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How helicopter money, spent wisely, can lift a large economy like China
- The world has not really recovered from the 2008 financial meltdown, and quantitative easing has only set the stage for the next crisis. To turn things around, central banks should create fiat money and states should spend on job creation
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More than a decade after the 2008 financial crisis, the world is still stuck in the long tunnel of economic pessimism: sluggish and uncertain growth, unemployment or underemployment, near-zero or negative nominal interest rates in advanced economies, widening gaps in income and opportunities, mounting private and public debts.
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For several years after the crisis, the turbo-charged economy of China was a strong driver of global economic growth. That engine has slowed considerably – another negative factor.
A financial crisis tends to cause not only economic setbacks but also serious social and political problems with long-term consequences. We are witnessing a retreat of democracy, a rise in populism and sectarian intolerance in many parts of the world.
The picture is grim, and all the measures taken so far have failed to turn the economy around. Repeated rounds of quantitative easing have been likened to pushing a string. Pursuing the same policy for longer is not likely to be meaningful, as shown by the Japanese experience.
Not only have the quantitative easing exercises not produced the desired results, they have led to other serious consequences. They have contributed to higher asset inflation and wealth ownership, setting the stage for the next great crisis. All the past major financial crises result from asset inflation gone awry.
So, are we running out of options? Not according to Adair Turner, former chairman of Britain’s Financial Services Authority. In articles and his book Between Debt and the Devil: Money, Credit, and Fixing Global Finance, he proposes that central banks create fiat money. To help an economy spend its way out of a recession, fiat money can take the form of “helicopter money” (distributed in cash to citizens) or debt monetisation (directly financing government deficit spending).
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