Bloomberg/Toru
Fujioka and Keiko Ujikane/7-13-2016
“Etsuro Honda, who has emerged as a matchmaker for Abe in corralling
foreign economic experts to offer policy guidance, said that during an
hour-long discussion with Bernanke in April the former Federal Reserve
chief warned there was a risk Japan at any time could return to deflation. He
noted that helicopter money — in which the government issues non-marketable
perpetual bonds with no maturity date and the Bank of Japan directly buys
them — could work as the strongest tool to overcome deflation, according to
Honda. Bernanke noted it was an option, he said.”
MK note: Bernanke is simply proposing that the Bank of Japan print
money and hand it over to the government presumably to do with what it
pleases. In other words, a pure form of debt monetization that has no
due date and therefore never needs to be paid back – printing money without
even the pretense of it being something else.
Helicopter money, as I am led to understand it, bypasses the government by
dropping free money into individual and corporate checking accounts.
This scheme is helicopter money with a twist, i.e., the government decides
where it will go. And to say such a stratagem would be without its fair
share of cronyism and financial shenanigans is to misunderstand the nature of
contemporary politics.
Bernanke’s scheme for Japan (and one, we might gather, he would recommend
to the U.S. Federal Reserve) is an upgrade of the
quantitative easing/sterilization scheme he cooked up for the United
States post-2007-08. The hang-up with that scheme was, and still is,
that the banks never got around to actually lending the money into the
economy. Somehow, he must think that removing the fuse from the powder
keg will be enough to force money into the economy and inflate away the
deflation beast without the fear of seen and/or unseen consequences.
Bernanke has a penchant for the seemingly clever, but in each instance, he
neglects to take into consideration the source of the disinflation/deflation
problem, i.e., the fact that banks are afraid to make loans and people and
businesses are afraid to borrow (a problem rooted in deep-seated demographic
trends). If the government of Japan, in turn, is going to simply
hand piles of money over to the population (which is implied, but not
guaranteed), perpetual debt might end up in the economy, but then again it
might simply end up going to pay off debt, or into perpetual savings, or into
genuinely perpetual gold bars and coins – a trend that has already taken root
in Japan.
