In a recent post I said that the Fed doesn’t have a helicopter in the current environment. That is, political and realistic constraints mean that the Fed won’t implement anything close to what we think of as a helicopter drop. My thinking is more complex than this, but here’s the short story:
Martin Sandbu and Eric Lonergan have written some very good comments expanding on these ideas. For instance, they note that the Central Bank can pay more in interest than it remits to its Treasury. This would result in more income to the private sector than QE takes out (as is currently implemented). This would very much resemble fiscal policy and could properly be called a helicopter drop. However, in the case of the USA the Fed would have to pay about 4.5% on excess reserves in order to offset the 2.3% rate it earns on its balance sheet at present. In other words, it would have to meaningfully invert the yield curve in order to achieve a helicopter drop. This would also result in a $100B+ subsidy to the banking system. I don’t find this remotely plausible given the economic and political environment.
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