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".

 
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  • rate this
    +7

    Comment number 72.

    . "He is also concerned that quantitative easing may be becoming less and less effective in promoting a recovery."

    I would have thought that would have been obvious when what is being done is diluting the value of money. When I hear that these people are supposed to be expert in finance it just makes me despair. They have no more idea than anyone else & in many cases a dammed sight less

  • rate this
    +5

    Comment number 71.

    Lord Turner has been an abject failure as Head of the FSA. Therefore, it is only natural that he should be considered for the position of Governor of the Bank of England.

    Such is the way things work in the upper echelons of finance and Government.

  • rate this
    0

    Comment number 70.

    Something has to be done - austerity is causing the deficit, ergo the debt, to rise through the double dip recession decreasing tax receipts whilst raising the benefits bill as people are thrown on the dole......

    ....capitalism was, right from the off, predicated on credit.....

    ....either use more credit wisely to get us moving or reap the failed harvest for years to come.....

  • rate this
    +2

    Comment number 69.

    I find this most confusing: RP doing Economics, Stephanie covering Politics & NR Blogging on Business!

    As we are here on this question: yes - it's time for unconventional economics (or at least a different approach) as some of us have been espousing for some time. Not sure about listening to Turner's recommendations; seem to recall he had a tip of a finger if not a hand in causing this mess.

  • rate this
    +12

    Comment number 68.

    It is incredible to me that Turner is a potential candidate for Governor of the BoE. As other commenters below have pointed out, the current financial mess happened on his watch!

  • rate this
    +2

    Comment number 67.

    Look everyone, the Emperor is naked!

  • rate this
    +1

    Comment number 66.

    the economic cost of unemployment will last for years
    cuts are false economies
    10 billion cut in welfare is a 10 billion loss of revenue
    for the private sector
    after the last great depression and ww2 relative govt debt was higher
    and the govt spent more!
    govt spent when private sector couldn't
    reasonably shared spoils of increased productivity
    demand up growth up
    relative govt debt falls

  • rate this
    0

    Comment number 65.

    More paper chains for the plebs. The ponzi lumbers onwards powered by fascism deniers. All hail the degenerate establishment. Stamped in the concrete millstones around our collective necks. Aunty Beeb failed us.

  • rate this
    +1

    Comment number 64.

    the government is the currency issuer
    it spends via the central bank
    the central bank cannot run out of pounds
    the government can NEVER become bankrupt in sterling
    the next generations like the last will add to the level of debt
    run defecits because it will have to
    the ratio of defecit to GDP will depend on growth
    uk imports goods exports money
    only govt defecit or uk private defecit must account

  • rate this
    0

    Comment number 63.

    Typical BBC headline: "Cuts could hit growth for years..." This is NOT what Turner said. And the BBC's headline implies that no cuts = growth (whereas in fact no cuts = bankruptcy for the country). Irresponsible, sensationalist, left-wing leaning rhetoric from the BBC... ...as we've come to expect.

  • rate this
    +9

    Comment number 62.

    Robert, I realise that Turner is trying to keep his name in the limelight for future BOE Governor, but how short is the collective memory?
    Turner is responsible for much of this mess and still no prosecutions of his banking chums!
    I fervently hope that anyone else, anyone at all, gets appointed as BOE governor rather than Turner.
    That probably means it's in the bag!

  • rate this
    +2

    Comment number 61.

    My son would like his mortgage debt written off. What a pity I've already repaid mine - and at times incurred very high interest charges. If only it was numbers changing on a spreadsheet, as Pleb opines.
    "They" will stop at nothing to save the banks.
    Many people have said the QE Gilts will never find their way back to the banks.

    We can look forward to banknotes with lot of zeroes on them.

  • rate this
    +11

    Comment number 60.

    What I really don't understand is QE in its entirety. Had the BoE not pumped any QE into the economy would it have made any difference?
    The answer to solving to problem of getting the UK out of recession is to increase the amount of money normal people have to spend on goods and services.

  • rate this
    +2

    Comment number 59.

    No he is taking the KeyHak view. Money is what it's worth. Government gets a large debt write off. But it is responsible, for the failure of BoE. Think back, ERM, black Wednesday. Total melt down on UK & other markets, stripped away half of UK gold reserves. No matter how much you hate them, the market decides. Politicians just prolong the obvious, & hope for the best.

  • rate this
    0

    Comment number 58.

    The usefulness of such a move would be determined by what the government does with it which in turn is likely to be determined by how they choose to visualise it. its fundamentally a balance sheet transaction, numbers changing on a spreadsheet, one can however project different real-world interpretations onto it & the interpretation one uses tends to colour how one would utilise it (or fail to)

  • rate this
    +3

    Comment number 57.

    "the Bank of England should consider telling the Treasury it never has to repay some of the £375bn of government debts...in effect, printing money to finance public spending"

    Well I hope others in debt can do the same thing, if the government is going out it's way to make funny money.

  • Comment number 56.

    All this user's posts have been removed.Why?

  • Comment number 55.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +2

    Comment number 54.

    Lord Turner, a former advocate of the UK joining the Euro and Vice-Chairman of Merrill Lynch Europe, would like the Bank of England to finance government spending by printing money.

    You don’t have to be “conventional” to regard this proposal with horror.

    Financial trickery is not the solution.

  • Comment number 53.

    All this user's posts have been removed.Why?

 

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