Of course, the government is excellent at spending money. Democrats will probably spend on community organizers and teacher’s unions. Republicans will probably spend on defense contractors. Everybody’s got their favorite wishlist.
This is what Speaker Paul Ryan did in December when he pushed the budget reconciliation bill through the House of Representatives. The Senate passed it and naturally Obama signed it.
Everyone came together in Washington. Politicians love spending money in an election year.
But consider the consequence. Now the deficit will go up even more. How does Congress cover the shortfall? The Treasury will borrow the money.
Who’s going to lend the Treasury the money? Simple. The Fed will print the money and buy the bonds. That brings us back to money printing.
But here’s the difference between helicopter money and quantitative easing: In QE, the Fed prints the money and uses it to buy existing bonds from the banks. Then the money usually sits there in the banks. I’ve explained how that policy has failed.
With helicopter money, though, Congress spends the money. It covers its deficit with more borrowing, and the Fed prints the money to cover the borrowing. It’s essentially monetizing the debt. The difference is that in the case of QE, there’s no extra spending. In the case of helicopter money, there is because Congress spends all the money.
That means, in the final analysis, helicopter money is the recipe for inflation.
This policy is coming sooner than you may think…
- Source, Jim Rickards via the Daily Reckoning