ in case that happens.
- AnthonyMouse 7y ago
  Really, the Fed has something called "raise interest rates" in case that happens. Something they've been wanting to do since the housing crisis and the primary reason they can't is that there hasn't been enough inflation, and raising interest rates against low inflation causes deflation (which is very bad). Congress could do everybody a huge favor right now by printing quite a lot of money and handing it out. Which would address the deflationary forces created by the demand destruction of the coronavirus in the short term and allow the Fed to actually raise interest rates after the pandemic is over.

throwaway55554 7y ago

Right. And I don't believe any "stock buyback exclusion" the President and/or Congress would ask for would have any teeth at all. We're definitely going to see the money being used for bonuses and buybacks. The rich can't help but use any opportunity to get themselves richer.

sf_rob 7y ago

The most recent episode of the Neoliberal Podcast covered this in layperson's terms. Despite being pro-helicopter money, they point out that the bureaucracy to do so isn't in place and that there isn't precedent/procedure for FED action of this kind. So for now the FED is using all of the tools it's used to and waiting on congress to act, hopefully with helicopter money but it will be slow even if the current arguments around constraints are resolved.

asdffdsa 7y ago
Is this, in some sense, by design?
- sudosysgen 7y ago
  Absolutely.
- marcosdumay 7y ago
  Not by design from the FED, but yes, it's by design. Helicopter money has many other desirable characteristic, like a much short lag to get into the real economy (so the government can adjust it with an easier to control bullwhip effect) and its wide distribution meaning that it distorts less one market or another. There are very few reasons to explain why a government would make money creating so unconstrained that banks actually do not create as much as they can, and allow interest rates to go negative, instead of going for the helicopters.

JumpCrisscross 7y ago

> Give everyone a check The Fed doesn’t have the legal authority to do this. That’s why the Congress is passing stimulus bills. The Fed is focussing on our liquidity problem. That keeps solvent companies from going under due to illiquidity. Congress, and helicopter money, are needed to solve the solvency problem prompted by demand destruction.

dredmorbius 7y ago
More specifically: - The Fed operates under a dual mandate. It is tasked with managing both inflation and unemployment. - Its mechanisms are "open market operations" (the purchase and sale of assets, usually government bonds, though occasionally other securities), "the overnight window" (a lending operation for banks needing cash, lent at a benchmark "prime" interest rate), and bank reserve requirements. These adjust the total amount of dollars in the financial system, the basis for interest rates (the cost of renting money), and the multiplier by which banks themselver create money through loans.
chadmeister 7y ago
Ah finally someone who understands basic economics. This is exactly right btw
burroisolator 7y ago
Why wouldn't helicopter money solve the liquidity problem? Imagine you're a rich investor and you get a check from the government. You see a Company X that is suffering from liquidity issues but otherwise is doing great. Company X's stock is now plummeting because of fears of its insolvency. You, along with other investors who also received checks from the government as part of this helicopter money policy, decide to buy Company X stock. Company X is now better able to do an equity capital raise thanks to the money that you have injected. Is the argument that the Fed is better than private households in being a distressed investor? Or that wealthy households would decide to cash in the check from the government and literally store it under their mattresses instead of investing it (directly or indirectly) and add to the liquidity?
- 7y ago

throw0101a 7y ago

> I fail to understand why any economist would prefer QE over helicopter money. It's not either-or, it's both-and. * https://twitter.com/paulkrugman/status/1241690862448529408 https://twitter.com/paulkrugman/status/1241690862448529408

nostromo 7y ago

QE is revenue neutral or positive. They buy an asset with created cash, and sell it later for a small profit. Helicopter money is revenue negative and the created cash cannot be recovered.

dredmorbius 7y ago
Sure it can: tax it out of existence. Or apply deflationary monetary policy; braise interest rates, increase reserve requirements, or sell bonds.
burroisolator 7y ago
QE is revenue neutral in theory just like helicopter money along with taxing that same amount back on a future date is revenue neutral in theory. In practice it is more like "buy $4 trillion worth of assets with created cash and never be able to sell it for fear of creating a liquidity crisis": https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL.
- bcrosby95 7y ago
  And they buy assets at whatever price is required for the financial institution to remain solvent. At least, that's what happened during the mortgage meltdown.
- deleted 7y ago
  [deleted]

stevenwoo 7y ago

We're about to see what works best, it appears Denmark is doing a multipronged approach that includes paying reduced salaries for the entire working population of Denmark for three months. https://www.theatlantic.com/ideas/archive/2020/03/denmark-freezing-its-economy-should-us/608533 https://www.theatlantic.com/ideas/archive/2020/03/denmark-fr...