Helicopter Money Rotors Warm Up in Japan Following Bernanke Visit

Despite worrisome economic indicators, markets recently soared to all-time highs based on speculation that Japan plans to inject helicopter money into its economy to combat the country’s deflation. This best-guess prognostication was fueled by former Federal Reserve chairman Ben Bernanke’s dramatic visit to meet with Japanese leaders to discuss stimulus packages and helicopter money according to a report posted on Zerohedge.com. Helicopter money, which is also called direct debt monetization, is a controversial economic approach that involves central monetary policymaking agencies increasing the supply of money and distributing it directly in real-world industries and bond markets instead of through guarantees to major banks.

Bernanke is considered the world’s foremost expert on the economic approach, so his visit to Japan fueled speculation that the government was about to be the first modern industrial nation to use helicopter money as an economic tool to increase interest rates, stimulate the economy and fight deflation. The results in financial markets were almost universally positive except that the Japanese yen weakened as stocks soared. As the yen weakens, global stocks tend to advance. Some of the immediate consequences of helicopter-money speculation included:

  • Japanese stocks rallied for four consecutive days.
  • European shares also rose to three-week highs.
  • The U.K.’s pound rose while speculators awaited the Bank of England’s first decision on interest rates since voting to leave the European Union.
  • Russia’s ruble gained against the yen.
  • Yields on 10-year treasury bonds rose two points in the United States and four points in Germany and the U.K.
  • The S&P 500 futures climbed 0.8 percent to reach 2162.

A CNBC.com report affirms that Japanese Prime Minister Shinzo Abe denied that the government has any plans to use helicopter money. The denial was meant to shore up the yen, but Bernanke’s visit is still seen as evidence that Japan plans to implement some watered-down form of helicopter money or direct participation in the economy.

Japan Consults Ben Bernanke Who Earned the Moniker “Helicopter Ben” for His Views on Fighting Deflation

Bernanke earned the moniker “Helicopter Ben” in 2002 for his proposed method of fighting deflation by using Milton Friedman’s concept of dropping “helicopter money” to finance public spending or tax cuts according to a report in Marketwatch.com. Bernanke has become the go-to expert on the subject after chairing the Federal Reserve and deftly dealing with the 2008 mortgage crisis in the United States by injecting stimulus money into the economy. Helicopter money is an even more direct way of enlarging the money supply to fight deflation and stimulate business, but like any economic strategy, there are risks that include legal challenges, increased debt and hyperinflation. Japan is thought to be considering helicopter money as a fix to its monetary problems and deflation that has caused interest rates to fall.

Quantitative Easing Versus Printing Money

Although many critics equated quantitative easing, or QE, as “printing money” and predicted dire consequences for the 2008 stimulus package in the United States, the bailout package actually created bank reserves to buy mortgage-backed securities and government debt so that the large banks could afford to ease their credit policies. The program enjoyed limited success by lowering interest rates but never resulted in big increases in lending, so the U.S. economy remained sluggish according to a report in Fortune.com. Helicopter money is seen as a last result to inject money into the economy directly without going through the banks–essentially printing money or increasing the monetary supply without tying the increase to a given country’s gross national product output.

Bernanake’s writings discussed the challenges of implementing a “helicopter money” policy, according to an article posted on Forbes.com, so Japanese financial leaders were anxious to consult with Bernanke before implementing such a policy. Bernanke’s visit to Japan was enough evidence to send stock prices soaring despite Japanese policymakers denying that they were considering direct debt monetization, or helicopter money, to fight deflation according to another report on CNBC.com.

Threading a Narrowing Economic Needle with a Japanese Scapegoat

Although almost every government policymaker and economic expert consider helicopter money too dangerous to use except as a last resort, all eyes turned to Japan after Bernanke’s visit to see if the country would implement such a policy to gauge its effectiveness. Governments worldwide are worried about the current economic climate and what can be done to counter the problems of deflation, sluggish business and low interest rates. Learn more about the current economic threats, helicopter money and Japan’s fight against deflation at the PersonalMoneyStore.com.

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