On Bernanke’s Helicopter Money for Japan
Bernanke’s proposal for the Bank of Japan to buy zero-coupon perpetual Japanese Government Bonds is, quite literally, the government printing money by itself, for itself. Money is, by definition, the debt of government with no interest and no maturity. So framing this idea as monetary policy is just a veil – it is fiscal stimulus, in which the government gives itself money to spend. As such it is an end-run around an impaired credit channel that blocks the transmission of standard monetary policy, but has all the vices of government-mandated spending programs. We doubt this is the leading edge of the “coordinated global stimulus” that some are expecting. The mechanism requires a great deal of debt issuance, which would be politically difficult in the US and Europe. But it may be at least a trial balloon.