When Helicopters Aren't Big Enough

November 16th, 2013
in gold


by John N. Katz, The Goldwatcher

Helicopter Money:

A few remarks in a November 2002 speech by Ben Bernanke on making sure deflation doesn't happen in the US earned him the unwelcome moniker 'Helicopter Ben.' The first remark concerned money printing where he had this to say: '....the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost... The second, addressing a broad based tax cut to stimulate consumer demand was followed by the comment: 'A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.

Follow up:

Now, 0n 31st October, Nouriel Roubini has published an article in Project Syndicate titled Bubbles In The Broth. And guess what? He now sees bubble risks as

'.... the US stock market and many others have rebounded more than 100% since the lows of 2009; issuance of high-yield "junk bonds" is back to its 2007 level; and interest rates on such bonds are falling. Moreover, low interest rates are leading to high and rising home prices - possibly real-estate bubbles - in advanced economies and emerging markets alike...(and) if policy makers go slow on raising rates to encourage faster economic recovery, they risk causing the mother of all asset bubbles, eventually leading to a bust, another massive financial crisis, and a rapid slide into recession.'

Roubini's June 2013 'After The Goldrush' Article:

Roubini published his 'After The Goldrush' article slamming gold in Project Syndicate in June this year. The Goldwatcher response, published first on Global Economic Intersection, challenged his analysis and, in relation to bubbles had this to say:

'...The US Bond market is valued at about $40 trillion. This suggests the global bond market is about $100 trillion and the value of all the gold in the world that can be traded may extend to 2% of the bond market. As interest rates rise and market values of bonds fall surely it's the bond bubble we must fear more than the gold bubble. And, if we experience a bond market collapse, the chances are we will also experience some currency collapses with associated demand for gold as a currency hedge.'

And, if Roubini's bubble concerns are well founded, as we think they are, Bernanke, his likely successor Janet Yellin and even ECB President Mario Draghi may find they need more than a helicopter to succeed with the money drops famously suggested by Milton Friedman. The 160 tonnes Antonov Super Freighter would be more useful.

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