BOJ helicopter triggers full blown reflation panic

Lordy, who’d be a bear! The faintest whiff of the Bank of Japan helicopter has markets in panic buy mode whether they will benefit or not. The US dollar was firm:


The yen was pulverised, zombieuro dead, yuan rebounded:


Commodity currencies roared:


Gold was pounded:


Oil rocketed:


Base metals flew:


Big miners are on the verge of breakout (some have):


US high yield debt was bid, EM not so much:


US bonds were flogged:


Equities just loved it and, at this point, could do anything:


Welcome to the age of helicopter money, from the WSJ:

Former Federal Reserve Chairman Ben Bernanke rejected the notion that the Bank of Japan is short of ammunition when he met with Prime Minister Shinzo Abe Tuesday.

Mr. Bernanke noted during the face-to-face meeting that Japan’s central bank still has a range of monetary easing measures at its disposal, according to Chief Cabinet Secretary Yoshihide Suga.

…Mr. Bernanke recommended the BOJ coordinate its policy with fiscal measures aimed at shoring up Japan’s economic output to end over a decade of deflation, according to Mr. Suga.

Brushing aside a view among Japanese economists that BOJ policy has reached its limit, Mr. Bernanke’s assessment added to speculation that Tokyo will unleash new rounds of fiscal and monetary stimulus to reboot Abenomics, Mr. Abe’s growth plan. The yen weakened to ¥103.64 to the dollar from below ¥103 in Asian trading hours. Tokyo stock prices ended up 2.5% at 16095.65.

Mr. Bernanke visited Tokyo at a time of intense speculation that Mr. Abe may resort to so-called “helicopter money,” a radical form of monetary easing advocated by the former Fed chief.

The planned stimulus is not very big at $96bn but I guess that’s not the point. The intellectual and institutional breakthrough is what matters.  So where does this leave us?

If the helicopter were to spread globally quickly then it would change everything for the MB outlook. Commodities will be in high demand as infrastructure spending surges globally. The Australian dollar will be one massive beneficiary and surge with the terms of trade. Miners will take off. The Budget will be fixed by the income rush. Rebalancing will stall as interest rates rise.

We’ve known all along that this would come eventually – it is, in effect, a form of debt jubilee, as freely funded growth inflates away the debt. The MB argument has been that it is such a radical departure from the conventional political economy of macro management that it would take crisis to push it global.

Consider each region. Helicopter money could have huge benefits in Europe. It would enable it to circumvent all of its failed fiscal integration as the ECB moves to fund a Marshall Plan for developing Europe in exchange for structural reform. Local populations would finally get carrot as well as stick to push themselves into the northern European mold.

But you can imagine the conniption this will trigger in the Bundesbank and German elite as Weimar Republic worries resurface. The helicopter does confuse monetary and fiscal objectives and inflation will leap to northern European minds. I can’t see them doing it until the European project itself is at stake. Are we there yet? I think so but I don’t think they do. And it’s just possible that the Germans would be so against it that they’d rather Europe fragment.

In the US the passage of helicopter money will get heavy intellectual support from its economic elite, as above. But I can see this becoming a political football between Democrats in favour and Republicans against. Although it is a monetary issue, the US Right is dead against the expansion of government expenditure, even when it is free! As well, there is a reasonable rump of Austrian influence in the Republican party that will go into meltdown over helicopter money. Aside from anything else, its economy is plodding along OK, and the Fed is still tightening, so any discussion of it for the US is wildly premature.

How about China? Well, lets face it, China has been doing helicopter money ceaselessly since the GFC. Does anyone really expect all of those dud infrastructure loans to ever be repaid?

The UK will certainly be a candidate in the nearer term as Brexit hits its economy and if the collapsing pound proves insufficient. But it should, after a time, and it will see a one-off inflation surge because of it so I’m not sure it will be in a position to do helicopter drops in the short term.

I doubt smaller economies will be able to do it given the currency implications could be dire.

So, my position is unchanged. I do not see a sudden global rush to helicopter money. But we know now what it will look like when it comes, and Australia will be a beneficiary.

In terms of allocations, then, I believe markets are getting ahead of themselves. If the bullish action continues then it will have the opposite to its hoped for effect. The Fed will tighten not loosen. Indeed, I do not think that the S&P500 will have to run much further to trigger it. The Fed has expressed reservations about stretched valuations in recent times and they have gotten worse not better since then. Of course it wants to massage asset prices not crash them but that includes not letting them run amok.

Through H2, China and Europe are going to slow and that will weigh on the Fed’s mind but remember that stock prices these days lead not reflect a business cycle so they will generate their own economic dividend.

I still, therefore, see upside for bonds, downside for commodities, upside for gold (it should love the helicopter in the long run) and downside for the Aussie dollar once this excitement passes. Cash remains king.

Houses and Holes
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  1. Everything depends on whether the helicopters are black or white.

    Black helicopters carry new money along a short route to the banking sector to support asset price pumping and the dubious transmission mechanism known as trickle down / aka the wealth effect. QE was an example of black helicopters. Pumping up assets prices does not generally lead to CPI inflation.

    The FIRE sector, the 1% and the 25%, private banks, asset owners (including home owners) love black helicopters – even if their sound money excitable uncles huff and puff about modern technology and keeping feet on the ground etc.

    White helicopters carry the new money to wallets across the land either directly or via a longer route to wage packets paid for working on government projects – well concreted river systems.

    The Japanese have been running massive below the radar indirect white chopper flights for twenty years – thus their massive public sector debt. Any doubts wherher it was actually a chopper at all were removed when the BOJ started to hoover up govt debt by the bucket load.

    Arguably the Japanese have run out of indirect white chopper flight plans (though the high speed rail network continues to expand) and they may need to resort to direct white chopper flights to wallets.

    Neoliberals hate the idea of white chopper flights to little people with a passion – and the sound money loud uncles – will just go nuts.

    Perhaps we need some clarity as to exactly what type of helicopter Citizen Ben was selling Mr Abe and Kuroda.

    By the way in what capacity is Citizen Ben offering his advice?

    On a related note – some interesting articles on money from the Islamic world

      • +1. Chief blogger
        I get it all, except gold doing down??? And im sure your right HnH, they won’t just reflate this mess after imploding it for decades. If they wanted to fix it they would have got the money to the peoples wallets 8 years ago. I still see US raising (maybe next month-good jobs, share market all time highs), European crisis, and people with worried looks on their faces before any helicopter gets off the tarmac.

    • fitzroyMEMBER

      Black and white helicopters both inflate asset prices except perhaps the money lenders’ shares if loan repayment is compulsory as a condition, a la Steve Keen.. Wages do not inflate necessarily, it is a fraud on the wage earner whose money is worth less and who still pays all the tax.

      • If the white helicopters are loaded with money directly created by the Central bank and are dropping that money directly into wallets or into wallets via pay packets filled with white helicopter cash, then the incomes of workers do rise and asset prices only increase if they spend their incomes on them. Taxes will not rise as the money was created by the Central Bank. Taxes may rise if and when inflation responds to the white helicopter cash drops but what is more likely is that the helicopter flights will slow then cease.

        Black helicopters are different because their sole purpose is to stimulate private bank credit creation by lowering specific rates or by providing a safe home for collaterised debt products so fresh units can be shipped. As assets are security for private bank credit creation their prices rise as a consequence and as part of the cedit creation process.

      • fitzroyMEMBER

        I see your point, it may depend how it is done. We could always spend our newly printed cash on Chinese Rea Estate.

      • SweeperMEMBER

        White helicopters may inflate consumer prices provided consumers don’t “leave the money on the ground” (or in their wallets). In an ultra Keynesian world this is possible – so it would be better off for the newly created money to be spent on goods directly.

      • Sweeper,

        I suspect that money lying on the ground or in wallets will not be a problem in Australia.

        Might be a problem in high saving rate countries like Japan but there are other factors which are contributing tomexcessive saving rates – poor social security etc. During my visits to Japan I did not notice an unwillingness to spend – just that a lot of Japanese don’t have a lot of disposable income.

      • I was about to say the same thing pfh007, Australians have been doing a hell of a job spending money not in their wallets for years, it would be a sight to see. When will harvey norman start doing 12 years interest free, people are not to good at maths, 84 or 96 months will give them a headache. Might lead to them going home without a purchase

      • This article by the Vice Chancellor, Pakistan Institute of Development Economics, Islamabad is an interesting read. It is part of that Islamic Economics Institute journal link above –

        There is a very long history of concern about the kind of monetary system we have – that is now slowly falling apart.

        Worth a read if you want to have some idea of the possible flight paths that the black and white helicopters might take (and who will be flying them).

      • SweeperMEMBER

        Agree it would work a treat in this country. Money doesn’t even reach peoples wallets before it’s spent here.
        Probably wouldn’t get through the Senate though.
        In Japan’s case it depends a lot on where the average consumer thinks inflation and the yen are going.
        An active depreciation would probably be better. ie. drop the Yen from the white helicopter over New York.

      • Ronin8317MEMBER

        re: pfh007. Japanese household had a high saving rate in the 80s, but now it is negative. Corporate saving rate however is very high at 22%. People are willing to spend, but they have no money to spend.

      • Wow. 8.5Y trillion in ETF’s as well. They really have reached the end of the road.

      • Ronin – Ok that makes sense as I did not get the sense that there was a lot of saving going on and people seemed to be watching their pennies closely. Those 100 Yen stores do a roaring trade.

      • Loan repayment as a condition Pull the other one. Here only one thing can happen. House price to the stars. Put a bit more cash in the punters’ pockets and they’ll either gamble it away or gamble it on houses. All those offset accounts suddenly looking rosy? Time to buy!

        In the Wall St casino it’ll be yet another chance to fleece the punters for bonuses, hookers and blow. Maybe time to buy shares in Vegas…

        My question is when does the sanctity of fiat become questionable?

      • fitzroyMEMBER

        When all the crooks got bonuses instead of gaol terms in 2008 by being bailed out by the taxpayer.

    • Great articles 007. Could have been written by prof Keen. Quite proper to look at it from the perspective as to who it is who has the power to print.

      • Yes, interesting reading.

        Who knows perhaps it will be an islamic country that makes the first move to fix their monetary system. Many of the middle eastern countries are probably locked in by the oil market to the status quo but there may some smaller ones that don’t have oil that might consider it.

        If they can paint it as religious AND reform then it might get through a nation of believers.

        Of course the banking industry’s client states will likely immediately paint them as terrorists and hunt around for a pretext to commence the bombing runs.

        On the plus side I am seeing articles like these coming out of countries right around the globe and the Bank of England is not entirely unsympathetic either – at least in some departments – and the British might be interested in some options if the EU gets funky about BREXIT.

    • Okay, so if the white helicopters arrive, where does one invest? USD? No. Houses? Can they really go up that much further until like Icarus they are burned up? Commodities? So load up on Qantas and Virgin for the new FIFO rush?

      • mdsee,

        If they arrive – and that is still a big IF.

        The Japanese have been grinding along with the BOJ shooting down or neutralising all the efforts of the last 20 years. As soon as the economy got the merest whiff of breath the BOJ would squash it.

        But IF white helicopters are deployed – for example by monetised tax cuts on lower income earners or expanded government sector employment – meals on wheels, education, health etc – the place to invest will be the places where that money will start sloshing around.

        All those industries and businesses that sell stuff when people have money.

        If the process demonstrates clearly how stupid we have been relying on black helicopters and they are permanently grounded – keep clear of the assets that have been pumped up with black chopper cash.

  2. I find myself wondering if it is only really now

    …….post Brexit,
    Post Trump disemboweling the Republicans and Sanders pointing the way for a similar outcome for the Democrats unless there is traction ,
    Post Greece, Cyprus & PIGS being economically gelded
    With awareness that the massive capital flows out of China are starting to become observably socially disruptive inside and outside China
    With a range of intractable geopolitical issues on the board primed to move up to the next level of heat (South China Sea, Eastern Ukraine/Crimea, Venezuela, Nigeria, Human movement in Europe and North America)

    That there is a sense of having to ‘really’ do something (and by that I would encompass the idea of ‘Helicopter money’)

    Because I reckon the old regime is, if not dead, then arguably vegetative. They prevented its denouement in 2008, but it has had no more life since then than Ariel Sharon did after 2006, and the outcome is not as credible (at a global level) as the boys standing atop Lenin’s tomb for the Victory day Marches in the early 1980s.

    And the corrupted Monetary Policy they have been using as a Microwave is making the outside tepid while leaving the insides cold, with the Policy itself making some strange noises.

    The 1%ers (and their representatives in the real world) know the clock is ticking. Much of the world looks akin (economically) to Japan late 1990s, but lacking Japans social cohesion and economic assets, arguably wouldnt handle the lost generation the Japanese have had since.

    • how long can this charade be kept up for gunna??

      endless stimulus, zirp…has reality been suspended???

    • May have something to do with the militarisation of police forces.
      Hamptons are not a defendable position.

      • I think these lunatics will just keep inventing more absurd forms of exotic stimulus not dislike the exotic derivatives the banks dream up. It’s a mad world, and much more insanity ahead. This Bernanke fellow is a threat to modern society. Looks like he wants to use the 3rd largest economy on the planet as a guinea pig for his pet project. Enough already.

        EDIT: Sorry if this appears out of context, didn’t intend to reply to your reply but somehow it ended up there 😀

    • Gunna, you may well laugh at me but, when I first found out what our leaders were doing and purchased gold 4 years ago (good times) I could see what was going to happen and knew they were going to keep getting it wrong. I just couldn’t understand why they looked to be deliberately f*cking what they were in charge of fixing. Then I started looking into Illumaniti, suddenly everything made sense to me. You may not believe in them but it is certainly going as planned in their timeline, and all the above you mentioned is what they want

  3. “The MB argument has been that it is such a radical departure from the conventional political economy of macro management that it would take crisis to push it global.”

    This argument is incorrect. Lessons have been learned. Nobody will wait for a crisis to appear. They will act bigger and sooner.

    You will need to revise your assumptions about policy response or will be getting the strategy very wrong.

    • Ronin8317MEMBER

      I think Japan’s ‘helicopter money’ is related to the yen/usd and yuan devaluation.: they don’t want it below 100 while the Chinese rmb is falling like a rock. You will find those 96 billion will end up in corporate profit rather than in the pocket of Japanese household: deflation is still the main game in town.

    • scottb1978MEMBER

      Yep that was going to be my comment as well. Why wait for a crisis before acting. You can save the day and your bonus’.

      Of course the reality is that it would be the biggest can kick down the road which would have to paid for many times over in the future. But…if you can delay the problem long enough then it happens on someone else’s watch.

  4. Great. Looks like Aus will benefit from dumb luck yet again, so maybe my AUD will buy my ticket off this island to go elsewhere. In fact, japan was the planned destination. A tumbling yen and rising Aussie would suit me ok, all to a backdrop of hyperinflating aussie dumps which would no longer matter to me.

    • “Looks like Aus will benefit from dumb luck yet again”. Yup! A rainbow will hit us in the arse once again…

    • Don’t be too sure that it will be a rainbow that hits us.

      If helicopter money (white choppers) does stimulate demand and production you can be pretty sure that interest rates will start rising across the globe.

      When that process spreads to Australia – and it will – there might be a lot of people feeling a bit green around the gills trying to pay mortgages taken on when rates were at historic lows.

      • I’d like to think that’s the case, but that would be assuming the central banks playing by the rules, and doing their jobs. My concern is that rate rises would lag the signals that dictate they are needed by a sugnificant time margin.

      • So AUS is between a rock and a hard place. Raise interest rates to starve off inflation but risk a housing collapse OR leave the cash rate and watch inflation go rampant. And i think we all agree they won’t let the former happen.

      • will helicopter money be the harbinger of doom for cash, a fully digital system free to be reamed at a moment’s notice?

  5. Not sure why we need to invent new monikers for already well understood activities. Is this about setting ourselves up for credit when the inevitable happens ?

    Helicopter money is just Keynsian stimulus. That’s all it is.

    Further the idea that the China has already been doing it and the west hasn’t is laughable. The west has lent TRILLIONS via its QE program with free money to corporate America – does anyone seriously thing that will ever be paid back ?

    • What’s the bet that it will be just another gift to the 1% based on “trickle down economics” rather than “peoples” flavours?

    • Agreed, flying from the base with a load of cash, dropping it, and flying back for another round sounds a lot like digging a hole to fill it