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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +3

    Comment number 92.

    9. AD "The issue surely is private debt not public debt" OK true,

    But you go on to take a swipe at the EZ - this does not follow and is just stupid.

    The private debt problem is the result of the dominance of Anglo Saxon banking. See Germany where the banks are relatively stronger. But in the UK/USA the banks are bankrupt due to the multiplier effect of insane financial instruments.

    Think!

  • rate this
    +1

    Comment number 91.

    66.Kevinharding
    the economic cost of unemployment will last for years
    cuts are false economies
    ~ ~ ~
    Line 1: you are right
    Line 2: if cuts are not made & some tax changes not made then we will face enduring unemployment, a growing Benefits bill, no income from middle to pay tax & high earners facing an ever increasing tax burden with total stagnation in UK economy.

  • rate this
    +2

    Comment number 90.

    This is like waiting for God to send down manna from heaven, isn't it? Whilst an instance has been recorded, it's not really likely to re-oocur!

    Is this the 'aspirational nation' David Cameron was talking about? We'll all aspire to wait for an (almost) miracle to happen and make things better (or much worse) for us all.

    Must keep a shopping bag with me in case it starts raining money!

  • rate this
    +6

    Comment number 89.

    The more I hear of Turner's ideas the less I am impressed.

    He simply has a gigantic blind spot and that blind spot is the banks. There is absolutely nothing in what he says that challenges the hegemony and dominance if the banks. This is his massive error.

    The banks are bankrupt and must be let go bust or NOTHING will improve the capitalist system's malaise.

    The man is thus economically bad!

  • rate this
    -1

    Comment number 88.

    PBR reduction is acheived directly(cuts) or indirectly(growth or inflation)Attempts to cut it directly are producing the opposite effect to the one intended as IMF already spotted and markets soon will. Basic Keynsian stuff. Need to reinflate the economy fast or we are going down the pan. Not sure helicopter will be sufficient suggest now is the time to call International Rescue!

  • rate this
    +7

    Comment number 87.

    Firstly Lord Turner needs to be investigated for his hopeless role as head of the FSA, but of course failure makes him the ideal candidate to succeed the useless MK.
    Secondly LT is clearly preaching what he thinks George Osborne wants to hear, how can we impoverish the people of the UK further, e.g. By devaluing their saving, to save the failed economic policies of this government.

  • rate this
    0

    Comment number 86.

    Helicopter money. Great. Drop it from a helicopter and watch the bulk of it blow across the seas to China or quickly be gathered up and stuffed in the pockets of bankers.

  • rate this
    -2

    Comment number 85.

    Needs to be said - G. Osborne is blocking reductions needed in overall VAT takings as he is ideologically opposed to it as Balls thinks is a good idea. Osborne needs to meet with BOE & agree how best to gradually reduce VAT using eg QE as VAT is best mechanism to deliver personal stimulus to ALL & sundry as VAT is suitable only as a stealth tax for slowing an over-heating economy. Sink or swim GO?

  • rate this
    +4

    Comment number 84.

    helicopter money .....
    more like airbus size drops of money on to the burning landscape beneath.
    the statements from AT....would I say they are on the political side (especially the pronouncements on the eurozone)
    could I aay they are directed at GO and the govt rather than the general public...
    Is the BOE really independent?
    answers on a postcard to the IOM, Jersey, Cayman Islands, Monaco...

  • rate this
    +8

    Comment number 83.

    I wouldn't give this man a shred of credence until he gets a few bankers behind bars. When is this likely to happen? Never, it seems.

  • rate this
    0

    Comment number 82.

    re 78 Ian Kemmish.

    I agree your 'best helicopter', but the government wouldn't like it.
    While government wishes to reduce its own debt it wants the public to go on a spending spree - not pay down their individual debt

  • rate this
    +2

    Comment number 81.

    Greedy banks are not passing on lowest ever interest rates due to weak BOE & disastrous too big to fail rescue of banks in 2008/9.
    Before MPC idiots vote to increase interest rates to offset CPI increase - good QE use can reduce VAT very effectively & deflationery effect of reducing VAT is strong but is urgently needed due to fuel/energy crisis looming as will hit domestic incomes very hard.

  • rate this
    +2

    Comment number 80.

    Lord Turner is correct in that innovation is the key to success.

    But oh why oh why was he (the FSA) not innovative about its ability to regulate the 'wild west' behaviour of the financial sector?

    A positive note from the wild west was the Sheriff, although some of the penalties wouldn't go down too well in the City today!

    Don't pay your dues, you can't trade.

    No trade, you go bust!

  • rate this
    -3

    Comment number 79.

    Why is it no-one understands the underlying problem. Banks create money. Banks have stopped creating money in fact their money supply has shrunk. They are even obliged to keep some of it as capital - that is dead money. Obviously it must be replaced by fiat. No-one likes fiat but bank debt is a worse evil. The BOE /must/ print money. The alternative is continuing spiral into the abyss.

  • rate this
    +1

    Comment number 78.

    I can't be the only investor who would call this kind of exercise a "selective default". Depending on how many other people called it that, there might be all kinds of unintended consequences.

    Of all the helicopters I've seen described, the least damaging seems to be giving everyone a voucher which must be spent first on reducing personal debt if you have any, and only then on anything you want.

  • rate this
    +1

    Comment number 77.

    EMERGENCY - UK needs prices & competition commission as UK lurches towards its next big challenge - fuel & energy crisis as 'blackouts' & 'rationing' are coming. To many corporate monopolies & foreigners are controlling British energy prices due to lack of UK national strategy on all & sundry. Globalist foreign ownership of utilities is flawed - UK has lost control of vital prices & crisis is near

  • rate this
    +1

    Comment number 76.

    70.Little_Old_Me
    43 Minutes ago

    Regardless of your political beliefs, i dont think the answer to a debt crisis is...errr, more debt. Until public finances are under control. Times will be tough. Put in simple context, if your credit card was maxed out - would you get another one and carry on spending? Would not have thought so.

  • rate this
    +1

    Comment number 75.

    Lord Turner believes we should just keep acquiring more and more debt from future generations and when the time comes to repay - dont !

    After MigrationWatch demonstrated that immigration made virtually no improvement to the UK's per capita wealth creation, Turner was unhappy and announced that he personally would do his own investigation - big deal - we're still waiting for the results.

  • rate this
    +2

    Comment number 74.

    "Irresponsible, sensationalist, left-wing leaning rhetoric from the BBC... ...as we've come to expect."

    Sensationally stupid misrepresentation of the behaviour of the Voice Of The Establishment - as we have come to expect from the more fatuous and greedy on the Right

  • rate this
    +6

    Comment number 73.

    So Lord Turner thinks QE money shouldn't need to be repaid.

    What he is proposing in fact amounts to the government shrinking its debt by devaluing money, using the mechanism of inflation.

    This is hardly original thinking !

 

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