<B>Helicopter QE will never be reversed
Quantitative easing will never be reversed. It is not liquidity management as claimed so vehemently at the outset. It really is the same as printing money.</B>
7:49PM BST 03 Apr 2013
Columbia Professor Michael Woodford, the world's most closely followed monetary theorist, says it is time to come clean and state openly that bond purchases are forever, and the sooner people understand this the better. "All this talk of exit strategies is deeply negative," he told a London Business School seminar on the merits of Helicopter money, or "overt monetary financing". "If we are going to scare the horses, let's scare them properly. Let's go further and eliminate government debt on the bloated balance sheet of central banks," he said. This could done with a flick of the fingers. The debt would vanish.
Lord Turner, head of the now defunct Financial Services Authority, made the point more delicately. "We must tell people that if necessary, QE will turn out to be permanent."
A breakdown of the global trading system might be one, armed conquest or Fascism may be others - or all together, as in the 1930s. There were two extreme episodes of money printing in the inter-war years. The Reichsbank's financing of Weimar deficits from 1922 to 1924 - like lesser variants in France, Belgium and Poland - is well known. The result was hyperinflation.
Less known is the spectacular success of Takahashi Korekiyo in Japan in the very different circumstances of the early 1930s. He fired a double-barreled blast of monetary and fiscal stimulus together, helped greatly by a 40pc fall in the yen. The Bank of Japan was ordered to fund the public works programme of the government. Within two years, Japan was booming again, the first major country to break free of the Great Depression. Within three years, surging tax revenues allowed Mr Korekiyo to balance the budget. It was magic. Stephen Jen from SLJ Macro Partners says Western analysts have been strangely slow to understand the breathtaking scale of what is under way. The Bank of Japan is already committed to bond purchases of $140bn a month in 2014. This is almost double the US Federal Reserve's net purchases (around $75bn a month), and five times as much as a share of GDP.
Prof Woodford and Lord Turner both think the Fed has already begun to monetise America's deficits, though Ben Bernanke has been studiously vague whenever pressed in testimony on Capitol Hill. These are early days. It is tentative and deniable. Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.
http://www.telegraph.co.uk/finance/...294/Helicopter-QE-will-never-be-reversed.html
Quantitative easing will never be reversed. It is not liquidity management as claimed so vehemently at the outset. It really is the same as printing money.</B>
7:49PM BST 03 Apr 2013
Columbia Professor Michael Woodford, the world's most closely followed monetary theorist, says it is time to come clean and state openly that bond purchases are forever, and the sooner people understand this the better. "All this talk of exit strategies is deeply negative," he told a London Business School seminar on the merits of Helicopter money, or "overt monetary financing". "If we are going to scare the horses, let's scare them properly. Let's go further and eliminate government debt on the bloated balance sheet of central banks," he said. This could done with a flick of the fingers. The debt would vanish.
Lord Turner, head of the now defunct Financial Services Authority, made the point more delicately. "We must tell people that if necessary, QE will turn out to be permanent."
A breakdown of the global trading system might be one, armed conquest or Fascism may be others - or all together, as in the 1930s. There were two extreme episodes of money printing in the inter-war years. The Reichsbank's financing of Weimar deficits from 1922 to 1924 - like lesser variants in France, Belgium and Poland - is well known. The result was hyperinflation.
Less known is the spectacular success of Takahashi Korekiyo in Japan in the very different circumstances of the early 1930s. He fired a double-barreled blast of monetary and fiscal stimulus together, helped greatly by a 40pc fall in the yen. The Bank of Japan was ordered to fund the public works programme of the government. Within two years, Japan was booming again, the first major country to break free of the Great Depression. Within three years, surging tax revenues allowed Mr Korekiyo to balance the budget. It was magic. Stephen Jen from SLJ Macro Partners says Western analysts have been strangely slow to understand the breathtaking scale of what is under way. The Bank of Japan is already committed to bond purchases of $140bn a month in 2014. This is almost double the US Federal Reserve's net purchases (around $75bn a month), and five times as much as a share of GDP.
Prof Woodford and Lord Turner both think the Fed has already begun to monetise America's deficits, though Ben Bernanke has been studiously vague whenever pressed in testimony on Capitol Hill. These are early days. It is tentative and deniable. Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.
http://www.telegraph.co.uk/finance/...294/Helicopter-QE-will-never-be-reversed.html
