The vote in the U.K. to leave the EU was the big news last month. It was just a symptom of the moribund global growth disease caused by official policy failures, but it will be used as an excuse for much that ails the world going forward. It also served as a wakeup call to the ruling elites that their narratives and Ponzi schemes have created a rebellious mood in the real world if not the financial one. A sizable portion of the populace simply wants to “throw the bums out.”
In recent weeks, sensing an insurrection, the central banks have gone into overdrive to protect all that they and their friends hold sacred by expanding their balance sheets to keep order in markets. Japan is now considering direct central bank funding of fiscal spending or as is more commonly known, distributing “helicopter money.” The scheme is not too much different from the radical and massive QE going on there already. It simply allows the central bank to buy bonds directly from the government without entering the secondary market. Make no mistake. It is clearly a step further into emergency policy measures that most of us hoped would never be employed.
Bernanke, while no longer holding any official role at the Fed, has espoused the helicopter money concept for years. It speaks volumes about the sad state of affairs that he recently felt compelled to make this push now in plain sight by traveling to Japan and speaking with the powers-that-be there about it. Theoretically, this money would be directed at consumers or the real economy in some way through perhaps infrastructure project funding, which has become the deciders’ favorite cover for spending more of the voters’ money.
Some within Japan have questioned whether this scheme is legally permissible, so maybe it will never come to pass. However, we would bet that sooner or later leadership there will have to pull the trigger because in spite of enormous QE and negative-rate policy, the nation simply cannot escape its poor demographics and massive leverage without trashing the yen, which has stubbornly rallied in recent months. Of course, China will not just sit idly buy, so we expect it to devalue its currency in response. Therein lies the problem. Debasing currencies does not work when every central bank is doing it. No relative advantage can be gained.
The head of the Federal Reserve Bank of Cleveland also mentioned helicopter money as a possibility down the road in an interview in Australia recently, so clearly the central bankers are preparing the populace for this abomination. She subsequently tried to walk back the comments because of some outrage over the concept, but it is quite obvious where the central planners want to take us next whether we like it or not.
The views expressed on this blog are the opinions of the authors. This information is not intended as investment advice or to recommend the purchase or sale of securities. More information on Strategic Balance, LLC may be obtained by contacting investor relation.