Turner: Time for helicopter money?

 
Lord Turner Lord Turner's speech was his last at Mansion House as head of the FSA

Lord Turner warns that the process of businesses, households, banks and the government trying to cut their big debts built up in the boom years, what is known as deleveraging, may bear down on the British economy's ability to grow for many years yet.

He is also concerned that quantitative easing, or the purchase by the Bank of England of government debt, may be becoming less and less effective in promoting a recovery.

So the City's top regulator, who is seen as one of the two leading candidates to be the next governor of the Bank of England, says that the government and the Bank may have to consider new unorthodox policies to overcome what he calls the powerful economic headwinds.

Although he does not make explicit what he means by these innovations, it is understood he believes the Bank of England should consider telling the Treasury it never has to repay some of the £375bn of government debts the Bank acquired through quantitative easing - which many conventional economists would regard with horror, because it would be seen as the government, in effect, printing money to finance public spending.

Since some of this debt is due for repayment next year, the Bank of England has a deadline for deciding whether to roll it over into a perpetual zero-interest debt - which would be seen as, in effect, writing off the debt.

The economists' slang for this kind of policy is the creation of "helicopter" money, because it is seen as the equivalent of dropping money on all of us from out of a helicopter (see this column by Simon Jenkins for more on this).

Lord Turner, in what will be his last speech to the City at the Mansion House in his current role, also broke something of a taboo among prominent British ministers and officials by speaking openly about how if the eurozone cannot save itself through making bold reforms, it should attempt to dissolve itself in what he called a "controlled rather than chaotic fashion".

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 12.

    Y=C+I+G+X, since C,I,G and X are all gonna be going down for a long time we are gonna find ourselves in a deflationary environment. So yes lets monetarise some debt. As long as its done carefully there is no reason it should lead to hyperinflation.

    The alternatives are much worse.

  • rate this
    +3

    Comment number 11.

    We could call this helicopter money as long as it's understood that the helicopter hovers in a stationary position over the Conservative party. This suggestion is a bail out for the failed policy of austerity. The money would be used to cover the fact that this government has failed in its only policy of deficit reduction. Real helicopter money would be much better.

  • rate this
    +1

    Comment number 10.

    @5. If only they would drop some pennies! High levels of private debt at av. 8% APR interest has been caused by our debt-money system which has been brought about by our money supply being created through loans. QE is more debt (the tiny amount that reaches the real economy and isn't just gambled). 375bn divided by 50 million adults = 7,500 each (debt-free)! Let those helicopters fly!

  • rate this
    +1

    Comment number 9.

    The issue surely is private debt not public debt

    The EZ is hell bent on suicide. The dynamic is to drift towards fracture even at regional level let alone national level

    A eurozone breakup cannot be anything other than chaotic, it is system failure

    Does anybody actually know how much European debt there is yet, I doubt it. With time more appears & there is no reason to believe that will stop

  • rate this
    +12

    Comment number 8.

    "quantitative easing,.......may be becoming less and less effective in promoting a recovery".
    ~
    More garbage. You must try to get your tiny mind around this:
    QE was NEVER intended to promote a 'recovery', it's purpose is merely to support the banks, to allow them to carry on skimming the rest of us, to keep the rich peoples gravy train on track, to transfer wealth from us to them.
    WAKE UP!!!!!!!

  • rate this
    +1

    Comment number 7.

    acr?. £375 billion? And the rest! None of these economic buffoons who wield far more power than elected mainstream politicians and journalists have any idea how to rescue the state of British capitalism!

  • rate this
    +4

    Comment number 6.

    Robert Mugabe as next head of the bank of England then?

    He's been doing this for years.

  • rate this
    +1

    Comment number 5.

    The penny appears to be dropping! The music stopped in 2007 but the dancing continues (albeit now just a smooch with the batteries going flat in the transistor radio!)

  • rate this
    +2

    Comment number 4.

    Anyone believe this or future UK governments are going to willingly suck £375bn out of the economy when they can defer it for some other government to deal with?

  • rate this
    +3

    Comment number 3.

    How long is this all going to go on? Perpetual zero interest debt?? Helicopter money? Isn't helicopter money just updating the concept of wheelbarrow money??

    The EU is going to dissolve anyway and it's way past the time when it could be controlled the time we had has been wasted and we can't buy it back however many helicopter loads of money we produce out of thin air.

  • rate this
    +1

    Comment number 2.

    Its pretty obvious that if you borrow money from the future it makes you have more to spend today. If you get to the future you are due to be poorer as you have spent the money and have repayments to make. Its not rocket science. I thought there were a lot of clever people watching this stuff but obviously not as they let debt go wild

  • rate this
    +2

    Comment number 1.

    this is not a precedent one should wish to see set.

 

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