This is what Bronte Capital suggests might be the best alternative to jump-start the US economy seeing as everything else has failed:
Creating expectations that there will be inflation in the future is difficult precisely because people believe that the US economy is managed so well that this will never happen:
* It is not enough to
print money (increase money supply) because everyone
thinks that the Fed will pull the money out when the
crisis is over.
* The Fed has to be "credibly irresponsible" and "visibly reckless" to convince people there will be inflation.
* You need to convince people not to hold money like they do in a liquidity trap. You need to convince them that cash is trash, you need to decrease their demand for money, and get people running to convert their cash to some other (albeit more risky) asset.
* The Fed has to be "credibly irresponsible" and "visibly reckless" to convince people there will be inflation.
* You need to convince people not to hold money like they do in a liquidity trap. You need to convince them that cash is trash, you need to decrease their demand for money, and get people running to convert their cash to some other (albeit more risky) asset.
How do you do this?
Throw money randomly from helicopters:
The Federal Reserve should
hire a couple of hundred helicopters and load each one 10 million
dollars in neatly bound parcels of $1000 each. Total cost $2
billion plus trivial helicopter hire.
It should fly them over 200 randomly picked American cities and throw the money out the window. It should press release this – but press coverage will be excessive. Indeed I suspect that the press coverage would give the Fed’s inflation policy greater awareness than the Coca Cola Company. (The Coca Cola Company’s annual advertising budget is $2.8 billion – so this is already cheap compared to some private sector alternatives.)
The press release should be simple. We are doing this to induce inflation. If there is no inflation as a result we will simply do it again.
Of course people will fall of roofs after searching for money that might have landed on their house. They might die. Of course people might get trampled in the crush. They might die too.
All of this increases the visible recklessness of the policy.
But the charm of this. It may actually induce mass spending of American dollars for (self-fulfilling fear of inflation)– a massive stimulus. And it will do it all for $2 billon. Obama has a stimulus package of $1.2 trillion – or about 600 times as large. This is relatively cheap.
The real case for throwing money out of helicopters is that it looks like it will work better than anything else that anyone has come up with yet.
And it will be cheap. Much cheaper than alternatives that are actually being implemented.
The secondary benefit is that most of the losses from inflation will be in the hands of the Chinese who have built huge reserves of soon-to-be-deflated US dollars.
Hey what better – lets kick start the economy and get the Chinese to pay.
[Comment: This must be tongue-in-cheek. It certainly underlines the necessity that both the US and China are in this together. That it takes two to tango.]
It should fly them over 200 randomly picked American cities and throw the money out the window. It should press release this – but press coverage will be excessive. Indeed I suspect that the press coverage would give the Fed’s inflation policy greater awareness than the Coca Cola Company. (The Coca Cola Company’s annual advertising budget is $2.8 billion – so this is already cheap compared to some private sector alternatives.)
The press release should be simple. We are doing this to induce inflation. If there is no inflation as a result we will simply do it again.
Of course people will fall of roofs after searching for money that might have landed on their house. They might die. Of course people might get trampled in the crush. They might die too.
All of this increases the visible recklessness of the policy.
But the charm of this. It may actually induce mass spending of American dollars for (self-fulfilling fear of inflation)– a massive stimulus. And it will do it all for $2 billon. Obama has a stimulus package of $1.2 trillion – or about 600 times as large. This is relatively cheap.
The real case for throwing money out of helicopters is that it looks like it will work better than anything else that anyone has come up with yet.
And it will be cheap. Much cheaper than alternatives that are actually being implemented.
The secondary benefit is that most of the losses from inflation will be in the hands of the Chinese who have built huge reserves of soon-to-be-deflated US dollars.
Hey what better – lets kick start the economy and get the Chinese to pay.
[Comment: This must be tongue-in-cheek. It certainly underlines the necessity that both the US and China are in this together. That it takes two to tango.]
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