[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