3 - Helicopter Money Drops

Summary

Chapter 3 considers the analytics of helicopter money drops – monetized fiscal stimuli. These will always boost nominal aggregate demand because central banking is profitable (interest rates on assets exceed those on liabilities and/or central bank money is irredeemable). This Chapter also summarizes some of the key results of the first three chapters in the following propositions.

1: A central bank can be solvent with negative conventional equity.

2: Central bank current and future resources are ‘tax payers’ money,’ because the Treasury is the beneficial owner of the central bank.

3: The cancellation of Treasury debt purchased by the central bank is equivalent to the central bank holding that additional Treasury debt forever.

4: QE that is permanent/irreversible in present discounted value terms creates fiscal space for a deferred helicopter money drop.

5: A helicopter money drop today boosts demand even in a permanent liquidity trap, when the nominal interest rate is at the zero lower bound (ZLB) forever.

6: Lack of nominal effective demand is a policy choice or the result of a failure of cooperation and coordination between the central bank and the Treasury, not an unavoidable fate, even for an economy apparently stuck at the ZLB.