Real life is stranger than fiction.
There I was, doing my regular economic reading. Suddenly, the page pictures a helicopter. It was a gigantic Chinook, the ones with big rotors at both ends. Three large containers in cargo webs were suspended below.
The nearby text observed:
“…the Fed could even implement what is essentially the classic textbook policy of dropping freshly printed money from a helicopter.”
This helicopter isn’t in a novel. It’s in a presentation by Evan Koenig and Jim Dolmas, two economists at the Federal Reserve Bank of Dallas. The presentation is titled, “Monetary Policy in a Zero-Interest-Rate Economy.” I think most readers will agree the title doesn’t provide any clue of aviation interest at the Federal Reserve.
This isn’t the first Federal Reserve reference to dropping money from helicopters. A Federal Reserve Governor gets credit for that. Last November, in one of the most referenced speeches by a financial authority in years, Federal Reserve Governor Ben S. Bernanke addressed the National Economists Club in Washington on a similar topic. He called it, “Deflation: Making Sure ‘It’ Doesn’t Happen Here.”
The most frequently quoted line from that speech is, “…the U.S. Government has a technology, called a printing press…” Put those words in the Google search engine and you’ll find them on roughly 200 websites. Virtually all of those websites express concern that our friends in Washington may soon be printing unlimited quantities of money. Some suggest it is time to buy gold. They may be right.
A scant three pages later, Professor Bernanke introduces the helicopter:
“A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.”
I think it’s safe to assume that the Federal Reserve’s interest in helicopters is metaphorical, not literal. They will not be dropping crates of freshly printed currency on the parking lots around America’s shopping malls. They won’t be forming an allegiance with car dealers, either, much as dealers would like a hefty cash drop during the annual inventory clearance sale. That would be too literal an interpretation of Milton Friedman’s thought exercise in which money is dropped randomly from helicopters and spent by anyone who picks it up. As a result, prices for goods and services rise to balance the increased supply of money.
In fact, the metaphorical helicopter was just signed into law. It’s a Chinook sized tax cut and the dollars it is dropping should be showing up in paychecks momentarily.
That’s how things happen in real life.
But I can’t help wondering. Where is Guy Grand when we really need him?
Guy Grand was the leading character in Terry Southern’s dark novel, The Magic Christian (1960). If you don’t remember Grand or Southern (who died in 1995) don’t feel badly. You are either young or you have lived a life so innocent you may still become a Supreme Court justice. Among other works noir, Southern co-wrote the screenplays for “Dr. Strangelove” and “Easy Rider.”
An immeasurably wealthy trillionaire, Guy Grand spent his time playing elaborate practical jokes on large numbers of people. He liked to “make it hot” for people. He delighted in exposing the terrible things people would do for money. He may not have used a helicopter but he had a lot of creative ways to spread money around.
And spreading money around is the issue Messrs. Bernanke, Koenig, and Dolmas are addressing. In a recent phone conversation Mr. Koenig made it clear that it wasn’t necessary to have deflation to consider some of the steps Professor Bernanke mentioned last year.
“It’s possible you’d want to lower interest rates to stimulate the economy even if prices were rising,” he pointed out. “It depends on the real growth outlook for the economy.”
Today, the broad CPI is running at a 2 percent annual rate. That level once made us worry about future inflation.
Currency in circulation is up over 6 percent. Federal Reserve Bank credit has increased over 10 percent in the last year. Foreign central bank holdings of US government obligations have ballooned over 20 percent in a year.
The message I get is that the dollar is going down. It’s going down in purchasing power. It’s going down against other currencies. The question is, how far? How fast?
My advice: if a helicopter visits your neighborhood, spend the money fast.
Read “Monetary Policy in a Zero-Interest-Rate Economy
http://www.dallasfed.org/htm/research/hot/bd0503.html
Read Federal Reserve Governor Bernanke’s November 21, 2002 speech:
http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm
Check the Google Search for “…the U.S. government has a technology, called a printing press…”
Check the money supply figures:
http://research.stlouisfed.org/publications/usfd/20030612/usfd.pdf
Check Economic Indicators for CPI:
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=economic_indicators&docid=24my03.txt.pdf
Check DOL for most recent CPI:
Read about Terry Southern:
http://www.terrysouthern.com/bio.htm
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Photo by Somchai Kongkamsri on pexels.com
(c) Scott Burns, 2022