[burroisolator]

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.

[JumpCrisscross]

> 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]

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.

[burroisolator]

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?

[torpidor]

I think the real answer to your question is politics. Helicopter money is a political question in a way that QE is not. The question of what social programs we have, and what they cost, who gets them, etc., has been a major issue already in the 2020 election, and people are already drawing parallels between cutting checks in this crisis and a UBI for example.

The Fed can do this at all right now because we created a body of subject-matter experts and deputized them to pull the trigger without having to check with anyone. This is a rare thing in a democratic government, and is possible mostly because we have given them boring powers that only wonky people bother to even read what they are. Even then, a few people read what they are and complain about them, so even that is a bit perilous.

If you wanted the Fed or a Fed-like mobilization for the helicopter money you first need to make the process of getting $1000 boring, or wonky, or at least politically uncontroversial so that people accept an unelected body of bureaucrats outside the government process doing it unilaterally in the middle of the night without telling the rest of the government. I would not rule out those conditions being the case at the end of this crisis, but they aren't the case at the beginning.

But the way we solve political problems (or, more recently, the way we don't solve them) is through Congress, which is an inherently slower approach.

[JumpCrisscross]

> Why wouldn't helicopter money solve the liquidity problem?

One, it is not targeted. The Fed can pump vast quantities of liquidity into the heart of the credit markets in a way private actors aren't set up to.

Two, it is not fast enough. Companies will go bust while waiting for politicians to authorize a cheque, the Treasury to cut it, investors to cash it and then to identify and decide upon an investment.

Three, it isn't reliable. Investors trust the Fed's discount window will be open in a crisis. That knowledge, itself, stops many runs before they start.

Four, it's riskier. Helicopter money cuts cheques. Once it's done, the money is out the door. The government is never getting it back. If they sent out too much, we'll have inflation. Monetary policy involves collateralized loans. The collateral limits downside. And unwinding a loan is easier than raising taxes to drag surplus cash out of the economy.

[burroisolator]

I think if there was proper planning in place, you could have money sent out to people in a day, especially the demographic that would most likely be investing the extra cash. People already electronically pay their tax returns. Payments are taken up by the next day if you so specify; there is no reason to believe the same thing can't be done in the reverse direction. You don't need to physically cut checks for everyone, only those who specify or can't be reached with other means. Betting against investors to be able to quickly find investments is almost like betting against capitalism itself. If you're slow to invest, then you'll lose out on making money. Additionally most people while thinking of something more specific to invest in will probably be depositing this money into a generic savings accounts at first: while this happens, banks will be able to reallocate this capital to fit their needs.

If I knew that the policy was going to be that every time there is a liquidity crisis people will be getting checks (or electronic payments), then I wouldn't be scared of any runs in the same way. Again, is the argument that the Fed is better than private households in being a distressed investor?

Helicopter money can be taxed back. I know that is unlikely but so is the probability that the Fed's balance sheet going to zero: https://fred.stlouisfed.org/series/WALCL.

[chadmeister]

Ah finally someone who understands basic economics. This is exactly right btw

[brenden2]

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

[nocorpwelfare]

And that, most of all, is what needs to stop.

[throw0101a]

> 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

[sf_rob]

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]

Is this, in some sense, by design?

[marcosdumay]

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.

[sudosysgen]

Absolutely.

[nostromo]

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.

[burroisolator]

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.

[bcrosby95]

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.

[dredmorbius]

Sure it can: tax it out of existence. Or apply deflationary monetary policy; braise interest rates, increase reserve requirements, or sell bonds.

[stevenwoo]

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-fr...

[throwaway55554]

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.

[OscarCunningham]

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]

The Govermment has something called ‘taxation’ in case that happens.

[AnthonyMouse]

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.