As I was walking home from work the other day, I was met with an unusual sight. It was when I was crossing Southwark Bridge, that I saw them: a pair of Apache gunships flying down the Thames in close formation. They were silhouetted perfectly against the golden dusk light, a sinister pair of shadows humming low across the water.
As the helicopters passed overhead, they were framed by the grand old buildings and the glittering skyscrapers of the world’s financial centre – the City of London.
Back in the 70s, numerous sightings of unmarked black helicopters across the US spawned a conspiracy movement. Now referred to as “the black helicopter crowd” in D.C., they linked the helicopters to strange instances of cattle mutilation and UFO sightings.
One man thought they heralded the end times, foreseen already by the Apostle John in the Book of Revelation. John had already seen the fleets of black helicopters in his vision, he argued, but as he did not know what helicopters were, he had described them as swarms of locusts. I wonder if the image of central bankers funding the government was similarly lost in translation.
A different kind of helicopter now approaches the financial world. A helicopter bearing bags of cash. The radical form of monetary policy known as helicopter money is back, after an absence while the stockmarket was booming.
The Bank of England didn’t raise rates yesterday, and cut projections for rate hikes in future. The Federal Reserve has paused. The European Central Bank (ECB) is speaking about taking out the “monetary toolbox” to stimulate yet again. India just cut rates. It seems that our short-lived “tightening cycle” may have already come to an end. But with rates already so close to zero, how will the government try to stimulate the economy?
The Fed recently took a page out of the ECB’s book and claimed that the last US recession would have ended quicker if the Fed had cut rates negative. This is one of many trial balloons for how the Fed will deal with an economic downturn, and I expect helicopter money will be another. Jerome Powell himself has called for more aggressive policies to deal with income inequality, saying “We want prosperity to be widely shared. We need policies to make that happen.”
And Elizabeth Warren, the Democrat angling for president, has decried the notion that government spending increases need to be offset by savings, saying it “doesn’t make any sense” and that they need to “rethink the financial accounting of the US”.
The man at the printing press says he wants government policies to share prosperity. The lady in politics says government spending requires no limit. A match made in heaven.
Definitions of exactly what helicopter money actually means varies, but the metaphor of a chopper turf bombing a city with bags of cash remains. Some think it entails a permanent expansion of a central bank’s balance sheet – ie, the central bank buys something, never to sell it again, permanently increasing the money supply. Others think of it as direct financing of the government by the central bank for infrastructure projects and more – Jeremy Corbyn’s “People’s QE”.
Eoin Treacy thinks of it simply as a subsidy to consumers, paid for by the central bank. He thinks it’s inevitable, both here in the UK and globally in the next downturn, and that’s it’s a damn strong reason to be looking at the gold market these days.
I’ll leave there for today, but you’ll hear more on Eoin’s view in the days to come – keep an eye out.
Have a great weekend,
Boaz Shoshan
Editor, Capital & Conflict
Category: Investing in Gold