Helicopter Drop (Helicopter Money)

Helicopter Drop (Helicopter Money)

What is Helicopter Drop (Helicopter Money)?

The helicopter fall, a term coined by Milton Friedman, refers to a type of last-resort monetary stimulus strategy to stimulate inflation and economic output. Although it seems theoretically feasible, from a practical point of view, it is considered as a hypothetical and unconventional monetary policy tool whose implementation is highly unlikely.

Key points to remember

  • The helicopter fall, a term coined by Milton Friedman, refers to a type of last-resort monetary stimulus strategy to stimulate inflation and economic output.
  • The dropping of helicopters is an expansionary fiscal policy which is financed by an increase in the money supply of an economy.
  • Above all, the term “helicopter crash” is largely a metaphor for unconventional measures to revive the economy during deflationary times.

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Helicopter money: word on the street

Understanding Helicopter Drop

The dropping of helicopters is an expansionary fiscal policy which is financed by an increase in the money supply of an economy. It could be an increase in spending or a tax cut, but that means printing large amounts of money and distributing it to the public to stimulate the economy. Above all, the term “helicopter crash” is largely a metaphor for unconventional measures to revive the economy during deflationary times.

While the “ helicopter drop ” was first mentioned by famous economist Milton Friedman, it gained popularity after Ben Bernanke made a passing reference to it in a November 2002 speech, when he was the new governor of the Federal Reserve. This unique reference earned Bernanke the nickname “Helicopter Ben”, a nickname that stayed with him for much of his tenure as a member of the Fed and president of the Fed.

Bernanke referred to the “helicopter crash” in a speech to the National Economists Club about the measures that could be used to fight deflation. In this speech, Bernanke defined deflation as a side effect of a collapse in aggregate demand, or such a severe reduction in consumer spending that producers would have to lower prices continuously to find buyers. He also said that the effectiveness of the anti-deflation policy could be enhanced by cooperation between the monetary and fiscal authorities, and called a broad tax cut “essentially equivalent to the famous ‘helicopter drop’ of Milton Friedman. “

Although Bernanke’s critics later used this reference to disparage his economic policies, they were silenced by his skilful management of the American economy during and after the Great Recession of 2008-09. Faced with the greatest recession since the 1930s and the US economy on the brink of disaster, Bernanke used some of the same methods described in his 2002 speech to fight the downturn, such as widening the scope and the scope of the Fed’s asset purchases.

Japan plans helicopter crash

More recently, Japan, which has experienced stagnant growth throughout the 21st century, toyed with the idea of ​​helicopter money in 2020. Once again, Bernanke was at the forefront of the conversation when he met with Japanese Prime Minister Shinzo Abe and Haruhiko Kuroda of the Bank of Japan. to discuss other monetary policy options, one of which was issuing large-scale, long-term perpetual bonds. In the months that followed, Japan did not officially implement a helicopter drop, but instead opted for new large-scale asset purchases.

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