Helicopter Money: The Shills Are Back in 2016!

Well, it's now official. They are once again hauling out all the hacks and shills they can find to sell the American public on the next brilliant idea in the economic arsenal: helicopter money (free money from heaven or in this case, money from the government, which from their perspective is the same thing). Academics, journalists from the mainstream media that specialize in economic commentary and even some economists working for the big money center banks (the too big to fail crew) are all in on the action. Even one of the US regional Federal Reserve Banks is doing it's own sales pitch: An economic commentary by the Cleveland Federal Reserve Bank dated August 10, 2016 clearly ramps up the propaganda for so-called helicopter cash, although they exclusively use the term economic stimulus, so-called helicopter money is encompassed in this generic moniker.


Here is what they say: We argue that fiscal stimulus funded by public debt is effective for increasing economic activity and employment even in recessions that are caused by over borrowing in the private sector (I keep telling you guys, take the hallucinogenic recreational pharmaceuticals out of the water coolers, solving a debt crisis – AKA over borrowing, cannot be solved with even more debt!). They go on to opine: A number of research studies have shown that excessive household debt contributed to the 2007 financial crisis and slowed the economic recovery from the Great Recession (you think? Someone actually paid for a study to determine this?). A hotly debated topic among economists and policymakers now is whether a stimulatory fiscal policy is helpful in such a recession (it's debated because not everyone is drinking the tainted juice you folks enjoy so much).


But here is the real kicker and ball of laughs from this economic commentary by the Cleveland Federal Reserve: Determining whether GDP growth was achieved as a result of a fiscal stimulus is tricky because it is difficult to disentangle the direction of causality (it's tricky as in they really DO NOT KNOW and admittedly cannot tell, so tell me again why they are attempting something they do not even know works?). So, how does the venerable US Federal Reserve resolve such difficulty? I will let them tell you themselves: Instead of looking at total fiscal stimulus spending across the country as a whole, we use data on another type of government spending, Department of Defense (DOD) spending (there you go, that's their argument, selectively nitpick one piece of ridiculous data such as defense spending and call it a night). For additional reading here is the link to the whole thing: https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/2016-economic-commentaries/ec-201608-does-fiscal-stimulus-work.aspx


The problem is, they admit they do not even know if government economic stimulus works, which baffles the mind as to why they would continue (and even more disturbing is the use of increased public debt to do it). They also have an issue of diminishing returns, resulting in even more wasteful expenditures. Allow me to explain briefly and in layman's terms. The whole idea is that the government injects or somehow spends US$1 into the economy via various initiatives and that in theory that should produce US$1.50 or some other amount worth of economic activity. This must be the magic (read voodoo) Mr. Vitas Vasiliauskas of the European Central Bank was talking about when said in an interview back in May 2016 that central bankers are magic people (my proof there is indeed strange pharmaceuticals in those water coolers, but I digress). However, talking about other kinds of economic stimulus, such as direct government purchases of goods or services in the economy (not because they need it, but to stimulate as in a French tickler) the US Congressional Budget Office claims the estimated multiplier for government purchases is between 0.5 and 2.5 (they have no idea in other words, it's a crap shoot). So, every US$1 spent could generate 50 cents worth of economic mojo, or it could generate US$2 worth of voodoo magic for the economy. We do not know. They do not know.


Ms. Valerie Ramey, an economist at the University of California in San Diego came up with pretty much the same conclusion (her figures were between .8 and 1.5). However, there have been other more recent commentaries that suggest there has been the law of diminishing returns at work with all this nonsense and that the returns are now only 20 percent. Stated more plainly and more clearly, for every US$1 now spent, some current figures suggest that they are now getting back 20 CENTS worth of economic magic (that is in indeed one great disappearing money trick). I have heard of negative interest but now it seems we have negative economic stimulus too. I am not the brightest person in the world, but even I know spending one dollar for something worth twenty cents is not a good deal. But in the magic land of central banking, negative is positive, up is down, left is right, the mad hatter is a sane genius, so on and so forth.


On June 5, 2016 the Swiss voted on a referendum regarding this exact same thing. The concept is not new and has been called many different things: basic income, universal income, social dividend, negative income and of course now helicopter money as well. But the premise is the same, governments simply send a monthly check to everyone with a pulse. Sounds great except for one small problem – How is any government able to pay for it all? The Swiss voted NO to the idea and the Swiss Government by their own calculations declared that the plan would double the Swiss social welfare budget. The claim of course is that all other social welfare programs and related bureaucracies can be eliminated, resulting is a supposed cost savings. Things like unemployment insurance programs, monthly cash assistance to the poor, disability payments and so on would go away and be replaced by a universal check mailed out to everyone forever. But the fastidious Swiss crunched the numbers and came up with NEIN.


Getting back to the finances of the United States Government, the US Treasury (or we should say their collection agency, abbreviated as the well known IRS) took in a record US$3 Trillion Dollars in tax revenue in 2015. Now I want you to understand something. This was the largest amount of tax revenue collected by the US Government in their entire 200 plus years of existence. And do you want to know something else? It still was not enough as they rang up yet another deficit of US$400 Billion again in 2015 despite this record tax haul. And in August 2016 both the Congressional Budget Office and the White House Office of Management and Budget calculate that they will take in US$3.34 Trillion worth of tax revenue in 2016 (another new all time record) and will still have yet another deficit of US$616 Billion regardless.


Once again, I do not claim to be the brightest bulb in the chandelier, but even I can do some simple math and know they cannot even handle want they have in place now. So how the heck are they going to fund a helicopter cash giveaway program that the Swiss have already said would result in an even higher amount of social welfare expenditures?


Not to digress, but here are some of the ways the US Government has already spent tax payer funds (so you can understand why they continue to have budget deficits despite all time high tax collection numbers). The enlightened and supposedly well learned folks in the US Government spent US$$783,000 for a study to find out why America's young people consume malt liquor and marijuana (I will tell you for free, they wanted to get high). They gave US$92,000 to the US Army Core of Engineers to make a costume for Boober the water safety dog (I know a very nice lady in Santo Domingo that sews all the costumes for the annual 5th grade student show, she charges the equivalent of US$50 and that includes the materials). Last but not least we have more than US$200,000 spent on studying why university students want to hook up (and once again for free, it is because they want to have sex).


Turning Japanese: The 20 Year Economic Stimulus Experiment


Returning to our economic stimulus – helicopter theme, are there any real world case studies to conclude that such programs are wasteful and even harmful? The answer is Japan. The Japanese economy has been in a coma for pretty much the last 20 years now, and they have attempted everything under the sun to revive it. In other words, in terms of the US and European Central Banks looking for a test case, it has all been done already before in Japan. And very recently former US Federal Reserve Chairman Ben Bernanke paid a visit to high ranking officials in Japan presumably to discuss a Kamikaze Cash program of their own (still yet to be determined is the inclusion of a coupon for a free bottle of sake along with the government check). But the Bank of Japan's own statistics clearly indicate all of the so-called economic stimulus they have attempted has been a bust. Bloomberg reported quite clearly that: Lower rates have yet to translate into increased lending. The money multiplier, calculated by dividing the total amount of funds in the economy by the monetary base, sank to a record 3.35 last month (July). The ratio was 8.27 before Kuroda kicked off his easing program in April 2013 (and we would highlight the law of diminishing returns for these policies yet again). http://www.bloomberg.com/news/articles/2016-04-27/boj-stimulus-never-less-effective-as-cash-idles-indicator-shows


In summary, we already have had 8 years of this nonsense in the US and roughly 4 or 5 years of it in Europe as well (all depending on what programs or data you want to look at). The Japanese have been going at it for 20 years like a drunk sword swinging samurai and all they have to show for it is a sovereign debt to GDP ratio that has ballooned past 200 percent, money pulled from the Japanese banks faster than a Tokyo bullet train and no sound economic gain. Is it not time to stop substituting sound economics with grab bag recipes that we already know has not worked in other countries? Why continue to shill for yet another foolish policy that will only further erode the government balance sheet and in-debt the citizenry even further?