Helicopter money is a term popularized by the former Federal Reserve Chairman Ben Bernanke in his 2002 speech, “Making Sure ‘It’ Doesn’t Happen Here“. This speech outlined policies that the Fed could pursue to ensure that deflation didn’t take root in the U.S., thus (hopefully) avoiding the same financial misery that plagued Japan since its twin stock market/property market bubble burst in the early 1990s.
I will quote a relevant excerpt from the talk that Bernanke delivered to the National Economists Club in Washington, D.C.:
“…U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. …If we do fall into deflation…we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.”
It is important to point out how radical this financial theory really was at the time. Over the course of the 20th century, central banks have learned the hard lesson that monetizing government debt – buying significant quantities of government bonds either directly from the national treasury or from the secondary market – inevitably leads to the eventual destruction of the currency. In other words, monetizing government debt (aka helicopter money) is nothing more than ugly inflationism that gradually impoverishes a nation.
Although Bernanke’s speech never explicitly mentioned the term “helicopter money”, the concept has nonetheless become intimately associated with his extremist approach to dealing with potentially deflationary economic situations.
The Federal Reserve got a chance to try out Bernanke’s flawed monetary policies after the U.S. housing bubble popped in 2008. This bursting bubble ushered in the country’s most severe economic crisis since the Great Depression. Unfortunately, Bernanke’s helicopters only dropped money over Wall Street, while Main Street USA was curiously left off the list of money drop destinations.
This was a feature, not a bug.
The Federal Reserve pushed short term interest rates to almost zero for a full 8 years, depriving savers, retirees and the prudent of desperately needed interest income while simultaneously enriching the big banks via inflated net interest margins. The Fed didn’t stop there though. They also engaged in Quantitative Easing, or “QE” for short, where they printed trillions of dollars out of thin air and purchased Treasury and mortgage securities from cash-strapped banks. And then the Fed doubled down by giving trillions more dollars of effectively interest-free loans to banks, insurance companies and other vaguely financial institutions – like the motorcycle maker Harley Davidson!
A Graph of the Federal Funds Rate from 2007 to 2018
Even the U.S. Government had a helicopter money drop of its own when Congress passed the Troubled Asset Relief Program (TARP), which authorized the Treasury to inject up to $700 billion of taxpayer money into banks to make sure they didn’t receive their just desserts (which were bankruptcy, followed by liquidation).
I do have a point with this financial history lesson, so please stay with me.
You see, the excessive debt loads that caused the global economy to grind to a halt in 2008 were never resolved. Instead, the central bankers of the world, in their questionable wisdom, decided to fix a debt problem by loading the world up with even more debt. This is like trying to cure a hangover with a bottle of 80-proof whiskey. It might seem to work wonderfully at first, but eventually you are going to die of alcohol poisoning.
Well, here we are 10 years later slumped over in the financial gutter. Another recession is coming soon and I fear we are ill prepared for it. This looming mega-recession will be massively deflationary, spawning a liquidity crisis/dollar shortage of gargantuan proportions. The Fed will react with sheer panic; none of their highly mathematical (but quite useless) models will have predicted the end of the financial world as we know it.
Initially, the Fed will pursue the same flawed policies it did in the previous crisis. They will lower interest rates back down to zero (or possibly even below zero), purchase Treasury and mortgage debt via QE, and hand out interest-free loans like candy (but only to their big bank friends). They will even hand out fistfuls of dollars to foreign central banks via swap lines to help ensure that foreign banks don’t run out money.
However, these radical steps, which were barely enough to stabilize our crumbling financial system last time, will be utterly insufficient this time around. The debt-laden economy will continue to spiral downward, even with all these bailouts in place. In addition, the public is wise to the corrupt bankers’ game this time. The common man will undoubtedly demand a helicopter money bailout of his own.
I’m sure the Federal Reserve Board Members and Washington, D.C. politicians will resist this public groundswell at first. However, I’m equally certain that average citizens will be adamant that they should enjoy a turn at the money spigot this time. If the career politicians and bureaucrats refuse, then I believe we will be looking at another French Revolution: chaotic, bloody and violent.
I think the Powers That Be, fearing for their own safety, will ultimately relent and the helicopters will take flight over Main Street.
Helicopter money for the average citizen could assume several different forms. It could come via something as simple as a lump-sum, one-time check for each adult citizen. Or it could arrive as a rebate of FICA taxes paid over the last 5 or 10 years.
Universal Basic Income, or UBI, is another interesting possibility. This would be a small monthly income stream for life, very similar to Social Security. The only difference is that UBI would be paid to all adult citizens instead of just the elderly.
The final possibility for widespread helicopter money is a proposal by the iconoclast Australian economist Steve Keen. He believes that government should engage in a modern-day debt jubilee of sorts. This would involve the government mailing out big checks to everyone, but with a twist: your debts would be paid off first.
So if you had a mortgage for $100,000 and the bailout amount was $50,000, the government would send the $50k to your bank to pay down your mortgage. In other words, your mortgage would be cut in half. Even the payments would be halved, as it is probable that installment debt would be re-amortized after such an event. The only people who would receive helicopter money directly under Keen’s proposal would be those who had either no, or modest debts.
The primary benefit of the Keen proposal is that it would save our necrotic banking system – something that would appeal tremendously to our corrupt political overlords. This factor alone greatly boosts its chances of implementation.
Regardless of how it is deployed, all of this money printing is going to have a fundamentally different impact on the economy than the prior round did in 2008. Back then, the money was only dropped on Wall Street and it stayed there. This resulted in massive asset price inflation, but little consumer price inflation.
This time around, it is clear that any helicopter money that lands on Main Street will affect prices in the real economy. And this is the crux of my thesis.
From 2008 until 2019 we have been living through a stealth depression for the average person. Wages have been stagnant. Interest income has been nil. Good jobs and promotions have been hard to come by. Instead, all the perks from money printing went straight into the pockets of the large banks and other monopolistic corporations.
This had the effect of depressing the price of hard assets like antiques, gemstones, art and bullion. These asset classes were completely ignored by traditional asset managers who were too busy chasing stock and bond market bubbles to care.
The only exceptions to this rule were the very finest, most internationally-renowned gemstones and artworks, which sold for millions of dollars to the ultra-wealthy as trophies. Any hard asset selling for less than $30,000 or $40,000 wasn’t even considered fit to be an impulse purchase for the obscenely rich. And anything priced below $10,000 was simply irredeemably low-brow.
All of this will change when helicopter money is dropped onto Middle America during the next recession. Average people will rightly start looking for a way to protect their wealth. And neither stocks, nor bonds, nor cash will do the job this time. High-end antiques, precious gems, fine art and bullion will be the obvious safe havens in this scenario.
I don’t care whether you choose to sink your money into a relatively conservative hard asset, like pre-1933 semi-numismatic U.S. gold coins, or opt for something more unconventional, like vintage Must de Cartier wristwatches. But you absolutely must allocate a bare minimum of 5% to 10% (and preferably more) of your investment portfolio to tangible assets if you hope to preserve your purchasing power against the tidal wave of printed money that is coming.
It has been my longstanding prediction that the Federal Reserve’s balance sheet will balloon from its prior peak of $4.5 trillion to an astounding $20 trillion in the next recession. And unlike our last financial crisis, much of this freshly printed helicopter money will find its way into the hands of the middle class. This will naturally drive up both demand and prices for quality tangible assets. But it is vitally important that you act now before the freshly-printed money hits the economy. This will allow you to get into these intriguing unconventional assets for obscenely low prices before the crowd discovers them.
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