Look out from above..
Helicopter Money, The Logical Conclusion Of Demand Management?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Much of the Western world remains trapped in sub-par economic performance at best, or 1930s style depression at worst. The Pavlov reaction was to drive monetary policy into overdrive, and slash rates to zero. This has worked in the ordinary world of garden variety business cycle recessions that are caused by the economy overheating, and then the Fed slamming on the brakes.
But these are no ordinary times. In the famous words of Richard Koo from Nomura:
“If central banks bring interest rates down to almost zero and nothing happens then it is not an ordinary world.”
Indeed it isn’t, as Koo has explained tirelessly, this is a recession caused by the private sector recovering from a private debt overhang, resulting from the implosion of an asset bubble, slashing debt in order to repair balance sheets. When the private sector is cutting down borrowing and spending and preferring to pay down debt even at zero interest rates. the correct policy response is for the public sector to step in.
But despite the fact that this is exactly what has kept Japan, suffering from a much larger asset bubble implosion in the early 1990s, afloat, this is somehow not politically feasible in most countries.