What is Helicopter Money ? Why the Central bankers are using the term so frequently now?
The instant reference that can be drawn towards the Hollywood/Bollywood, kind of Robbin hood stories where the hero/villain throws money from the helicopter in the villages. Jokes apart
Getting back to economics “Helicopter money” is the term economists and market-watchers use for an aggressive form of monetary stimulus — the government’s power to print money — to try to spur growth and get inflation higher. There had been buzz that the Bank of Japan could move in that direction, but it elected to take only a smaller action. The bank did say it would do a “comprehensive review” of policy in the months to come that could presage more coordination between the bank and the Japanese government. Continue reading
Ok, So the Greece just voted in a landslide to reject further austerity (Good for them). So nobody knows what’s going to happen next. There nothing like a financial crisis to get adrenaline pumping, Might be the chances of Grexit be higher now, but I would not dig in to detail. Would rather move away to the maverick author Nassim Nicolas Taleb who made the points for Bailouts and Prevailing culture in the financial domain
- The main difference between government bailouts and smoking is that in some rare cases the statement “This is my last cigarette “holds true
- The difference between banks and Mafia: banks have better legal regulatory expertise, but Mafia understands the public opinion. Or you can say”Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world”
So it appears the Eurozone crisis has finally crossed the Rubicon. Greece is going to default on Monday and this likely will put in motion its departure from the currency union. The Eurozone as we know it may soon cease to exist.
Was this breakup inevitable? Many observers would say yes. The Eurozone, after all, is not an optimal currency area and therefore likely to create problems. Martin Feldstein, for example, in 1997 wrote this in Foreign Affairs:
Monnet was mistaken…
If EMU does come into existence, as now seems increasingly likely, it will change the political character of Europe in ways that could lead to conflicts in Europe…What are the reasons for such conflicts? In the beginning there would be important disagreements among the EMU member countries about the goals and methods of monetary policy. Continue reading
Reading between the lines from the Bank of Italy , Back to 2012 in the month of July Mario Draghi, on the verge of yet another Eurozone collapse, promised the world that he would do literally “whatever it takes” to defend the Euro, banks in the insolvent continent took his promise seriously, and ramped up their participation in the most epic Ponzi scheme conceived in Europe to a whole new level. The scheme, of course, was one where banks would buy sovereign bonds issued by their host country (most notably Spain and Italy), and subsequently repo them back to the ECB for near full cash (net of a minuscule haircut) collateral.
The IMF also published a crucial paragraph doing the spillover analysis indicates that a shock from Italy could have a marked impact on the Europe and beyond through trade and financials channels. Continue reading
Recently Jörg Bibow was interviewed have tried to put the points in English stating that Mario Draghi’s announcement promise of ECB support for government bond markets seems to have calmed fears of an imminent euro breakup, at least for the time being. That does not mean the euro crisis is over though. Not at all, as the underlying problems remain largely unresolved. Liquidity can buy time but it cannot solve the imbalances inside the euro area and related debt overhangs that are the deeper cause behind the euro crisis. It is important in this context that the ECB promise is for conditional support. As liquidity support comes along with mindless austerity and asymmetric adjustment pressures imposed on debtor countries, debt problems are bound to get worse rather than better. Markets are currently in complacency mode about these prospects. The crisis may resurface at any time.
He pointed out Germany as the main culprit behind the euro crisis. Being the largest economy in Europe, Germany’s performance and policies inevitably impact Europe. In the currency sphere Germany is also Europe’s traditional anchor of stability. As a result, the policy regime of Economic and Monetary Union agreed at Maastricht is largely of German design, based on the Bundesbank success story and deutschmark stability. It was not understood that the pre-EMU success of the German model of export-led growth required that other countries behaved different from Germany. Continue reading