Helicopter money is probably the next stupid, bound-to-fail idea central banks and governments will implement. It’s a toss-up whether it comes first to Europe or Japan (see next article). From Don Quijones at wolfstreet.com:
And not for small companies either.
Money for nothing, for everyone: This is supposedly the next stage of the treatment program for today’s debt-addicted economic system. Milton Friedman’s hypothetical scenario of giving every citizen direct money transfers in a desperate bid to stoke inflation is gaining traction with growing legions of mainstream economists.
In their theory-addled brains, a massive one-off injection of central bank-conjured money into people’s bank accounts would do wonders for the real economy — in particular a terminally stagnating one like Europe’s. Rather than creating asset price inflation, as QE has done, it would fuel consumer price inflation. This is seen as the solution to the recently created and now unpayable mountain of debt: the central bank would simply erode it away via inflation.
In April, however, the ECB dashed such hopes, at least for the immediate future. “It’s not on the table,” ECB Executive Board member Peter Praet told a bunch of economists who’d been pushing for an answer at a conference organized by the Center for Financial Studies in Frankfurt.
That’s not to say that the ECB is opposed on principle to the idea of showering people with money they’ve done nothing to earn. It just depends what kind of people.
Indeed, in many ways the central bank is about to do just that, but the lucky people on the receiving end will not be normal, everyday people; they will be corporate persons, including some of the richest, most powerful companies in Europe as well as the European subsidiaries of huge foreign multinationals.
The amount of free money these corporations are about to receive will be counted not in the hundreds or thousands of euros, but in the millions or billions. And instead of transferring money into their corporate accounts, the ECB will just buy up to 70% of any new corporate bond issuance.
The ECB unveiled its latest cunning plan some months ago, when global investors were begging for a bone to chew on, but the bond purchases are scheduled to begin in earnest next Thursday. To be eligible for this new central banking welfare scheme, the bonds must be issued by non-bank corporations established in the euro area. But just as with everything the ECB does, the conditions could change at any time.
Indeed, they already have.
Back in March the central bank stated that it would buy only investment grade rated debt, but then concerns were raised about what might happen if a name they owned was downgraded to below investment grade. Today a representative of the bank put such fears to rest by announcing that it “is not required to sell its holdings in the event of a downgrade” to junk, the FT reports, raising the prospect of it holding so-called “fallen angels.”
To continue reading: Helicopter Money Drops on Europe, But Not for ‘Normal’ Folks
