Thursday, 28 August 2014

Why Central Banks Should Give Money Directly to the People - Foreign Affairs

The influential journal Foreign Affairs floats this balloon.... or helicopter.
Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income.
Because they are more efficient, helicopter drops would require the banks to print much less money. By depositing the funds directly into millions of individual accounts -- spurring spending immediately -- central bankers wouldn’t need to print quantities of money equivalent to 20 percent of GDP. The transfers’ overall impact would depend on their so-called fiscal multiplier 
and fortunately
it makes no sense to worry about the solvency of central banks: after all, they can always print  more money. 

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