Fed: Monetise the virus!

Here is the truth of it once you peel away all of the politicised bull. Via Reuters:

The U.S. economy could benefit if the nation were to “lock down really hard” for four to six weeks, a top Federal Reserve official said on Sunday, adding that Congress can well afford large sums for coronavirus relief efforts.

The economy, which in the second quarter suffered its biggest blow since the Great Depression, would be able to mount a robust recovery, but only if the virus were brought under control, Neel Kashkari, president of the Minneapolis Federal Reserve Bank, told CBS’ “Face the Nation.”

“If we don’t do that and we just have this raging virus spreading throughout the country with flare-ups and local lockdowns for the next year or two, which is entirely possible, we’re going to see many, many more business bankruptcies,” Kashkari said.

“That’s going to be a much slower recovery for all of us.”

He said Congress is positioned to spend big on coronavirus relief efforts because the nation’s budget gap can be financed without relying on foreign borrowing, given how much Americans are saving.

The Fed is wargaming new paths for stimulus, via Bloomie:

The coronavirus pandemic that shut down economies around the globe showed how crucial—and difficult—it is to get money swiftly to people who need it most in a crisis. Former central bank officials Simon Potter, who led the Federal Reserve Bank of New York’s markets group, and Julia Coronado, who spent eight years as an economist for the Fed’s Board of Governors, are among the innovators brainstorming solutions. They propose creating a monetary tool that they call recession insurance bonds, which draw on some of the advances in digital payments. Coronado, president and founder of MacroPolicy Perspectives LLC, and Potter, nonresident senior fellow at the Peterson Institute for International Economics, spoke with Bloomberg Markets to explain their idea.

BLOOMBERG MARKETS: How would recession insurance bonds work?

JULIA CORONADO: Congress would grant the Federal Reserve an additional tool for providing support—say, a percent of GDP [in a lump sum that would be divided equally and distributed] to households in a recession. Recession insurance bonds would be zero-coupon securities, a contingent asset of households that would basically lie in wait. The trigger could be reaching the zero lower bound on interest rates or, as economist Claudia Sahm has proposed, a 0.5 percentage point increase in the unemployment rate. The Fed would then activate the securities and deposit the funds digitally in households’ apps.

And so instead of these gyrations we’ve been going through to get money to households, it would happen instantaneously.

SIMON POTTER: It took Congress too long to get money to people, and it’s too clunky. We need a separate infrastructure. The Fed could buy the bonds quickly without going to the private market. On March 15 they could have said interest rates are now at zero, we’re activating X amount of the bonds, and we’ll be tracking the unemployment rate—if it increases above this level, we’ll buy more. The bonds will be on the asset side of the Fed’s balance sheet; the digital dollars in people’s accounts will be on the liability side.

BM: Aside from speed, what are the main advantages of this approach?

JC: It’s the most efficient from a macroeconomic standpoint in supporting spending and confidence. The fear of unemployment acts as an accelerant on a recession. There’s a shock—people are losing their jobs or worry about losing their jobs. They get very risk-averse. [By] getting money to consumers you can limit the depth and duration of a recession. And you could actually generate real inflation. It could be beneficial for not only avoiding negative rates but creating a more healthy interest-rate market, a more healthy yield curve.

BM: What are the origins of the idea?

JC: The Bank of England has proposals for digital currency. And a number of people have talked about the need for monetary financing—the idea that the interest-rate tool is simply less effective in lower growth, slower credit growth economies. Helicopter money [making direct payments to the public] goes back to Milton Friedman, but Ben Bernanke revisited it. Some people proposed doing that through financing fiscal stimulus. We think going directly to consumers is more efficient than wading through that sticky fiscal process.

BM: This policy could be complementary to Treasury stimulus?

JC: It’s not a replacement for fiscal policy. It makes sense from a fiscal perspective, for example, to authorize unemployment insurance benefits for people who lose their jobs and other assistance for medical-care providers in the current situation.

SP: The central bank is not elected. It cannot make allocation decisions about fiscal transfers. It’s now being pushed to make allocation decisions around credit with the Treasury, because we believe this situation is so unique that the private sector cannot make those decisions itself. The simplest way to do this would be a lump sum. Not in the way Congress did it. We’d take the bluntness of monetary policy and say anyone who’s eligible should get the same amount of bonds.

Fiscal controls could use the same infrastructure. The imperative to invest in it is high. Nearly all Treasury payments at some point touch the Fed because it’s the Treasury’s bank. The digital payment providers—called interface providers in the Bank of England proposal—would manage these accounts and link them to the Fed and Treasury.

BM: What are the objections from the Fed, and other challenges?

SP: The reaction from some of my former colleagues a while ago to the notion of helicopter money was not the most embracing. Some of those concerns have disappeared.

The two objections were related to the switch of deposits in normal times from the traditional banking system into digital accounts and the extra stress in crisis times as people want to get safe. An account with the central bank is safe because the central bank can always print money to honor that claim. A private bank can’t do that because their asset side has all kinds of credit on it. What we’ve created is a narrow bank-type model [narrow banks only take deposits and invest them in the safest assets] that’s small and fit for purpose, with a cap of $10,000 [per person].

JC: One challenge is making it profitable for digital providers. We want strict limitations on the fees so we’re reaching people that are underbanked, but we also want a public-private partnership with a diversity of competitors jumping into this market. Privacy is just as important, because one thing that might induce them is access to people’s data. As the Fed, are you blessing that, and what structure do you put around that?

SP: We’ll all have to deal with deep questions of privacy in the digital world. One of the issues Congress had in passing the Cares Act is identifying who’s got mainly tip income, who doesn’t have sick days. If society wanted, you could use large datasets to direct fiscal transfers to those people. But that’s a job for Congress.

BM: Have you seen similar trials elsewhere?

SP: Sweden is a leader in thinking about this in part because they had a large decline in cash use. China is testing versions of digital currency. Fintech firms in the U.S. are interested in this—there’s a stable coin version of our proposal. There’s easily sufficient innovation within the U.S. to do this. How to do it in a way that’s well regulated and serving the public purpose is something the Fed should focus on over the next few years. It would be a key accomplishment of the Fed and Treasury to get this infrastructure in place.

That is exactly what Australia should do:

  • Step one: shut the east coast.
  • Step two: double JobKeeper or similar and make the RBA fund it while we shut down.
  • Step three: ignore IRRELEVANT deficits as the whole world yawns and does the same.
  • Step four: reopen virus-free and grow the fortress economy as you unwind the stimulus.

Voila! Life back to normal.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. Not gonna happen. Biggest factor in play: numbskull humans in charge.

    We all thought sense would prevail at the start of the pandemic.

    Now we’re in end-game mode.

    • Neither is “Voila! Life back to normal”
      The Normal we all knew and loved; that wrapped itself around us for 70 years, finished 6 months ago.
      It isn’t coming back.
      Whatever we get from now on won’t be what we had and no amount of sleight-of-financial-hand is going to change that.


        Many of us are ‘farmers’ and the frost just killed the entire crop for this year and mebbe next year too.
        The future won’t be pretty because the income won’t be enough to cover our expenses.
        Of course we’ll try and hold on; what other option do we have?
        All that sweat built equity will mean nought when the repo man comes knocking.

      • Aussies Not Doing The Right Thing

        That’s what people won’t accept. The global world is finished. We have as much freedom to travel as someone in North Korea and it’s going to stay like that for most of the world indefinitely. When international travel resumes it will be for the 1% only.

  2. And this is what Scumo will do:
    1. Keep threatening age care operators if they deploy strict quarantine rules.
    2. Keep suggesting elimination is not an option as we can’t afford.
    3. Allow gamblers access to rest of their super.
    4. Pray we all get infected.
    5. Celebrate if 50% of us die off.

  3. Forrest GumpMEMBER

    Step one: shut the east coast.

    As long as Harvey Norman’s ass points to the ground the LNP will never allow it.
    However, wouldn’t it be funny to see this happen around December just before Christmas. On that note, better to do it now than at Christmas, which will be the likely outcome if this continues.

    Step two: double JobKeeper or similar and make the RBA fund it while we shut down.

    N.E.V.A gonna happen
    The poor and destitute need to remain as the status quo.
    The middle-upper and wealthy need their fix of renters and to occupy their rentals and a firm supply of cheap silent labor.

    Step three: ignore IRRELEVANT deficits as the whole world yawns and does the same.

    What happened to Fraudenbergs? BACK IN BLACK
    He’s still playing the song and LNP has built its new credibility on a surplus….

    Step four: reopen virus-free and grow the fortress economy as you unwind the stimulus.

    We cannot have a shutdown.
    So how does the wealthy class expect to make money during the lockdown? If poor people dont work, they don’t spend and they cannot pay their rent. This is not acceptable. Think of the retailers for gods sake. Think of Jerry Harvey, the poor bugger.

    What about real estate? We need people to buy. House prices must always go up!

    Think of the poor banks. With their mortgages not being repaid, who’s gonna fund their incomes? Super funds will to be bled dryer than…the Murray Darling Basin and funneled back into the banks to help pay housing loans.


    This will not happen under #ScottyFromMarketing’s watch…He will never allow it. Even if the CMO demands it. (Behind closed doors in a private discussion that’s never repeated outside the walls of the PM’s office)

  4. Robert Johnson

    I feel like we are in loony land. How can you look around the world and see Sweden’s approach as anything other than a huge success? They did a little, hit 20% herd immunity before it burnt out, GDP at -1%, and 99.98% of the population survived apart from people who would have died this year anyway.

    They are back to regular life now with no deaths and a minor number of cases.

    How is that not a massive success?

    • PaperRooDogMEMBER

      Maybe so.
      Through I’m not buying herd immunity at 20%, if true they won’t have a 2nd wave & won’t need a vaccine.

    • In six months Sweden lost .05 % of their population. 6,000 people from 10.2 Million.

      If Australia did Swedens model the equivalent death toll for the same duration as the second world war – would be 156,000 dead Australians. To put that in perspective in the six years of the 2nd world war 27,000 Australians were killed and we are still deeply traumatized by it as a nation.

      That is some perspective for you champ.

  5. Aussies Not Doing The Right Thing

    “Step two: double JobKeeper or similar and make the RBA fund it while we shut down.”

    If the lockdowns don’t work (which they won’t because everyone has given up on doing the right thing by others) then all that money was wasted on subsidising businesses for nothing.

    Before the virus, people were thrown on the scrapheap everyday, businesses were made redundant through new technology or new trends all the time.

    This is no different.

    This virus is here indefinitely and life will never go back to what it was.

    The east coast failed to eradicate it and will pay now for years to come.

    Eventually the east coast lockdowns end whether the virus is eradicated or not and people go back to their jobs, etc with a reduced lifespan.

    The situation is bad enough without giving the taxpayers of this country a massive debt that will never come close to being brought back under control.

    The world will continue 20 years, 50 years from now. No point bankrupting our future right now because some people can’t accept that life has been altered and never going back normal.

    More money won’t eradicate this virus. Thailand has it completely under control despite one of the biggest gaps between rich and poor in the world. It’s about attitude and westerners in the 21st century don’t have the patience, empathy or civic mindedness.

    At this point more money just helps people make their car repayments, order Uber Eats instead of going to a restaurant.

    People need to live to learn on less. It’s not my problem that middle class people didn’t save an emergency fund during the good times. They instead spent it on holidays and new cars.

  6. Just so we are clear on this – fundamentally the US is printing money and putting it straight into peoples bank accounts – but “monitoring” unemployment to make sure things are ok – and interest rates.

    Ok. So MMT / Weimar Republic.

    Obviously the United States is the global reserve currency and center of planetary finance- but we’ll completely ignore that.

    How do our $2.3 Trillion creditors feel about our central bank flooding cash straight into savers accounts which the banks then use to reimburse their foreign creditors ?

    This is a question that can not be ignored. If we decide to simply print money for ourselves based on limitless booty – what is to stop New Zealand doing it and buying the Opera House ? Certainly not inflation as the money is spent outside New Zealand.

    Are we going to impose a system that the “Apps” can only access goods and services within Australia ?

    Are we all going to ignore the fact that this is proposed to be a Digital (Crypto) Currency based on the model the British have already proposed ? Are we all going to ignore that this is also a covert back lash against the “East Asia cryptocurrency ”

    These are just questions……someone needs to ask them.


  7. Ajaydee73MEMBER

    “Voila! Life back to normal.” You’re dreaming. The virus will be back. Lockdowns just lead to more lockdowns.