"Helicopter money" is a broadly-
defined term that includes anything from governments potentially depositing money into consumers' bank accounts to the central bank printing money with the sole aim of the government using it to complete projects.
Either way, this experiment isn't
coming to Japan.
Here's the WSJ:
While Mr. Kuroda has emphasized his willingness to take whatever steps are necessary to lift inflation to 2%, there is one bridge he says
he won't cross: "helicopter money." This refers to the central bank printing money (for example, by buying government bonds) to
explicitly finance expanded government spending or tax cuts.
"We have no intention to employ helicopter money,anything like that," Mr. Kuroda said, because it would blur the division of
responsibilities between parliament, which is responsible for fiscal policy,and the central bank, which sets monetary policy.
Helicopter money, also called
monetary finance, gets its name from an academic paper by the late Nobel Prize-winning economist Milton Friedman, which asserted that dropping newly printed money from helicopters was
guaranteed to raise inflation.
Currently, Japan is undertaking what has been termed " Abenomics," or a three-part effort on the part of the government and the Bank of Japan to jump-start the country's economy after decades of stagnant growth that includes fiscal stimulus, easy monetary
policy, and structural reforms.
And this program — to which the
current government is, in year four,very much wedded — is what Kuroda feels should be responsible for jump-starting the economy.
So on the one hand, not a shocking call from Kuroda that will be no helicopter drops in Japan.
On the other hand, as the Journal
notes, Japan has been fertile ground for calls from the economics community for more experimental policies like helicopter drops.
The Journal notes that in 1999 former Fed Chair Ben Bernanke floated the idea as a way for Japan to solve its deflation conundrum.
And just last week Bernanke wrote
about the idea as a potential solution for central banks at some point in the future.
In that post Bernanke wrote:
To be clear, the probability of
so-called helicopter money
being used in the United
States in the foreseeable
future seems extremely low.
The U.S. economy has
continued to strengthen and is
not today suffering from the
severe under-utilization of
resources and very low
inflation (or even deflation)
that would justify such an
approach; and, as I've noted,
the Fed has other tools still
available.
Nevertheless, it's important
that markets and the public
appreciate that, should worst-
case recession or deflation
scenarios occur, governments
do have tools to respond.
Moreover, with central
banks in Europe and
Japan struggling to reach
their inflation targets,
money-financed fiscal
actions may receive more
attention outside this
country.
Source:
Read the full WSJ report
www.josiahdele.blogspot.com
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