They had then learned how easy it is to issue it; how difficult it is to check its overissue; how seductively it leads to the absorption of the means of the workingmen and men of small fortunes; how heavily it falls on all those living on fixed incomes, salaries or wages; how securely it creates on the ruins of the prosperity of all men of meagre means a class of debauched speculators, the most injurious class that a nation can harbor,—more injurious, indeed, than professional criminals whom the law recognizes and can throttle; how it stimulates overproduction at first and leaves every industry flaccid afterward; how it breaks down thrift and develops political and social immorality.
The above doesn’t refer to Venezuela or Zimbabwe in modern times. These words were written in 1896 by Andrew D. White, in relation to the calamitous experience of the French with fiat money in the 1790s (only some 70 years after a similar debacle involving the collapse of the Banque Générale under John Law). And they could very well be applied to our current global zero interest rate environment.
This week The Spear got to listen to one of Japan’s leading investment banking economists talking about Japanese Helicopter money, a policy which is already covertly underway via on-market debt purchases of government bonds by the BOJ, but which may become more overt over the coming years. His long-term outlook was grim: eventual hyperinflation.
Japan has a three digit currency rate today because of a similar experience in the 1930’s, when the central bank was directly underwriting government debt issues and engaging in widespread stimulus programs due to the great depression (which got our of control after the finance minister was assassinated by the military due to his attempts to reduce military spending).
And today from CNBC:
Japanese Prime Minister Shinzo Abe said on Wednesday his government would compile a stimulus package of more than $265 billion to reflate the flagging economy, media reported, though it is unclear how much will be spent to directly boost growth.
The premier's 28 trillion yen ($265.30 billion) stimulus package, which exceeds initial estimates of around 20 trillion yen, includes 13 trillion yen in "fiscal measures," Jiji reported. Those measures are likely to include spending by national and local governments, as well as loan programs.
Abe's announcement, via a speech in southern Japan, came earlier than expected and pressures the Bank of Japan to match his big spending plan with additional monetary easing at its closely-watched rate review ending on Friday.
"The amount is so large that the stimulus package is bound to have a big economic impact. It is impossible to spend this much money in one extra budget, so this may take place over the next few years," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
"The BOJ is likely to ease policy, including increasing government debt purchases, so you could say the BOJ can absorb the new debt. It also makes it easier to show that the BOJ and the government are working together."
Unfortunately in our global economy, this type of action spurs central bank easing by the likes of the ECB and Fed who want to maintain a competitive currency, for currency markets are a zero-sum game. Japan actually ends up exporting its current deflation to the rest of the world. Cheap debt is used to maintain standards of living, and the debt pile grows bigger yet, necessitating further easing.
As the use of the helicopter - the printing press - becomes more frequent, common and overt with seemingly no consequences, the more likely we are to use it.
Once the helicopter is in use, money has become a political tool. There can be no helicopter money without collusion between the central bank and government, as it is a fusing of monetary and fiscal policy.
But when the free money stops, there be a lot of wailing (and assassinations). And since the only thing a politician fears more than death is unpopularity, once the helicopter starts it is almost impossible to stop.