Thursday, August 22, 2013

In Dramatic Gesture, Bernanke Drops Money From Helicopter

“Prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation. Deflation is always reversible under a fiat money system.”

--Ben Bernanke, 2002

“Mysterious benefactor arranges for $10,000 to be dropped from a helicopter onto unassuming crowd”

--Daily Mail

“Helicopter rains cash on Delaware marina”

--NY Daily News, Aug. 21, 2013

Economists have known for some time about Chairman Ben Bernanke’s deep frustration with the Fed’s inability to achieve its inflation and employment mandates. Insiders say that Bernanke is particularly concerned about the falling rates of inflation and nominal growth, despite the massive expansion of the Fed’s balance sheet.

Bernanke is said to be deeply embarrassed about his failure to follow his own professorial advice in 2002 or, more accurately, deeply frustrated with his inability to create a consensus on the FOMC in favor of more radical policy tools. As his second term as chairman comes to an end, Bernanke is leaving with a rate of inflation below that which prevailed when be became chairman in 2006, and a rate of unemployment considerably higher.

However,  Fed-watchers were surprised by the dramatic money-drop. There was no immediate announcement from the Fed, and it is not known if the money dropped from the helicopter belonged to the Fed, or to the chairman himself. One observer heard him shout “I printed it myself!”.

Inflation doves welcomed Bernanke’s dramatic gesture, while hawks denounced it as reckless. Reporters on the scene in Lewes, Delaware, reported that, following the money drop, aggregate demand  rose sharply in the immediate area, as predicted by Bernanke’s “helicopter theory”.

Despite the positive economic reaction, it is not known whether the chairman’s stunt will be able to convince the FOMC hawks to embrace more unconventional policy tools.

1 comment:

Vinney said...

In Bernanke's speech in Ann Arbor last February I think his first question during Q&A was if he would consider using the $1T coin? His reply was "I don't want to give any oxygen to that idea". If he wants some traction he could ask Treasury to issue the coin and Treasury could offer a tax rebate check of $10,000 per HH with incomes below $350K, half must be used to pay down debt. If that doesn't do it then do it again - that is a helicopter drop (fiscal policy with no increase in debt).