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'Helicopter money' may be only weapon to confront next recession

Section: Daily Dispatches

By Tom Rees
The Telegraph, London
Monday, September 30, 2019

A radical world of "helicopter money" -- where central banks fund government spending -- is "inevitable" as policymakers run out of ammunition ahead of the next recession, top economists have warned.

Central banks are likely to "explore more unconventional policies" in the next downturn and blur the lines between fiscal and monetary policy with radical new tools, such as monetary financing, Deutsche Bank argued.

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Recession fears are mounting but central banks have very little firepower remaining with traditional monetary policy -- the control of the money supply and interest rates -- blunted.

Helicopter money to stimulate the economy therefore "seems inevitable over the medium to longer term," said Jim Reid, a Deutsche analyst. He argued that central banks "effectively invited governments to experiment with more unconventional policies" with ultra-low interest rates on debt.

Helicopter money is when central banks finance government spending through money printing but can also refer to cash transfers into individuals' bank accounts and haircuts to debt already held by central banks.

"If the post global financial crisis decade has all been about printing money to buy financial assets, we think the next decade will be more about printing money and injecting it into the real economy," Mr. Reid said.

The German bank's analysis found that the world is already drenched in debt in the wake of the financial crisis. Total debt has tripled since the turn of the century to $247 trillion while government debt as a percentage of GDP in advanced economies is at a record peacetime high. ...

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