Wednesday, August 24, 2016

JKH — Helicopter Money Policy Formulation

An important aspect of helicopter money is just how a central bank would obtain the authority to undertake such a policy. Eric Lonergan is a leading proponent of HM. As he points out, the resolution of this issue could depend on the institutional regime for the central bank in question. For example, it may be quite different in the case of the ECB than for the Fed, the Bank of Canada, or the Bank of England.
In all cases, however, the delegated authority should be clear in delineating how helicopter money relates to standard fiscal and monetary policy responsibilities. I left the following comment along these lines at Eric’s post on the institutional perspective:
Monetary Realism
Helicopter Money Policy Formulation
JKH

11 comments:

Andrew Anderson said...

I had already concluded that interest on reserves (IOR) is welfare proportional to account balance but it had not occurred to me that IOR is also a form of HM provided directly by the central bank (but only to depository institutions since the general population may not(!) deal with fiat except in the form of physical currency AND IOR is proportional to account balance, not need or else equally distributed).

MRW said...

Jesus christ, Andrew. Get a grip.

the general population may not(!) deal with fiat except in the form of physical currency

The general population can buy all the treasury securities (fucking fiat) it wants. Just go to http://www.treasurydirect.gov.

MRW said...

And it gets INTEREST on that fiat, unlike physical currency or gold, which the govvie gives the people as a freebie. Doesn't cost the federal government a penny, not "taxpayers", not "children and grandchildren."

MRW said...

correction: And neither "taxpayers", nor "children and grandchildren."

Andrew Anderson said...

And it gets INTEREST on that fiat, unlike physical currency or gold, which the govvie gives the people as a freebie. MRW

That's not a freebie, that's welfare proportional to wealth. Hence the need for non-interest paying fiat. Hence the need for accounts for all citizens at the central bank.

Doesn't cost the federal government a penny, not "taxpayers", not "children and grandchildren." MRW

Actually it is a subsidy of the richer at the expense of the poorer in real terms and in opportunity costs.

netbacker said...

#FF is now favorite hashtag. Fucking Fiat.

Andrew Anderson said...

Hence the need for non-interest paying fiat. aa

So interest on reserves (IOR) is ruled out.

However, this should not be a problem since once all citizens may have accounts at the central bank itself and government provided deposit insurance has ended then the direct use of fiat would have greatly increased and thus the demand for fiat might be normally expected to exceed the supply of fiat.

Hence positive interest rates for fiat should be normally expected as a logical outcome of deprivileging depository institutions.

Andrew Anderson said...

Hence positive interest rates for fiat should be normally expected as a logical outcome of deprivileging depository institutions aa

Logically this is too strong a conclusion. Instead this should read Hence positive interest rates for fiat MIGHT be normally expected as a logical outcome of deprivileging depository institutions. My apologies.

However, there is no doubt that government privileges for depository institutions (e.g. exclusive access to accounts at the central bank) and for private credit creation (e.g. positive yielding sovereign debt) DO greatly reduce the demand for fiat and they should be eliminated for other compelling reasons ANYWAY.

But what if interest rates in fiat do normally tend to 0% even in the absence of privileges for depository institutions and for private credit creation? What of it? So long as those rates are the consequence of an ethical fiat and credit creation system?

Where is it written that those who would practice usury MUST have the benefit of positive interest rates? When loans at even 0% might be profitable with adequate collateral or at least be guaranteed not to lose money in the event of default*?

*Especially in the case where the lender must pay negative interest for his own fiat account balance at the central bank in order to punish risk-free fiat hoarding in the case of large account balances.

Ralph Musgrave said...

I find JKH's articles utterly boring and the above article is no exception. For a very simple, clear explanation of how a helicopter money system would work (written 5 years ago), I recommend a paper by Positive Money, Prof Richard Werner and the New Economics Foundation. See in particular under the heading "Bank of England would choose.." (p.10).

http://b.3cdn.net/nefoundation/3a4f0c195967cb202b_p2m6beqpy.pdf

As it happens, that paper advocated full reserve banking, and indeed helicopter money meshes very nicely with full reserve, but Pos Money & Co's helicoptering system is equally compatible with the existing bank system.

Andrew Anderson said...

"Bank of England Would Choose to Increase or Decrease the Money Supply" from http://b.3cdn.net/nefoundation/3a4f0c195967cb202b_p2m6beqpy.pdf

How would decreases in the money supply be implimented? I did not see this spelled out.

JKH said...

Ralph Musgrave:

The subject of the post was centered on this aspect:

“How a central bank would obtain the authority to undertake such a policy”

Not this:

“Explanation of how a helicopter money system would work”

As for your boredom, neither of us should be the worse for wear.