Definition Helicopter Money
Or Helicopter Helicopter Money Drop is a metaphor for radical monetary policy in a country where the central bank was forced to print a large number of paper money, then distribute them directly in order to stimulate economic growth. People then mistakenly assumes as the central bank is giving the money directly to the people, when in fact, the central bank prints money to finance government spending.
Helicopter History of Money
Helicopter Money term coined by an economist named Milton Friedman in an essay he wrote in 1969 entitled The Optimum Quantity Of Money . In it, Friedman likens this policy of withdrawal would throw money from a helicopter. Helicopter Money is often associated with a country that is in a state of acute deflation, in which monetary policy and fiscal policy rated no longer able to put an end to such low inflation conditions. At that time, is the United States, especially when the Federal Reserve under the leadership of Ben Bernanke , and now Japan. Friedman uses helicopters as a metaphor to reinforce the argument that government (any country) could create inflation by printing enough money. So people spend their money, the nominal growth of GDP is often called in its English acronym, GDP , will increase, both through the production of more goods and services, or price increases, or even both.
Function Helicopter Money
However, in reality the idea Helicopter Money is actually not as plainly and yet never truly practiced by any country to date this article was written, although through quantitative easing (QE).
Peter Praet, chief economist at the European Central Bank (ECB), once said, "All the central bank can do it (helicopter money). the question is, under what circumstances and when this policy is enforced." There is also Richard Clarida, an economist at Columbia University, predicts, "We'll see variations of (similar) with helicopter money (version Friedman) in ten or five years into the future, "he was quoted by columnist Greg IP, to the Wall Street Journal . Helicopter money - which, in practical form is also called the monetary financial or debt monetization - used to purchase goods -goods and services. While QE, created money to buy government bonds. QE pushed bond yields fell, with the expectations, consumers would only spend more money, not save money. Moreover, cuts in interest rates will generally accompanying a loose policy. However, the result could be not as expected. Especially if people prefer to avoid the risk and hold their government bond holdings, or melt it without return rather than having to spend money.
Differences Helicopter Money With Fiscal Stimulus
Helicopter money is also different from the fiscal stimulus traditional, where the government sells bonds to the market and then use them to stimulate demand directly, such as to build toll roads, hiring teachers, or cutting taxes. However, usually most of the loans the government would be pushed up rate flowers, hurt private investment, and raising fears of bad loans.
In theory, helicopter money is a combination of QE and fiscal policy with certain limitations. Governments issue bonds to be purchased by the central bank using freshly printed money. The government will use the money to invest, hire labor, or cutting taxes, which virtually guarantees that total government spending will rise and the amount of money circulating in the community to increase, which is expected to push inflation to a higher level. So, for the purchase of government bonds is the central bank, not the public, private bonds not to miss out.
EmoticonEmoticon