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 32.

    Hacky @30
    Like the term
    "Universal Credit"

    The presumption of belonging, each week or month mainly to be spent, 'directing the economy & the planet', by purchase, rent, subscription, necessarily limited 'saving' (our 'cups to un over' to preclude 'command; over next year & next generation)

    Credit and / or liberties cut if laziness and / or criminality proved: no hiding place amongst 'idle rich'

  • rate this
    +2

    Comment number 31.

    About time someone noticed the difference between the wood and the trees!

    Why should we all live in poverty simply because the state (the treasury) owes money to the state (the BoE)?

    Economics is great until the theory outstrips reality. Pretty much everyone here has realised the two do not match up any more.

  • rate this
    0

    Comment number 30.

    All for All @22

    I'm with you on that suggestion, but couldn't we call it 'universal credit'? That name's probably never been used anywhere before to pollute the concept of universal benefits and muddy the waters of future discussions about welfare rationale.

  • rate this
    +2

    Comment number 29.

    Role: Governor of the Bank of England.

    Job Description: To bail out greedy banks and illegal war mongering govt's.

    Skills: Must be comfortable making savers, regular workers and pensioners poorer. Previous experience of handling printing presses a bonus.

    Salary: £300,000 + benefits.

  • rate this
    +2

    Comment number 28.

    27. "PLEASE! Stop "fractional reserving" anything!!!!!!!!"

    I agree entirely. I support full reserve banking on my deposit account - the money would be mine. As we stand, the money in my bank account does not belong to me. The bank simply has an IOU to me. Additionally, I would also have an investment account that I agree the bank can use for a certain time period = Clarity & sanity for all.

  • rate this
    +1

    Comment number 27.

    PLEASE! Stop "fractional reserving" anything!!!!!!!!

  • rate this
    +2

    Comment number 26.

    Ah, at last someone is thinking their way past the log jam. Yes helicopter money is part of the solution but only where applied to the energy sector to reduce our dependence on imported oil and gas. Energy efficiency -free- and energy creation investment will not be inflationary and are key to our long term security and renaissance. British Gas's +8% today illustrates why this is now essential.

  • rate this
    +1

    Comment number 25.

    @19.Wee-Scamp
    "I'm actually very surprised anyone gives anything Turner says any credence whatsoever."

    "Reducing private, business and government debt... could impact economic growth for many years" is quite true. In the impossible circumstance all debt were paid off, you have the curious happenstance of no money in circulation. See comment @23. This has been the status quo for 600 years.

  • rate this
    -2

    Comment number 24.

    You lot realu don't get what QE is about do you .

    BOE pritd money - buys high class asset ( gov debt ) from bank .

    Bank must replace high class asset with high class asset ( gov debt ) .

    Basically the BOE is using banks ad a proxy to print money for gov spending .

    So that printed money is paying public sector wages and pensions .

    Brown has basically shafted us all .

  • rate this
    +7

    Comment number 23.

    I wish to add something to my post @10. A helicopter drop of interest-free (unloaned) money would only work if Fractional Reserve Lending was abolished. The current "funny-money" system would ensure that any additional money was amplified up by the banks and this would be inflationary. The answer: Stop banks lending money they don't have!

  • rate this
    +1

    Comment number 22.

    "Unorthodox" sense

    IF, as it seems, those who hold 'our currency' will not volunteer 'their funds' for an 'economic re-set', redistributing 'demand & control' power, then perhaps 'we' have to play chicken with inflation, not by 'helicopter flights to banks', rather by 'citizen-incomes' to every citizen, every age & condition

    As inflation shows, hoarders to be 'regulated' in their rush for exits

  • rate this
    +1

    Comment number 21.

    With rates st less than 1 % . This is in effect helicopter money anyway .

    The bit Gordon Brown kept mum about was the fact that he was printing money to finance his defecit .
    Cameron has the option of carry on printing or cut £100bn in annual spending imediately .
    We did not even vote on it .

    All we got was the spiel about boosting the economy .

  • rate this
    +13

    Comment number 20.

    because it would be seen as the government, in effect, printing money to finance public spending.


    QE has done NOTHING i repeat NOTHING for the public it has only allowed the banks to continue to function in the same failed way as they have become accustomed too.

    The public are being hammered from all sides to protect the Banks and this is set to continue with more failed policy.

  • rate this
    +1

    Comment number 19.

    I'm actually very surprised anyone gives anything Turner says any credence whatsoever. That apart the main aim should be to slash house prices and the price of land. So the "helicopter money" should go to paying off mortgages & the banks could then use that to fund SMEs and start-ups.

  • rate this
    +8

    Comment number 18.

    Hmm I smell the fear of Rome burning

  • rate this
    +1

    Comment number 17.

    Given the complete mess the FSA made of things, remind me why we should care what this man thinks.

    Probably best to do the complete opposite of what he says.

  • rate this
    +1

    Comment number 16.

    It is time for helicopter money - but Turner isn't first to say it & idea isn't new - best H-money is to finance permanent & gradual phasing out of VAT as temp. cut is no good. ? is how best to finance this as using QE 3 is probably best by couponising the payments to keep firm control of BOE money supply. But means a weaker £ GBP & govt must have emergency fuel/energy plan as inflation is coming

  • rate this
    +1

    Comment number 15.

    Turner is singing a tune new to him. OK the private debt is the problem (as I have been writing since 1995) nice he gets it now. But he helped deepen the crisis for a decade!

    'Helicopter Money' is insane and will only make things worse.

    The ONLY solution is debt deflation (taking decades) as it did in the 1870s.

    Restore prudentially priced money & lets get started handling the bankrupt banks.

  • rate this
    +8

    Comment number 14.

    Here is another option which Adair Turner did not mention explicitly but seems as though it is on its way should he become Governor of the Bank of England. Negative interest rates as in we end up paying the banks to hold our money.

    http://www.mindfulmoney.co.uk/wp/shaun-richards/will-the-spread-of-negative-interest-rates-create-a-new-carry-trade/

  • rate this
    0

    Comment number 13.

    All debt is public. Private debt is just an illusion because money and wealth under capitalism is only created by labour where private capitalists reap profits by exploiting the real value of labour!

 

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