Helicopter Money

Thrugelmir

michaels wrote: »

Assuming they would have the money to pay it sounds like a another major cash boost to the economy following on from the now dwindling PPI pot.

Mastercard presumably then increase their fees to recoup the money. I doubt that they've £20 billion lying idly about doing nothing. Alternatively they go bust.

michaels

Thrugelmir wrote: »

Mastercard presumably then increase their fees to recoup the money. I doubt that they've £20 billion lying idly about doing nothing. Alternatively they go bust.

Can't see how they could not go bust if they have to make similar payouts throughout Europe. However initially it could be a bit like BP in that a company worth 25bn is suddenly only worth 5bn due to this liability so basically the shareholders lose all their money....

merlingrey

DRFC1879 wrote: »

I'm maybe too simplistic in my reasoning but I struggle top think of a better way of stimulating the economy than helicopter money in some form.


Whether it's through a corporate case like this or some sort of government scheme it gets cash straight into the pockets of consumers to either:
1. Pay off debts, leading to ongoing increase in disposable income and therefore grow their spending month after month.
2. Spend (a proportion) straight away, great for business.
3. Invest, driving an element of demand and therefore stability/confidence in markets.


Ok, I take the counter-arguments around devaluation/inflation but it seems to a layman such as I to be a much better solution than QE.

Well the other way is use the tax system to pay everyone (working or not) a basic wage of £1000 a month, everyone gets the £1000 whether they are homeless or live in a palace.

That is being discussed already:
http://www.independent.co.uk/news/world/europe/finland-to-consider-introducing-universal-basic-income-in-2017-a6963321.html

It will cause inflation, i suspect that £1000 within 10 years of this sort of scheme to fall to £100 of purchase power, as long as the inflation is not ultra fast, if it is then it becomes as lethal as deflation.

But yes in theory it would jump start an economy more than QE because QE is just the process of lending and you cant make people borrow, they matched it with low interest rates to attempt that but it wouldn't be enough in another downturn.

Mistermeaner

Trouble with giving people money for nothing is that nothing is being produced so the wealth of the nation does not increase. Its a purely paper exercise that devalues your currency.

Far more effective would be to lower taxes, probably on consumption so drop vat to 10%. This will encourage spending and make everyone relatively richer.

Of course the treasury takes a hit but its better than devaluing the £ further.

Treasury can offset the loss by cutting its spending on welfare

merlingrey

Mistermeaner wrote: »

Trouble with giving people money for nothing is that nothing is being produced so the wealth of the nation does not increase. Its a purely paper exercise that devalues your currency.

Far more effective would be to lower taxes, probably on consumption so drop vat to 10%. This will encourage spending and make everyone relatively richer.

Of course the treasury takes a hit but its better than devaluing the £ further.

Treasury can offset the loss by cutting its spending on welfare

That's probably more dangerous, governments who no longer get the taxes print the money in absolute terms to cover their deficits , low taxes or lack of the ability to borrow is what is seen as a precursor to hyperinflation.
If one government lowers the taxes the next government doesn't want to raise them because it doesn't get them elected, if they happen to need cash for a war or more deficit spending then they can only devalue the currency.

Inflation is a tax, they are one and the same, you're either taxed directly to cover the governments deficits and spending or covertly by devaluation of currency, they prefer the covert method obviously.

Thrugelmir

michaels wrote: »

Can't see how they could not go bust if they have to make similar payouts throughout Europe. However initially it could be a bit like BP in that a company worth 25bn is suddenly only worth 5bn due to this liability so basically the shareholders lose all their money....

BP sold assets i.e. oil and gas fields to fund their liabilities. Market value has no direct correlation to the actual value of a companies assets. In a fire sale companies assets can be worth very little.

michaels

merlingrey wrote: »

That's probably more dangerous, governments who no longer get the taxes print the money in absolute terms to cover their deficits , low taxes or lack of the ability to borrow is what is seen as a precursor to hyperinflation.
If one government lowers the taxes the next government doesn't want to raise them because it doesn't get them elected, if they happen to need cash for a war or more deficit spending then they can only devalue the currency.

Inflation is a tax, they are one and the same, you're either taxed directly to cover the governments deficits and spending or covertly by devaluation of currency, they prefer the covert method obviously.

In favour it is highly redistibutive tending to favour those with labour to sell at the expense of those with capital, useful when there is a grey vote block that will block any other redistribution. Also diverts money to those with less wealth who probably have a higher propensity to spend so may well be a stimulus (obviously we are talking about 5% inflation with 0.5% base rate of 2012/3 not zimbabwe style).

System

And it's so easy to control inflation and stop it becoming entrenched and running out of control.
We let it rise once to nearly 25%, but hey presto, a tiny touch of the economic controls and back it came obediently to a manageable 3%.