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Helicopter Money--"Nobel laureate economist Milton Friedman first proposed the idea almost 50 years ago. It is close to-but not quite the same-as quantitative easing, the method central banks such as the U.S. Federal Reserve, Bank of Japan, Bank of England, and ECB have used since the financial crisis of 2007-2009." (Marysville Journal-Tribune)
It would, of course, be a last resort following failed efforts of qualitative-quantitative easing, that have been proposed and combined with bottoming out interest rates by the Fed today. It appears that under fire, the Fed acts as it always does, flood the market with cash, buy up bonds that nobody wants, and reverse course on the economic cruise ship of conservative policy, high interest and no spending. It doesn't work. The Fed chairman just wants to appease the boss just before the election who's been touting the strong economy, low unemployment and middle-class strength as the foundation of his administration.
Was the economy doomed to collapse somewhere down the line? Certainly, it usually does when speculation becomes rampant on Wall Street. Currently, the Dow Jones average is above 24,000, teetering on disaster, bloated, beyond the reach completely of the small investor. It's just that no one expected it to come under pressure from a worldwide health crisis, which in many ways had always had the possibility to bring it down. The steps to save the market, however, are always the same; lower interest rates and buy bonds. But now the rates have bottomed out and there's nowhere else to go, the market will have to sell off, and what a relief it will be.
Right now, some of the highest stocks could drop to half their value and the effect might be immediately felt but the long term effects would be to make Wall Street conservative and cautious again. The disease on The Street isn't some virus forcing the old folks to stay home and nobody allowed to travel to Europe, the disease is blind speculation. Blind because it depends on the Reserve to bail it out every time it gets sick, every time a worthless stock becomes hot because of a Twitter hashtag or a White House announcement.
Under that veil of conservatism by the government, is the desperation of liberalism every time something threatens the economy, a conspiracy between the administration and investors to turn to free spending to prop up a failed policy. The market has been doomed to crash for years, it took a virus to bring out the weak underside of investor greed, of profit over safety, of carelessness over caution.
What do the Fed's latest moves mean for U.S. consumers?
WASHINGTON/NEW YORK (Reuters) - The U.S. Federal Reserve unleashed new emergency measures on Sunday night to limit the economic harm from the coronavirus, including making it easier for banks to get money and slashing its benchmark borrowing rate to near zero. In a move reminiscent of the extraordinary
The Reuters article above by Marte and Timmons states;
"the Fed will flood the financial system with cash to ensure markets keep functioning and banks have the scope to keep credit flowing to businesses and consumers during the growing number of shutdowns prompted by the outbreak" (Reuters)
The argument is flawed. There is no guarantee the banks will send the money down to the consumer, the banks can find a safer way to make a profit off the money, back to speculating on the market. If the economy caves totally, the government will again bail out the banks and nothing will have changed.
Will the market collapse entirely? Depending on investors coming to their senses and the Fed holding its ground and not giving in to the White House incessant pressure for keeping the germ-infested cruise ship of the rich afloat, it might stabilize, but don't count on it. So long as the only course of action the ship can take in financial crisis is liberalism, then it will have no safe harbor to dock.
Late Entry>
Cash will be freed up into the economy by a major selloff, not by giving money to the banks. If the current status quo of institutional investors don't have the nerve to engineer a major correction, then individual investors will have to do it without them.
Sources,
Helicopter Money, Marysville (OH) Journal-Tribune, 26 March 2016, Page 7.
Helicopter Money image--https://www.123rf.com/photo_95141457_helicopter-dropping-money-in-sky.html
The Fed, https://finance.yahoo.com/news/feds-latest-moves-mean-u-005551420.html
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