Mrcauser’s Weblog

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Make out my check to cash….

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I like it when I find people agreeing with me. Of course, I just like the idea of getting something for nothing. But i think this would work better than trying to lend broke dicks money and getting them in trouble.

But what do I know.

oftwominds: What If We Ditched Quantitative Easing and Just Printed (and Distributed) Cash?

Just as a thought experiment: what if the Federal Reserve and the U.S. Treasury ditched the failed policy of Quantitative Easing (QE) and instead printed cash and “helicopter dropped” it into households’ accounts?

Many people think QE is a “helicopter drop” of cash; it is not. It is simply a way of expanding credit and encouraging more borrowing.

What if the Federal Reserve and U.S. Treasury stopped trying to stimulate the economy by encouraging more borrowing with “quantitative easing” and instead “dropped money from helicopters” into households’ accounts?

The core of quantitative easing is this: by expanding bank credit and lowering interest rates, a central bank (in the U.S., the Federal Reserve) stimulates more borrowing and thus more spending by businesses and households.

The problem with this policy is that none of the funds goes directly into consumers’ accounts. If consumers are tapped out or wary of taking on more debt, then bank credit can be expanded to the moon and households will not borrow more money.

So while the Fed, Treasury and the FDIC have shoveled about $4 trillion dollars into the nation’s banking sector in various bailouts and guarantees, these actions have not actually distributed any cash to consumers or businesses. The Fed’s operations in the recent crisis have been loans to banks and other financial institutions and purchases of financial assets, not helicopter drops of cash into households’ accounts.

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Written by mrcauser

August 31, 2010 at 5:10 am

Posted in Uncategorized

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