Predictably, the depths of the present economic crisis, including the remarkable flattening of interest rates since it began, have led to several calls by economists, including Jordi Gali and the Mercatus Institute’s David Beckworth, for the Fed and other central banks to ready their money choppers for a major money-financed spending-spree.
Helicopter Money vs. Deficit Monetization
“Helicopter money” in its strictest sense is money simply given to people by a central bank. This needn’t be done using actual helicopters, of course; and in practice, proposals for it have central banks handing out free money, not directly to the public, but to their sponsoring governments, for use in financing some spending or transfer program.
Either way—and this point is crucial—helicopter money is distinct from deficit monetization in its usually-understood sense. As Kevin Dowd explains, “debt monetization involves an explicit increase in the federal government’s indebtedness, whereas under helicopter money that same increased indebtedness is written off by the Fed” or whichever central bank undertakes it. It has the central bank increasing its liabilities without acquiring any offsetting, valuable asset.
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