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Print Less But Transfer More Why Central Banks Should Give Money Directly To The People

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http://www.foreignaffairs.com/articles/141847/mark-blyth-and-eric-lonergan/print-less-but-transfer-more

In the decades following World War II, Japan’s economy grew so quickly and for so long that experts came to describe it as nothing short of miraculous. During the country’s last big boom, between 1986 and 1991, its economy expanded by nearly $1 trillion. But then, in a story with clear parallels for today, Japan’s asset bubble burst, and its markets went into a deep dive. Government debt ballooned, and annual growth slowed to less than one percent. By 1998, the economy was shrinking.

That December, a Princeton economics professor named Ben Bernanke argued that central bankers could still turn the country around. Japan was essentially suffering from a deficiency of demand: interest rates were already low, but consumers were not buying, firms were not borrowing, and investors were not betting. It was a self-fulfilling prophesy: pessimism about the economy was preventing a recovery. Bernanke argued that the Bank of Japan needed to act more aggressively and suggested it consider an unconventional approach: give Japanese households cash directly. Consumers could use the new windfalls to spend their way out of the recession, driving up demand and raising prices.

As Bernanke made clear, the concept was not new: in the 1930s, the British economist John Maynard Keynes proposed burying bottles of bank notes in old coal mines; once unearthed (like gold), the cash would create new wealth and spur spending. The conservative economist Milton Friedman also saw the appeal of direct money transfers, which he likened to dropping cash out of a helicopter. Japan never tried using them, however, and the country’s economy has never fully recovered. Between 1993 and 2003, Japan’s annual growth rates averaged less than one percent.

Today, most economists agree that like Japan in the late 1990s, the global economy is suffering from insufficient spending, a problem that stems from a larger failure of governance. Central banks, including the U.S. Federal Reserve, have taken aggressive action, consistently lowering interest rates such that today they hover near zero. They have also pumped trillions of dollars’ worth of new money into the financial system. Yet such policies have only fed a damaging cycle of booms and busts, warping incentives and distorting asset prices, and now economic growth is stagnating while inequality gets worse. It’s well past time, then, for U.S. policymakers -- as well as their counterparts in other developed countries -- to consider a version of Friedman’s helicopter drops. In the short term, such cash transfers could jump-start the economy. Over the long term, they could reduce dependence on the banking system for growth and reverse the trend of rising inequality. The transfers wouldn’t cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them.

The idea that in the previous boom there perhaps maybe was unsustainable consumption is lost on most economists. I don't need a new TV every year, I don't need a new phone every year etc..... Once this renewal boom ends and people make things last 5,6,7,8 years you naturally get a economic slow down. Still a temporary boom should help get things going again...

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Well that will make going to work a triffic idea, why bother when you can just catch a wage packet falling from a helicopter.

Ive been to York today and the shops are jam packed, people are hardly resorting to living on bread and jam just yet.

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Well that will make going to work a triffic idea, why bother when you can just catch a wage packet falling from a helicopter.

Ive been to York today and the shops are jam packed, people are hardly resorting to living on bread and jam just yet.

You'd think people might think endless growth in a finite resource world might be a bit silly. But I guess not.

I, mean, I don't disagree printing money and giving it to people is better than giving it to banks.

Or we could just stop pursuing inflation.

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...Gordo Brown has delivered this with tax credits ..the Corporates love it as they employ labour for next to nothing ..this work force does not seek wage rises in case it upsets their benefits' claims ....delivered courtesy of the tax payer....and the corporate shareholders receive dividends from this subsidised cheap labour, which should in fact be banned from all markets ...if Japan think the got it right, Gordo ensured they were early amateurs in the game.... :rolleyes: .....

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...Gordo Brown has delivered this with tax credits ..the Corporates love it as they employ labour for next to nothing ..this work force does not seek wage rises in case it upsets their benefits' claims ....delivered courtesy of the tax payer....and the corporate shareholders receive dividends from this subsidised cheap labour, which should in fact be banned from all markets ...if Japan think the got it right, Gordo ensured they were early amateurs in the game.... :rolleyes: .....

I see what you mean give everyone an extra £100 a month to spend in printed money and the land lords and the corporates will be fighting amongst them selves to lower wages and higher rents to capture that extra money.

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Just to add. It is always considered a bad thing to tax the rich say 95p in the pound because it disincentivize them to earn more money. This maybe a good thing leave some wheat in the fields for the birds.

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You'd think people might think endless growth in a finite resource world might be a bit silly. But I guess not.

I, mean, I don't disagree printing money and giving it to people is better than giving it to banks.

Or we could just stop pursuing inflation.

Our economy is mostly services which don't require the consumption of finite resources, 'cept humans.

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Our economy is mostly services which don't require the consumption of finite resources, 'cept humans.

You can't print capital. Only the market can create capital by valuing assets above liabilities.

However some in this people-services economy, think capital can be created just by Miliband opening his gob to utter some new inanity.

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Havent read the article, but proponents are wondering why there hasnt been the expected inflation.

I reckon its because the people arent getting the money...its going to banks, they cant find a place to lend it ( for it is a lot) so they buy stocks.

The stock markets have done rather well.

Valueless companies like FBook are doing very very well indeed, valued in billions of printed $$$.

Edited by Bloo Loo

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Havent read the article, but proponents are wondering why there hasnt been the expected inflation.

I reckon its because the people arent getting the money...its going to banks, they cant find a place to lend it ( for it is a lot) so they buy stocks.

The stock markets have done rather well.

Valueless companies like FBook are doing very very well indeed, valued in billions of printed $$$.

Because corporate income and profit keeps on rising.

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Because corporate income and profit keeps on rising.

from what I have read, that bears little relationship with the PE ratio...Price v earnings...

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