Helicopter Money: Investors Stress the Need for Fiscal Stimulus

Billionaire investors stress the need for fiscal stimulus

“Helicopter money” is a concept introduced by Milton Friedman and propounded by Ben Bernanke. It has also found favor in the views of billionaire activist investors such as Bill Gross of Janus Capital (JNS), Ray Dalio of Bridgewater Associates, and Jeffrey Gundlach of DoubleLine Capital. To learn more, read Bill Gross: It’s Time for Fiscal Policy to Take the BatonWhy Helicopter Money Makes Economic Sense to Ray Dalio, and Gundlach Sees a Solution on the Fiscal Side, Advocates Helicopter Money.

Helicopter Money: Investors Stress the Need for Fiscal Stimulus

In broader terms, these billionaire asset managers have been advocating fiscal stimulus—stimulus that isn’t paid for with private borrowing or taxes. The part “not with private borrowing or taxes” is what makes the concept equally acceptable to Democrats and Republicans in the US (SPY) (QQQ).

“Helicopter money” is also widely advocated for—its one important advantage over the traditional bond-buying method. While bond buying puts money into the economy, helicopter money gives the money directly to spenders. While bond (BND)(AGG) buying does increase the aggregate money supply in the economy, it usually results in the money going to the wealthy or investors who are less likely to spend the extra cash. They would rather invest than spend. These people deploy this cash in other financial assets, preventing the money from reaching the ultimate spenders and achieving the desired goal. Helicopter money, on the other hand, puts cash directly in spenders’ hands, so the economic engine moves into high gear right away.

Drop the money from helicopters

You would seldom see central bankers discuss this concept, especially those who want to preserve the sanctity of their “balance sheets” and independence of their institutions, according to Bill Gross. However, with the independence between central banks (monetary policy enactors) and the government (fiscal policy enactor) rapidly eroding, helicopter money might become a necessity in the future. After all, printing money through QE (quantitative easing) is essentially a commingling of monetary and fiscal policy from the central bank and Treasury.

Helicopter money will lead to a less independent central bank and a more permanent mingling of fiscal and monetary policy that stealthily has been in effect for over six years now. Sooner or later, Gross thinks that central bankers will have to accept their increasingly dependent role in fiscal policy.