Ivy League economists agree…
The economy is struggling because central banks haven’t printed enough money.
If you’ve been reading the Dispatch, you know this statement is absurd. After all, central banks have printed trillions of currency units since the 2008 financial crisis. The U.S. Federal Reserve has printed $3.5 trillion by itself. On top of that, many world central banks have dropped interest rates to zero, making it extremely cheap and easy to borrow money.
According to mainstream economists, these easy-money policies were supposed to jumpstart the global economy. But this plan has been a miserable failure. The U.S., Europe, and Japan are all growing at the slowest pace since World War II. China, the second-biggest economy after the U.S., is growing at its slowest pace since 1990.
• Many economists want to “double down” on the same failed policies…
Nouriel Roubini is one of the world’s most influential economists. He’s worked with the International Monetary Fund, Federal Reserve, and World Bank. Today, he teaches economics at New York University.
Like many ivory-tower economists, Roubini is urging central banks to launch more stimulus. But he’s not content with printing trillions of dollars and dropping interest rates below zero. He wants to go further. He thinks it’s time for “helicopter money.”
On Friday, Roubini wrote an article for financial website MarketWatch titled “Central Bankers May Have to Fire up the Helicopters.” As we’ve explained, economist Milton Friedman coined the term “helicopter money” in the 1960s. He suggested the government could drop free cash from helicopters to stimulate the economy. People would collect the money and spend it. The economy would grow as a result.
• Friedman likely never took this cartoonish idea seriously…
For a long time, hardly anyone else did, either. But the idea of helicopter money is catching on today. According to Roubini, “desperate times call for desperate measures.”
Of course, the government wouldn’t actually drop cash from helicopters. Instead, it would print money and mail checks to people…or deposit the money directly into people’s bank accounts.
Roubini says helicopter money would be a better version of quantitative easing (QE). As regular readers know, QE is when a central bank prints money and pumps it into the financial system.
QE could evolve into a “helicopter drop” of money or direct monetary financing by central banks of larger fiscal deficits.
[W]hile QE has benefited holders of financial assets by boosting the prices of stocks, bonds, and real estate, it has also fueled rising inequality. A helicopter drop (through tax cuts or transfers financed by newly printed money) would put money directly into the hands of households, boosting consumption.
Roubini thinks the global economy is hopeless without the government’s help.
[L]ike it or not, central banks became and still are the only game in town when it comes to supporting aggregate demand, lifting employment, and preventing deflation.
• Like all “stimulus programs,” helicopter money is rooted in bad economics…
It’s based on the idea that spending fuels the economy. Casey Research founder Doug Casey says this is dead wrong.
It’s part of the Keynesian view, in which spending and consumption drive the economy. This isn’t just wrong, it’s the exact opposite of what’s true. It’s production and saving that drive an economy. You have to save to build capital, and capital is necessary for…everything. What these people are doing is destructive of civilization itself. And when we go into the next crisis, governments will use the disastrous results of their own policies as excuses to enact even more destructive versions of the same things.
• Roubini isn’t the only one who thinks it’s time for helicopter money…
Other Ivy League economists and central bankers like the idea. Richard Clarida, an economist at Columbia University, thinks we could see helicopter money within five years. Mario Draghi, head of the European Central Bank, recently called helicopter money a “very interesting concept.”
Government lapdogs in the financial media also think it’s a great idea. Two weeks ago, The Wall Street Journal published an article titled “The Time and Place for ‘Helicopter Money.’”
Even economists at giant banks like Citigroup, HSBC Holdings Plc, and Commerzbank AG are beginning to take the idea seriously, according to Bloomberg Business.
• We agree that we’re living in “desperate times”…
Global economic growth has stalled. Yet, due to extremely easy monetary policies, stocks and bonds are near all-time highs. Doug Casey believes the government’s reckless policies have set us up for a huge disaster.
In a desperate attempt to stave off a day of financial reckoning during the 2008 financial crisis, global central banks began printing trillions of new currency units. The printing continues to this day. And it’s not just the Federal Reserve that’s doing it: it’s just the leader of the pack. The U.S., Japan, Europe, China…all major central banks are participating in the biggest increase in global monetary units in history.
These reckless policies have produced not just billions, but trillions in malinvestment that will inevitably be liquidated. This will lead us to an economic disaster that will in many ways dwarf the Great Depression of 1929–1946. Paper currencies will fall apart, as they have many times throughout history.
• Owning gold is the best way to protect your wealth…
As we often explain, gold is money. It’s durable, easily divisible, convenient to carry, consistent around the world, and has value by itself. Governments cannot create more gold out of thin air. Gold has preserved wealth for centuries through every sort of financial crisis.
When people realize the financial system is doomed, they’ll flock to gold. Doug thinks this could cause gold to rise 500% or more in the coming years.
• Gold mining stocks will soar even higher…
Gold stocks are leveraged to the price of gold. This year, a 15% jump by gold has caused the Market Vectors Gold Miners ETF (GDX), which tracks the performance of large gold miners, to surge 46%.
Doug says this is only the beginning of a “true mania” in gold stocks. During the 2000–2003 rally, the average gold stock gained 602%. The best stocks surged 1,000% or more.
Doug expects similar, if not better, gains during the coming gold bull market.
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Chart of the Day
This chart terrifies central bankers…
Today’s chart shows the annual inflation rate of advanced economies, which includes the U.S., Europe, and Japan. Inflation measures how fast prices for everyday goods and services are rising. Last year, inflation fell to its lowest level since the financial crisis. This worries central bankers.
You see, central bankers don’t view inflation like most people do. They think inflation helps the economy grow. For the past eight years, they’ve done everything they can to stoke inflation. They’ve slashed interest rates. They printed trillions of currency units.
None of this has worked. Prices for everyday goods and services have barely increased.
Central bankers are becoming desperate to increase inflation. We expect them to “double down” on the same bad policies they’ve been using since 2008. That could mean more interest rate cuts…more QE…or even helicopter money.
Owning physical gold is the best way to protect your money from these reckless government policies.
Delray Beach, Florida
April 5, 2016
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