Negative rates are a problem
“One of these days, these policy makers are going to realize that there’s a problem.” The dilemma remains. Positive rates were a problem. This led to the introduction of negative rates into these systems. Now, it seems that negative rates are a bigger problem. The solution appears to lie on the fiscal side.
Gundlach thinks that quantitative easing does help the stock market, but negative rates don’t. He doesn’t see the US (SPY) (IWM) (QQQ) going back to quantitative easing measures. Gundlach has been predicting helicopter money for some time now.
With unconventional monetary policy tools such as negative interest rates also not working towards the benefit of the economy, it seems the US (IVV) (VOO) Fed might have to resort to even more unconventional measures to spur growth. One such measure is helicopter money. Helicopter money—when central banks pour money over the economy as if dumping it from a helicopter—was popularized by Milton Friedman in 1969.
According to the World Economic Forum, the basic principle is that if a central bank wants to raise inflation and output in an economy that’s running substantially below potential, one of the most effective tools would be simply to give everyone direct money transfers. In theory, people would see this as a permanent one-off expansion of the amount of money in circulation and would then start to spend more freely, increasing broader economic activity and pushing inflation back up to the central bank’s target.
We’re seeing billionaire asset managers endorsing helicopter money more as the last recourse available to the Fed. Recently, Jeffrey Gundlach joined Ray Dalio in his opinion on the subject.