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 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
    -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
    -2

    Comment number 143.

    Better than helicopter money would be to cut VAT to, say, 15% - with an even lower rate for restaurants. That ensures the cash goes straight into spending money for Xmas. Moreover, supporting restaurants (posh & popular) gives those labour intensive businesses cash to hire staff who'll then spend their modest wages quickly. We know it works & that it can be done!

  • 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
    -2

    Comment number 41.

    Sorry to steal the topic, but -

    List ALL similarities between banking and bonking -

    No1 -Name St. George's mount. The bonk of England.


    In regards the govenor and his acolytes, it matters immensely, what they do. That is protecting value. Others run amok


    Ps It does matter what the Govenor and his acolytes do, they protect value. Others are allowed to run amok. Status wo, boy. Steady there.

 

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