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> how is printing money and giving it to the poor any worse. You might be onto something. https://en.wikipedia.org/wiki/Helicopter_money https://en.wikipedia.

> how is printing money and giving it to the poor any worse. You might be onto something. https://en.wikipedia.org/wiki/Helicopter_money https://en.wikipedia.org/wiki/Helicopter_money

rightbyte 3y ago
My gut feeling is that it is a bad idea too. But the defenders of the system do not bat an eye when the Fed pours helicopter money over the rich. The hypocrisy is maddening. It is so dishonest.
- gameman144 3y ago
  I can offer my perspective as someone who would probably be considered a "defender of the Fed" (definitely not government policy as a whole, though). Pouring helicopter money down is going to increase inflation, hands-down. Giving it to more people will increase inflation more than giving it to fewer people (since the competition for scarce goods will be more widely distributed), but it's just as bad giving helicopter money to the rich. Helicopter money is largely fiscal policy (i.e. how do we spend our money) instead of monetary policy (i.e. how much money should there be, and how should it flow). I'll not defend fiscal policy, as I find that Congress often just tries to buy votes with money (the right with tax-cuts, the left with loan-forgiveness or entitlements). In terms of monetary policy, though, the Fed's responsibilities are to make the employment market and inflation stay at good levels. Manipulating the interest rate of bank lending does do that (albeit not nearly as much as it could if coupled with good fiscal policy). Raising the interest rate does reduce inflation, since there are fewer free-floating dollars to compete for good. It also does make the job market less hot, since there are fewer free-floating dollars to invest in businesses or employees. There's some deep hypocrisy in fiscal policy, but I think the Fed is doing what the Fed can do to keep jobs and inflation in balance.
  - rightbyte 3y ago
    > There's some deep hypocrisy in fiscal policy, but I think the Fed is doing what the Fed can do to keep jobs and inflation in balance. Sure, I guess I agree on this. But there has to be something more I don't understand. The interest on savings goes up with the interest on loans. Is it maybe "quantitive easing" that is the real culprit?
    - gameman144 3y ago
      > But there has to be something more I don't understand. The interest on savings goes up with the interest on loans. This is true, but it's all because of the one interest rate that the fed controls: the interest rate at which it lends to banks. If that rate goes up, then banks are willing to pay higher savings rates to depositors (since banks don't want to pay higher Fed interest rates to borrow, so luring in depositors is a replacement). Since banks are paying more for their money, though, they also need to charge more on the loans they give. This is why those move in tandem. Quantitative easing/tightening also does one thing: either buy or sell financial assets at the Fed. Historically this has been bonds and other low-yield, long-term instruments, but always with the purpose of either stimulating the economy (by buying assets and pumping money into the economy) or selling assets (thus pulling money out of the economy to cool it). I would agree that the Fed buying stocks during COVID isn't what I would have liked, but mostly because stocks are an asset class where volatility and risk are baked in (and I don't like the moral hazard of the Fed absolving investors of that risk). Quantitative easing as a mechanism, though, is a pretty blunt and simple tool to either pull money out of push money in to the economy. I reckon that the early-COVID hey-day of easing probably had something to do with the super-high valuations we're seeing today, but the actions the Fed is taking _now_ seem like a reasonable and rational response to that overheating.
- NickC25 3y ago
  Right - this is my hangup too. Look what happened during COVID - 3 trillion dollars were printed. 200 Billion of which went directly to citizens, and the remaining 2.8 trillion were in the form of loans to massive corporations (who didn't need them) that somehow magically were forgiven. I think just forgiving 2.8 trillion dollars in "loans" to people who didn't need loans in the first place causes a shit ton of inflation. One side of the political aisle got so angry about that 200 billion to the point that they were only willing to go along with it if their party leader got to put his name on those checks. Yet the 2.8 trillion that went to already profitable corporations (or to fraudulent citizens) went along without a peep from anyone who makes any sort of decision in Washington DC. All this completely fucked up the M2V (Monetary Velocity) chart, because giving lots of people who won't use it quickly really hurts the economy. When the velocity of money is high, the economy works for everyone, not just wealthy people.
jandrewrogers 3y ago
The primary argument against helicopter money is that it greatly accelerates the rate at which inflation manifests in the economy due to the increasing monetary supply, which causes more extreme disruption (the economy doesn't have time to adjust gradually). If the inflation manifests slowly enough, the theory is that slower inflation combined with productivity growth can mitigate the major adverse effects and dislocations by allowing the economy to adjust at a much slower rate.

> how is printing money and giving it to the poor any worse. You might be onto something. https://en.wikipedia.org/wiki/Helicopter_money https://en.wikipedia.org/wiki/Helicopter_money

rightbyte 3y ago

My gut feeling is that it is a bad idea too. But the defenders of the system do not bat an eye when the Fed pours helicopter money over the rich. The hypocrisy is maddening. It is so dishonest.

gameman144 3y ago
I can offer my perspective as someone who would probably be considered a "defender of the Fed" (definitely not government policy as a whole, though). Pouring helicopter money down is going to increase inflation, hands-down. Giving it to more people will increase inflation more than giving it to fewer people (since the competition for scarce goods will be more widely distributed), but it's just as bad giving helicopter money to the rich. Helicopter money is largely fiscal policy (i.e. how do we spend our money) instead of monetary policy (i.e. how much money should there be, and how should it flow). I'll not defend fiscal policy, as I find that Congress often just tries to buy votes with money (the right with tax-cuts, the left with loan-forgiveness or entitlements). In terms of monetary policy, though, the Fed's responsibilities are to make the employment market and inflation stay at good levels. Manipulating the interest rate of bank lending does do that (albeit not nearly as much as it could if coupled with good fiscal policy). Raising the interest rate does reduce inflation, since there are fewer free-floating dollars to compete for good. It also does make the job market less hot, since there are fewer free-floating dollars to invest in businesses or employees. There's some deep hypocrisy in fiscal policy, but I think the Fed is doing what the Fed can do to keep jobs and inflation in balance.
- rightbyte 3y ago
  > There's some deep hypocrisy in fiscal policy, but I think the Fed is doing what the Fed can do to keep jobs and inflation in balance. Sure, I guess I agree on this. But there has to be something more I don't understand. The interest on savings goes up with the interest on loans. Is it maybe "quantitive easing" that is the real culprit?
  - gameman144 3y ago
    > But there has to be something more I don't understand. The interest on savings goes up with the interest on loans. This is true, but it's all because of the one interest rate that the fed controls: the interest rate at which it lends to banks. If that rate goes up, then banks are willing to pay higher savings rates to depositors (since banks don't want to pay higher Fed interest rates to borrow, so luring in depositors is a replacement). Since banks are paying more for their money, though, they also need to charge more on the loans they give. This is why those move in tandem. Quantitative easing/tightening also does one thing: either buy or sell financial assets at the Fed. Historically this has been bonds and other low-yield, long-term instruments, but always with the purpose of either stimulating the economy (by buying assets and pumping money into the economy) or selling assets (thus pulling money out of the economy to cool it). I would agree that the Fed buying stocks during COVID isn't what I would have liked, but mostly because stocks are an asset class where volatility and risk are baked in (and I don't like the moral hazard of the Fed absolving investors of that risk). Quantitative easing as a mechanism, though, is a pretty blunt and simple tool to either pull money out of push money in to the economy. I reckon that the early-COVID hey-day of easing probably had something to do with the super-high valuations we're seeing today, but the actions the Fed is taking _now_ seem like a reasonable and rational response to that overheating.
NickC25 3y ago
Right - this is my hangup too. Look what happened during COVID - 3 trillion dollars were printed. 200 Billion of which went directly to citizens, and the remaining 2.8 trillion were in the form of loans to massive corporations (who didn't need them) that somehow magically were forgiven. I think just forgiving 2.8 trillion dollars in "loans" to people who didn't need loans in the first place causes a shit ton of inflation. One side of the political aisle got so angry about that 200 billion to the point that they were only willing to go along with it if their party leader got to put his name on those checks. Yet the 2.8 trillion that went to already profitable corporations (or to fraudulent citizens) went along without a peep from anyone who makes any sort of decision in Washington DC. All this completely fucked up the M2V (Monetary Velocity) chart, because giving lots of people who won't use it quickly really hurts the economy. When the velocity of money is high, the economy works for everyone, not just wealthy people.

jandrewrogers 3y ago

The primary argument against helicopter money is that it greatly accelerates the rate at which inflation manifests in the economy due to the increasing monetary supply, which causes more extreme disruption (the economy doesn't have time to adjust gradually). If the inflation manifests slowly enough, the theory is that slower inflation combined with productivity growth can mitigate the major adverse effects and dislocations by allowing the economy to adjust at a much slower rate.