“If you look around the world, our risk is not inflation and our risk is not overheating economies,” he told Bloomberg Television’s Erik Schatzker on March 3. “They’re going to have to go more directly to spenders.”
So what’s not to like? Critics say spraying money around would eventually mean Weimar-style runaway inflation and bloated government debt. The independence and credibility of central banks would be potentially damaged. And the policy could backfire if households sit on the money.
Bundesbank President Jens Weidmann has already said “helicopter money” would “rip huge holes in central bank balance sheets” and leave governments and taxpayers to “pay the bill in the end.”
‘Free Lunch’
Then there’s the law. The ECB is prohibited from financing states and lacks a single Treasury to work with, while the Fed is constrained in what assets it can buy.
“The helicopter option is simple, easily implemented and, for some, offers the closest thing to a free lunch,” said Stephen King, senior economic adviser to HSBC. “If this sounds too good to be true, that’s because it is.”
Draghi last week said that while the ECB has not studied the concept “it clearly involves complexities, both accounting-wise and legal-wise.” Colleague Peter Praet, nevertheless declined to rule it out as an option when asked.
The debate may remain academic. In the U.S., prices are shifting higher and the International Monetary Fund still forecasts inflation in advanced economies to accelerate next year to 1.7 percent from 1.1 percent.
Revisiting the Unimaginable
“I don’t think helicopter money gets rolled out quite yet,” said Ewen Cameron-Watt, chief investment strategist at BlackRock Inc. “You need a considerable downturn and further decline in inflation expectations first.”