Barings’ Valensise: Why helicopter money is superior to QE

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Helicopter money is better suited to the global economy’s current challenges than existing monetary policies, Barings Asset Management head of multi asset Marino Valensise has argued.

The central bank action involves providing loans for governments to boost the economy through fiscal policies, such as infrastructure spending or one-off tax cuts.

Helicopter money should tackle anaemic aggregate demand, persistence of excess supply and a growing social inequality, Valensise says, as well as an ageing population. Any policy should be designed to benefit the majority of households rather than “enrich asset-holders by inflating financial asset prices”.

“In a heavily indebted world, suffering from low economic growth and facing serious political issues originating from inequality, helicopter money has the potential to outperform any other policy,” Valensise says.

“We must consider it now, or be forced to implement it in a hurry when the next economic recession hits.”

Despite “significant” benefits of aggressive monetary relaxation, Valensise says “extremes have been reached” and “substantial collateral damage has become evident”.

Negative outcomes included “a hit to pensioners and savers, an increase in inequality, a negative impact on the business model of banks and insurance companies, and the perpetuation of excess supply due to zombie companies being kept alive for too long”.

Valensise said there was also technical issues for its implementation.

“While QE relies on an uncertain transmission mechanism, whether banks will lend more or hoard the additional cash, the multiplier effect of HM is easier to forecast,” Valensise says.

“There could also be spending on long-term themes like education, and on structural issues strangling the economy, such as the banking’s sector non-performing assets.”

In the lead up to the Bank of England’s decision on rates this month a group of economists wrote an open letter urging the introduction of helicopter money, instead of policies “designed to fuel asset price bubbles and increase household debt”.