Is This the Start of Helicopter Money?


BenBernankeIn recent issues of my weekly newsletter I noted that the establishment is simply stumped with regard to how to stimulate economic growth. All of the policies of monetary stimulus have not only not worked, but because our system is based on debt, it’s actually digging the global economy into a deeper state of bankruptcy.

I noted that Treasury Secretary Lew was saying before the latest G-20 meeting that we need to stimulate global economic growth through fiscal policy, but at the same time he said we need to avoid currency devaluation. Sure, Jack! But how in the devil are you going to make that happen when the only way you, as a Keynesian, think to stimulate growth is through deficit spending and money printing to finance deficit spending? You simply can’t print endless amounts of money and expect currencies to remain strong.

Then I noted points made by Peter Fisher recently on Bloomberg TV when he pointed out the folly of the push to create so much money to force negative rates into the economy. Fisher said negative rates will be counterproductive for the following reasons:

  • Lowering exchange rates. Competitive devaluation like the 1930s. A race to the bottom for currencies cannot work for the global economy. (This will be good for gold but will ultimately lead to chaos and depression.)
  • Pushing rates negative only shrinks margins for lenders, leading to less not more lending growth in the real economy. The likes of Larry Summers and Paul Krugman forget about the supply side of credit.
  • Bolstering asset prices by lowering rates only serves to produce the opposite wealth effect, especially in a negative interest rates environment, as consumers will spend less.

Indeed no less a giant in the investment world than Ray Dalio suggested that the Fed is “out of bullets” so that there is nothing left that they can do.  So I suggested in my February 26 issue that it seems as though the self anointed elite have no answers. But then Martin Wolff of the Financial Times reminded me that there is actually an answer that the brilliant Ben Bernanke provided for us in his infamous paper written in 2002, titled, “Deflation. Making Sure It Doesn’t Happen Here.” Like Germany we can hyper-inflate the dollar via helicopter money! So, in my March 4th issue, with the following headline:

Oh Wait! There Is an Answer! It’s Called Helicopter Money!

Here is the summary from Bernanke’s 2002 paper, “Deflation. Making Sure It Doesn’t Happen Here.”

Each of the policy options I have discussed so far involves the Fed’s acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.

From the perspective of Austrian economics, I could argue why virtually everything Bernanke said in the above paragraph and in his entire paper is wrong. I’ll leave that for another day. What is important to note is that the establishment is seriously considering actually engaging in “helicopter money,” which Ron Paul noted on my radio show they are more than capable of doing. They have only to create money out of nothing and send to each American, just as they send us income tax refunds. But again, by creating helicopter money, the establishment is in fact engaging in currency destruction. Of course the Fed has been engaging in helicopter money of a sort increasingly over the years and especially since 2008-09. But that helicopter money was simply sent to wealthy criminal bankers to save their evil rear ends. The kind of helicopter money that Bernanke was talking about was money showered over the population such that people with a propensity to spend 100% of their income on goods and services would receive that money.

Talk of negative rates has been put on the back burner by the gods at the Fed and other CFR paid-off intellectuals, at least for the time being, perhaps for the reasons outlined by Peter Fisher. The propaganda from the Fed is to jerk investors and people in general around by faking rate hikes so as to keep folks believing they still have power. They actually did a ¼% rate hike I believe simply to keep us believing that they still have some tools in their toolbox.

Dollar-GoldBut one way or another, Fed lies are being exposed and certainly the “smart money,” if not the masses, is paying attention.  Like Pinocchio’s nose spells “lie,” when the Fed announced this past Wednesday that there would be no rate hike “for now,” gullible market participants who still incredibly believed the Fed would raise rates, were shocked into dumping the dollar and buying gold, send the dollar index suddenly lower and the yellow metal up $30/oz. in a matter of minutes.

GoldMonthlySo notwithstanding political and central bank rhetoric, the “race to the bottom” for all fiat currencies continues. We know from history that the senior currency is the last to go. So it should be no surprise that the dollar—the world’s leading reserve currency—has remained stronger than any other currency as measured by honest money—gold—over the past few years. However, check out the chart on your left, which shows the price of gold measured in dollars. Even the artificially strong dollar, which is propped up by America’s military might and a bastardization of money by Henry Kissinger, who worked a deal with the Sunni Muslims of Saudi Arabia to force purchase of oil in dollars, is in “a race to the bottom.”  The only thing we need to realize as gold investors is that until such a time as the dollar no longer remains the world’s reserve currency—which could happen with some cataclysm—fraudster politicians and central bankers will do all within their power to fake people out of owning gold and holding the counterfeit fiat money they create out of nothing to continue robbing and pillaging the general public. Thanks to ongoing military might, the U.S. dollar still remains strong because America’s political NATO allies still require that goods, most notably oil, be purchased in dollars. There is a certain inertia involved when major changes are taking place, so it is taking a long time for the dollar to realize its intrinsic value of zero. We regret to say that day is coming, because when it arrives, there will be much consternation throughout the land. The elite will try to retain the status quo as long as possible. But with the Fed’s dovish words this past week and the sudden decline of the dollar, sending gold, stocks, and commodities sharply higher, as well as my IDW, I’m wondering if the world’s senior currency may now no longer be able to resist competing in a race to the bottom. Certainly an angry populace in the U.S. and in all western countries are demanding material comfort as an entitlement and in some cases are seeking retribution for a declining living standards. One wonders how much longer the gods at the Fed and Wall Street can continue to say “let them eat cake” before revolutionary force demands helicopter money. The elite will continue to try to pacify the masses with soothing words and if necessary a little more “cake” here and there. But I’m wondering if market action this past Wednesday may be the first crack in the dam for the senior currency as political forces demand “helicopter money.” That may be good for gold but if that’s true, God help us all as its likely to lead to hyperinflation!

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.