How about quantitative easing for the people?

By Anatole Kaletsky
August 1, 2012

Through an almost astrological coincidence of timing, the European Central Bank, the Bank of England and the U.S. Federal Reserve Board all held their policy meetings this week immediately after Wednesday’s publication of the weakest manufacturing numbers for Europe and America since the summer of 2009. With the euro-zone and Britain clearly back in deep recession and the U.S. apparently on the brink, the central bankers all decided to do nothing, at least for the moment. They all restated their unbreakable resolution to do “whatever it takes” – to prevent a breakup of the euro, in the case of the ECB, or, for the Fed and the BoE, to achieve the more limited goal of economic recovery. But what exactly is there left for the central bankers to do?

They have essentially two options. They could do even more of what the Fed and the BoE have been doing since late 2008 – creating new money and spending it on government bonds, in the policy known as “Quantitative Easing.” Or they could admit the policies of the past three years were not working, at least not well enough. And try something different.

There is, admittedly, a third option – to do nothing, on the grounds that public bodies should stop interfering with the private economy and instead leave financial markets to restore economic prosperity and full employment of their own accord. This third idea is based on the economic theory that if governments and central bankers leave well enough alone, “efficient” and “rational” financial markets will keep a capitalist economy growing and automatically return it to a prosperous equilibrium after occasional hiccups. This theory, though still taught in graduate schools and embedded in economic models, is implausible, to put it mildly, especially after the experience of the past decade. In any case, experience shows that the option of government doing nothing in deep economic slumps simply doesn’t exist in modern democracies.

Returning, therefore, to the two realistic alternatives, central bankers and financiers are overwhelmingly in favor of the first: keep trying the policy that has failed.

While QE might still help in the euro zone, since the ECB is the only entity that can guarantee that Italy, Spain and France will not go into a Greek-style default, the U.S. and British situations are very different. The U.S. and British governments control their own currencies and therefore face no risk of default. What, then, would be the benefit of more QE in the U.S. or Britain?

So far $2 trillion has been created by the Fed and £375 billion by the Bank of England, but where has all this new money gone? It has certainly not appeared in my wallet or bank account – nor has it fattened yours,  unless you happen to be a bond trader or banker. The fact is that all the new money has been spent on buying bonds. QE has thus inflated bond prices and boosted bank profits, but achieved little else.

The one economic benefit of QE has been to help governments finance the huge deficits caused by recession without having to raise taxes, slash public spending or face Greek-style bankruptcy. In this sense, QE has certainly prevented the U.S. and Britain from suffering worse outcomes, but it has failed to stimulate employment or economic growth. This is exactly what Japan has experienced for 20 years – and as in Japan, additional rounds of QE now will merely act as an anesthetic, perpetuating stagnation but discouraging more effective stimulus measures.

One such radical measure is too controversial for any policymaker to mention publicly, although some have discussed it in private: Instead of giving newly created money to bond traders, central banks could distribute it directly to the public. Technically such cash handouts could be described as tax rebates or citizens’ dividends, and they would contribute to government deficits in national accounting. But these accounting deficits would not increase national debt burdens, since they would be financed by issuing new money, at zero cost to government or to future generations, instead of selling interest-bearing government bonds.

Giving away free money may sound too good to be true or wildly irresponsible, but it is exactly what the Fed and the BoE have been doing for bond traders and bankers since 2009. Directing QE to the general public would not only be much fairer but also more effective.

Suppose the new money created since 2009, instead of propping up bond prices, had simply been added to the bank accounts of all U.S. and British households. In the U.S., $2 trillion of QE could have financed a cash windfall of $6,500 for every man, woman and child, or $26,000 for a family of four. Britain’s QE of £375 billion is worth £6,000 per head or £24,000 per family. Even if only half the new money created were distributed in this way, these sums would be easily large enough to transform economic conditions, whether the people receiving these windfalls decided to spend them on extra consumption or save them and reduce debts.

Distributing money to the general public was the one response to intractable recessions and liquidity traps that united Milton Friedman and John Maynard Keynes. Their main difference was that Friedman proposed dropping dollar bills out of helicopters, while Keynes suggested burying pound notes in chests that unemployed workers could dig up. Unfortunately modern economics, based as it is on simplistic and misleading assumptions about self-stabilizing markets, has forgotten the insights of these great students of deep economic slumps. In today’s world of electronic money, we would not even need Friedman’s helicopters or Keynes’s ditchdiggers. Just a few lines of computer code – plus some imagination and courage from our central banks.

Editor’s note: This piece was updated August 2 to reflect new developments.

PHOTO: Doug O’Neill, trainer of Kentucky Derby winner I’ll Have Another, displays his winnings after cashing a 200-to-1 future bet on the horse at the Primm Valley Casino in Primm, Nevada, June 25, 2012.  REUTERS/Las Vegas Sun/Steve Marcus

54 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

How about we not cause massive inflation? How does that sound? Consumers get ripped when inflation happens.

Posted by Negative | Report as abusive

One of the consequences of giving money to people is that the money eventually will be spent by people on consumer goods which are most likely manufactured in China. Once the money is spent, the un-employed are still un-employed. Whoever to received the money should work for it and the the work must have a lasting effects, which can be new skills to acquire, a habit to work, renewal and improvement of certain infrastructures, or just an upgrading of a machine. Everyone in this fair land must learn that wealth does not drop down from the sky.

Posted by jlpeng | Report as abusive

No, Jipeng, most of the money will go directly, in minutes, into the lottery — that is, to desperate state governments. And if you believe that bond-traders work harder, hence deserve free money more, than street-pavers, I can set you up with an asphalt guy I know.

Seriously, because we in the US have shifted from inventing and making things to sterile money-shuffling and vacuous geegaws like Facebook, there are very few attractive, solid investments available. That’s why US corporations (and banks) are sitting on trillions in cash, and that’s the most fundamental reason why giving the people who have all the money and are hoarding it, MORE money to hoard, won’t affect the economy at all, just the price of government bonds.

Posted by acebros | Report as abusive

jlpeng wrote:

“Everyone in this fair land must learn that wealth does not drop down from the sky.”

…except if you are a banker.

Posted by dthal | Report as abusive

“While QE might still help in the euro zone, since the ECB is the only entity that can guarantee that Italy, Spain and France will not go into a Greek-style default,…”

Can the ECB really “guarantee” such a thing?
Any proof, or palpable evidence to back this popular theory?

Posted by reality-again | Report as abusive

Excellent Concept. BUT offer it in a HOUSING type of context. How… Offer to pay down peoples mortgages or mortgage Payments by “X” $ dollars…or give renters “X” months free rent based on “X” dollars. This could help us all THRU using something Basic like Housing as a catalyst instead of cash. Those without housing can be offered foodstamps, free future rent of “x” number of months. or a paydown of existing debt dogging them currently. all could be electronic and instant. This will free up much needed Cash of those who recieve it in such a way as to let them decide how to best spend the SAVINGS and not a WINDFALL.

Posted by Pangaea7 | Report as abusive

> these accounting deficits would not increase national debt burdens, since they would be financed by issuing new money, at zero cost to government or to future generations

Heh. I guess the economics I learned was all wrong.

Since fiat money is free, doesn’t effect inflation or prices and never has to be paid back, why stop at say $24,000 per person? Personally, I’d like to be rich. Why not give everyone $1 billion?

Starting with me, please, because I’d like to spend mine before the inflation gets too bad.

Posted by JWilly48519 | Report as abusive

Remember in 2001?
We got a little check from President GWB, but in the meantime our 401K went down much much more.
Did it make a substantial difference?
We should start support domestic investments with lower taxes and help domestic labor, taxing offshore outsourcing.
That will create jobs and make a difference.

Posted by robb1 | Report as abusive

“One of the consequences of giving money to people is that the money eventually will be spent by people on consumer goods which are most likely manufactured in China.” —Posted by jlpeng.
I think that is what happened with many the Bush stimulus checks of 2008. http://www.reuters.com/article/2008/02/1 3/us-usa-economy-stimulus-irs-idUSN13599 30620080213
Had the money been targeted to be a price support for housing resales, the money would have raised the value of all Americans houses. Underwater mortgages would be fewer and the person who lost their job and had to sell the house and relocate would not have had to have a forced foreclosure sale where everyone loses…the house value would be supported by the government subsidy. A pay as you go idea would be to reduce the amount of mortgage tax deduction given to homeowners on their 1040′s and use that to pay for the subsidy fund.

Posted by wrylyfox | Report as abusive

How funny this article sound!
If Gov.give me money for nothing
Saver like I am, I would pay off my mortgage.

Our country is in such a sake ground.
Politic of both party have to come together fix this mess.

Remind me of old song,
Take a little,Give a little

Posted by fixthedebtnow | Report as abusive

To some extent, the previous rounds of QE have indeed ended up in your wallet and mine – house prices are still above where they should be in the UK, and show little inclination to fall very fast at all.

Give each household £24,000 of “free money” and you’ll just push up the average UK house price by £24,000. The only upside might be that the amateur speculator who moved in next door to me at the height of the bubble and absolutely refuses to realise the loss she made on her purchase, might finally move out. Other than that, the money would disappear into this asset class like water in the desert. Just like it did throughout the noughties.

Posted by IanKemmish | Report as abusive

wow… just, wow.

So economic theory today is “dropping dollar bills out of helicopters… {or}burying pound notes in chests that unemployed workers could dig up”

makes me wonder why governments even bother collecting taxes to begin with. just print, print, print! let’s just print money until we’re all quad trillionaires, so we can all feel rich!

Posted by onlyif | Report as abusive

One of the consequences of giving money to people is that the money eventually will be spent by people on consumer goods which are most likely manufactured in China. Once the money is spent, the un-employed are still un-employed. Whoever to received the money should work for it and the the work must have a lasting effects, which can be new skills to acquire, a habit to work, renewal and improvement of certain infrastructures, or just an upgrading of a machine. Everyone in this fair land must learn that wealth does not drop down from the sky.

No you are wrong jlpeng,the recession hasn’t stopped people from replacing that mobile phone or tv,but what it has done is stopped them from having a new driveway built,or that old fence replaced and so on.No industry has suffered quite like the construction industry,and when times get tough,then property repairs/improvements are the first things that are kicked into touch,unless they are critical.And repairing,or even better improving,in itself,helps restore some of the feel good factor.
I’d like to see just one politician hold his/her hands up and say “we’ve tried everything we can,now its down to you the people.Those of you who are able to spend money need to start spending,and heres some for you all, to get the ball rolling,please try and spend it wisely.”
Sure there will be some spent on gadgets.And one of the unfortunate side effects of such a giveaway would be a windfall to the chavs.But the vast majority would understand the concept of spending wisely.

Posted by ultimate | Report as abusive

Don’t you just make money totally meaningless?

Posted by paintcan | Report as abusive

QE is having little impact , other than to bolster Bank Profits and no economy will grow unless average joe has more money directly in his hand.QE is proving to be highly inefficient .

The key perceived problem with going direct is how or can you control where the extra cash is spent, ( ie not on cheep imports) however perhaps its not that important what people do , given the tax take for the government , ie any jobs created as a result of this will deliver benefit savings and generate tax receipts , any consumer spending generates vat receipts and any increase of profits from companies increases corporate tax takes. Tighten up on tax loopholes and do not allow companies to trade in the UK , unless they pay UK corporation tax and you would get the economy of to a flying and sustainable start. Start by raising the individual tax paying threshold to £30k . It will boost tax receipts , save billions on benefits and give the economy the kick start it needs and prevent massive deflation .

Posted by Blockem | Report as abusive

Cornell University’s Professor Hockett has a better idea that doesn’t require printing money at all:

Use eminent domain to condemn America’s 11 million underwater mortgages. Once the government has taken possession of those mortgages, it is required to offer fair compensation to the banks that previously owned those mortgages investors are repaid with new mortgages at the property’s fair market value.

It’s essentially a widespread short sale to the people who bought homes right before the bubble burst, unaware that a massive Wall Street fraud had created a situation that would cause those new home owners to lose up to 1/3 to 1/2 of their property value in one mighty pop. Hockett’s idea would shift that loss to the banks who fraudulent and unethical activities caused the problem in the first place.

When the bubble burst, a huge wave of people who bought more house than they could afford due to greed or foolishness quickly washed out of the market. Many more people washed out of home ownership who had lost their jobs due to the Wall Street generated recession (through no fault of their own, a great American tragedy).

The people who are now still continuing to make timely mortgage payments on properties that aren’t worth anywhere close to what they paid for them (5 years after the Collapse) are responsible people with jobs… who obviously did not buy more house than they could afford.

These responsible homeowners suffered a huge hit to their modest personal net worth so to get their plans back on track they have cut way back on their spending. If they were making house payments that reflected the new value of their properties, they would have a lot more of their own money left over at the end of the month which they could use to quickly could quickly resume spending…

which would stimulate economic activity in America.

Posted by breezinthru | Report as abusive

The quantitative easing could be used to fund a program where unemployed individuals are hired to painstakingly deconstruct (not wreck) unoccupied, bank-owned, energy inefficient housing stock, with the aim of recycling materials to be used again in new construction (or in other industries), and reducing excess housing stock in the name of reducing supply. (Architecturally significant properties would receive remodels to maintain them as such). New, efficient housing would be constructed on each deconstruction site. Any windfall that profits (beyond the initial value of the distressed property) from the sale of the new, energy efficient house, would be returned to the government to offset the cost of the construction efforts, and fund the general program.

During the 2001-2006 real estate bubble, much of our housing stock got superficial treatment in the form of granite counter tops, new appliances, luxury bathroom treatments with imported tile, etc. While all of these are certainly sexier than installing proper insulation, or addressing air infiltration due to construction negligence, these types of remodels at the national level, represent a financial misstep, which over the long haul will cost the tax payer dearly. How?

1. Energy independence will allow us to opt out of at least some of the international conflicts that we have historically taken part in. To achieve energy independence we must work on all fronts. Residential housing represents 22% of total primary energy consumption in the U.S.
source: http://buildingsdatabook.eren.doe.gov/Ch apterIntro2.aspx

2. Population growth combined with continued growth in consumption has historically led to the construction of new power plants, dams, transmission infrastructure, etc. These infrastructure projects represent a colossal investment, and at times have been financed through bonds (authorized by voters)and levied on our children’s generation, or through higher rates paid by customers.

3. While some may be sitting there, smugly suggesting that we simply “frac” our way out of the two previous situations, “frac-ing” may yet have its own hidden costs in terms of environmental mitigation, groundwater contamination, etc. Surely the most conservative thing to do is to avoid putting all of our “eggs” in the same basket.

The beauty of this proposed program is that it employs workers from the industry that was hit the hardest: Construction. Of course, we’re not just talking about guys with hammers, to build a house we need architects and engineers, and materials, and factories that make or refine materials, and in turn those factories need workers!

Now some of you may be concerned about making government larger by adding costly programs. While I won’t address that in detail here, that issue can be addressed by simply having the government contract out to private industry (with some controls on costs lost to administration, limits on profits that can be taken, wage controls to ensure that construction workers make enough to eat (and thus that legal workers desire to be employed in this manner). Surely this type of program is the poster child for where bi-partisan negotiation could lead to positive results. (Clearly we all have our own opinions about what is best and how to achieve it).

Posted by CanyonLiveOak | Report as abusive

To the Author: Great article, thanks for the thought provoking ideas.

Posted by CanyonLiveOak | Report as abusive

[...] Free money for some! Posted on August 2, 2012 by thecrosspollinator From here: [...]

Putting all the focus on trying to save the owners in a world where the majority are debtors is madness.

Posted by TheUSofA | Report as abusive

Prof. Hockett’s idea sounds pretty good, but holders of MBS’s object that the government would be confiscating loans that are not in arrears. They’d rather see the government liquidate jobs than liquidate bad loans.
That can be fixed. I live in a “non-recourse” state but many people continue to make payments on underwater mortgages to preserve their credit rating or because they feel it’s a moral obligation (though their bank doesn’t). If the legislature did more to help people walk away from underwater housing investments — maybe by restricting its impact on credit history — the holders of MBSs might squeal a bit less loudly and be more willing to negotiate on the price.

Posted by JR702 | Report as abusive

I’ve wondered for years if there was some arcane law preventing the Fed from doing exactly this. It is so obviously the short-term stimulus required to start growth in the real economy – tax cuts haven’t worked, bond schemes haven’t worked, mortgage modification hasn’t worked – it can only be political clout that keeps rewarding banks and investors at the expense of demand that would let people get jobs.

So go around Congress and politics and get this done, Ben! You’re the Chairman of an independent entity, so act like it, and follow the advice you gave Japan when it was in this situation.

Those who think too much would go to buying imported geegaws don’t understand the situation of the bottom-50%-of-incomers in this country.

I have formerly middle class friends using stoves with just one burner working, or not running the AC in 100 degree heat, or lining up for free dental clinics.

People need tires, tuneups and oil changes, new glasses prescriptions, delayed health care (the insurance went long ago) and job interview clothing.

They haven’t replaced broken dryers and dishwashers, or outdated computers, cell phones (the land lines went long ago), smoke alarms or security lights.

Credit card debt is creeping back up on necessities like car breakdowns, school supplies, gas and children’s illnesses. One person is paying her mortgage with a credit card, hoping to land a job and save her house.

This is real. It’s shopping thrift stores and living on PBJ’s. And none, not one, deserves to be where they are because of their own behavior.

So forgive me if I don’t give a tinker’s damn about investors’ inflation worries, or moral hazard, or misallocation of capital, or whether they get $6,500 without breaking their backs for it. It’s a drop in the bucket to what they lost in the financial debacle, and to what the financiers gained from that same debacle.

Posted by tygerrr | Report as abusive

@paintcan : Do you have a blog? About the meaningless of money, perhaps it comes down to that interstitial space where the discipline of economics meets psychology, and the question of value.

Posted by loudsilence | Report as abusive

When I read this piece my first thought was ‘finally someone has articulated the distinction of what the Fed has actually done versus the perception. The Fed stimulus is at least once removed, likely out of fear that inflationary pressure would be difficult to contain with the “helicopter” approach. (Who knows?)
It’s almost a convexity argument. The Fed is getting clobbered for being a large part of the government hand out. “Never has been so much handed out to so few to achieve so little” to adulterate Churchill. Anyone paying attention could see Fed money was not seeping into the broader economy.(You’d have gone broke listening to the TV pundits betting on inflation.) All one has to do is look at where the money created sits; at the Fed in the primary dealer accounts. The Fed has positioned itself to failing on its mandate for jobs, which they deserve. Additionally, they have painted themselves into a corner where they can’t go back to the helicopter approach. Worse, they have enabled and participated in a high level of “rent seeking” through the carry trade they created for the rich, banks and hedge funds and themselves. (They returned 74 billion to the Treasury last year. Borrow through shorting the 2 year and buying a variety of other assets up the risk curve with higher yields.) The counter-factual is tough but rates would be higher without the Fed; which they have argued. This hurts savers, pensions and others by shifting income from them to the rent seekers.
Looking backwards, the Fed allowed the yuan/dollar peg furthering China’s purchase of our debt issuance to pay for tax cuts, wars and all the other stuff. Without that intervention rates would have risen in the U.S. possibly cutting off some of what we eventually paid for in 08. (See Bernanke speech in December of 06; its in the NY Times.)
Those calling for the head of the Fed are just doing it for the wrong reasons. If they would have started lower on the food chain and helped the many instead of the few, we might have inflation risks; which would certainly hurt those holding U.S. debt. Inflation is not easy on the average Joe either. However, 1972-82 pushed demand past capacity which kept folks working even if they were losing purchasing power. I’ll take that form of pain versus what we have and what will come if/when this Fed becomes impotent.
Kaletsky is on to something here and I for one hopes he keeps pushing.

Posted by Lunarmod | Report as abusive

@loudsilence- No, I don’t know how to start one and it costs extra. And no one would find it anyway. I couldn’t start a blog if it paid me. I like to use the articles as a starting place. When I learn how to punctuate properly and find a proof reader – maybe.

I can’t make much of a living now and they may as well bury me because I’ll never get off the computer if I had a blog. At least here the damage is limited.

No kiddin’ about the question of value. I think people are playing with fire trying to broaden the definition of eminent domain. For one thing: they are taking a tightly applied aspect of the police power of the states and municipalities and trying to divorce it from the Federal Constitutional guarantee of equal protection under the laws. To do what many are suggesting would mean that towns would have to condemn – as underwater – whole neighborhoods and even whole towns, whether or not all properties were underwater.

That is how it is done now. An entire district with clear boundaries must be designated as an area for renewal and everyone is bought-out by the municipality. What they will find is that they just invented Communist China West.

They won’t need the true market value anymore. The state will own the property. How does someone condemn a mortgage without condemning the property? They are not separate issues. The building is the collateral for the loan. When one assumes a mortgage one transfers the title of the building to the Mortgagee who has prior claim to the deed to the house until the mortgage is paid. One can sell the property short of the term of the mortgage by paying off the loan and accepting what may have been an increase in the value of the property. The process has become so common that people may be forgetting this is an ancient practice. The name itself is medieval French. I also find it odd that people, who wanted the right to speculate to the stars, now want a market value guarantee. And it may not work.

Some of the comments are so naive. Hell – why not? We can wipe out the bad debts at all levels of government – confiscate all private property and tear a whole lot of the idiotic sprawl we built for the last 50 years and start over. You really want to do that if if anyone could afford it? We’ll be going Chinese and they are becoming capitalist. Go figure?

BTW – The right to private property is one of the principals of the UN Universal Declaration of Human Rights. People should read that. Most countries have signed it. It is one of the reasons why China is permitting private property again and few seem to realize that. While many here want full-throated communism.

I have never seen such a mouse trap in my life and I probably won’t live long enough to see it unsprung.

I have another idea but I have to try to figure it out a little better first. I have been working on it for about 15 years and I still can’t get the concept to work without it becoming a ponzi scheme of some fly by night solution that is so unstable it burns all the participants. But so much of the economy seems to have been that already perhaps I’m being too scrupulous? It has to last and it has to be legal and stable. But the problem is: “property rights” has always implied the right to speculate. It is a very thorny problem. If I could take the right to speculate out of the problem the idea could possibly work.

Maybe there’s is an easier way than my pet idea. The underwater owners could deed their properties to the town and pay the city a rent or the rent could be deducted partially as an annuity until the total rent minus the annuity payments equals the market value of the property at the time of the confiscation. I don’t understand the idea of condemning a mortgage with the collateral. I think it is fraud. At that point, I don’t know what they do. This is done when seniors sell their homes to an annuity and draw an income from it for the rest of their lives. But I’m forgetting those are probably underwater too now. I also don’t know how people can claim there is an average or standard market value for property. That can vary wildly depending on the location. People evidently never noticed that the big realtors like Century 21 were setting market values for property rather consistently across the country and they were responsible for the speculative fever too. It was in their interest to do so because their commissions ride on the sale price. There was a remarkable consistency across the country pre-bust. That really shouldn’t have happened.

People who push for more state rights might also find a far greater disparity of income and property values across the country as a result. Some people underwater now could go to the bottom and others may be shot up like geysers. It could get very ugly.

Who knows- we’ll probably start WW III first and blow away the book keeping, the book keepers and a lot of the real estate. That will be another problem if anyone’s left to notice or care.

It’s ironic that we are reading an article here about changing the idea of what money means and what the Constitution means and could easily loose both. There may be nothing left but the land China left behind. If we have to go through that I hope we can do it without red Guards. They were a nuisance even the Chinese would rather forget. .

BTW – I invented a simple couplet to remember the difference between the words mortgagor and mortgagee because the suffixes are the reverse of the way they are normally used in English. Think of Simon Lagree and Eliza.. “Mean mortgagee – poor mortgagor”. You give the mortgagee the title to the property in exchange for the value of the mortgage and you pay him back over time. I think many people forget that is what they do when they apply for a mortgage.

Posted by paintcan | Report as abusive

Frightening that this kind of stupidity and short-sightedness fits neatly into the mainstream.

Posted by MBoulNZ | Report as abusive

I would simply by more hard gold. Who would trust a fiat currency that has gone crazy? How is my buying gold going to help the economy? Most people won’t spend a dime because they don’t trust the financial system – things could go belly up tomorrow.

Posted by urownexperience | Report as abusive

Two mistakes – “rent could be deducted” should say – rent could be reduced with using an annuity payment

“with the collateral”, should be “without the collateral”.

I never had a mortgage and built a small house by finishing much of it myself over a few years time. I could sneer at the underwater because the speculative fevers were also inflaming property taxes. The values of the land and buildings have dropped and still the towns don’t lower the assessed valuation from the peak. They act like the bust never happened. Assessed valuations now exist without any connection to the actual value of the building or land. It’s a total fraud now.

Posted by paintcan | Report as abusive

Wow, loads of comments.

Printing money is stupid. It doesn’t matter who gets it.

Posted by DR9WX | Report as abusive

While the concept of ‘government’ making direct payments to citizens to jump start the economic engines is speculative, it is a helluva lot better idea than to continue handing it out to crooks and thieves on Wall St.
The past six months have repeatedly shown that Wall St CEOs are dishonest, liars, and cheats acting only in self-interest, unchecked by regulation or law, lying to Congress and investors alike to escape accountability and the consequences of his greed.

Unless the methods of financial stimulus change, the outcomes will remain the same; halfhearted,unaimed, lackadaisical and unsuccessful. Printing more unsecured currency, buying more worthless bonds isn’t the answer; getting money back in circulation is essential to the US e4conomy, where 75 percent of GDP is based on consumer spending.

Posted by JBltn | Report as abusive

[...] says the FED should give the money to the people – not the bankers HERE: Instead of giving newly created money to bond traders, central banks could distribute it directly [...]

This is not an original idea. The Australian Government gave every taxpayer up to $950 in 2009 as a stimulus, and it worked. Australia is recognised as having survived the GFC better than any other western country.

Posted by trn | Report as abusive

Anatole Kaletsky – Thank you for raising an alterntive to the Japan method, this country needs it.

£50bn is 3.6% of annual retail spending, and a good test level unlikely to bother inflation-linked bonds.

The money should be given to the poorest half of the population – they have a higher marginal propensity to consume.

You could also allow restructuring of credit card debt – for example, anyone with more than a ratio of, say, 20% of their income outstanding on credit cards could have the excess lopped off, and the card companies could be x% compensated by printed money (again aiming for ratios which will lead to ~£50bn required). No doubt, these people also have a high propensity to blow the lot and the interest payment savings would drop into consumer spending.

– the point is – use monetary easing to create a fiscal kick. That is a genuine helicopter drop, not sure buying gilts is a real helicopter drop. The beneficiaries appear to be corporates who are hoarding the cash.

Posted by LondUKon | Report as abusive

If you were president, you would probably have been assassinated by now for introducing a system that bypassed the interests of the bankers. Rather like Abraham Lincoln and John F Kennedy were assassinated after they introduced monetary systems that benefitted the people rather than the banks:
http://www.michaeljournal.org/lincolnken nedy.htm

Of course the bankers would use their control of the media to try to oust you first.

Posted by ActionDan | Report as abusive

“Quantitative Easing for the people” is simple: Reduce taxes…reduce size of government. Not rocket science…except for deranged / foaming mouth collectivists / communists.

Posted by sarkozyrocks | Report as abusive

Considering we have at least a 3.5% inflation per year, adjusting the tax brackets to lower % levels (less taxes) would just avoid the subtle tax pressure increasing every year due to inflation.
Provided, of course that the average salary/household-income is also increasing with inflation.
Now, that’s better than just a check, that, BTW would be taxed as income.

Posted by robb1 | Report as abusive

[...] KALETSKY: The next round of QE should go to the public. “Instead of giving newly created money to bond traders, central banks could distribute it directly to the public. Technically such cash handouts could be described as tax rebates or citizens’ dividends, and they would contribute to government deficits in national accounting. But these accounting deficits would not increase national debt burdens, since they would be financed by issuing new money, at zero cost to government or to future generations, instead of selling interest-bearing government bonds. Giving away free money may sound too good to be true or wildly irresponsible, but it is exactly what the Fed and the BoE have been doing for bond traders and bankers since 2009. Directing QE to the general public would not only be much fairer but also more effective.” Anatole Kaletsky in Reuters. [...]

An alternative I’d Prefer:::

Instead of: “Suppose the new money created since 2009… had simply [BEEN ADDED TO THE BANK ACCOUNTS] of all U.S. and British households. In the U.S., $2 trillion of QE could have financed a cash windfall of $6,500 for every man, woman and child…”

I’d Prefer: That “every man, woman and child…” be given a Pre-Paid Debit Card worth $X,XXX.00! It would ONLY be worth something if SPENT! Could NOT be saved! (I think an Asian country did this. Results?)

As others mentioned, I enjoyed (???) GWB’s 1-2 “tax rebates” (?) a few years ago. Guess what? I never noticed ‘em, and did NOT spend them. They were tiny ($250?) and slid silently into my checking acct — to be SAVED.

Sluggish U.S. economies need more DEMAND, mostly from Consumers::: 70% of the U.S. Economy, and ~20% of the World’s Economies!

And while I understand the sentiment of “using rebates to buy stuff from China,” so what? Folks will buy stuff from Walmart, Best Buy, Staples, JC Penney, GE, Whirlpool, Ford, GM, Chrysler…. possibly causing those Cos. to INCREASE HIRING to handle higher demand (as banks, Visa, MC & Amex might also do)!

And so too may Asian/European/Latin American Cos. as $$$ flows to them, possibly increasing their employment, maybe causing them to buy more from the U.S. (Caterpillar, Boeing, IBM, Apple, HP…)

So, if countries are going to give away money, do it in Spendable-Only-Formats (e.g., pre-paid Debit Cards), not silent account transfers that are too easy to ignore & save.

Posted by Avid_Researcher | Report as abusive

The easiest and best method to help underwater homeowners was first pushed and then dropped by our never-should-have-been-elected president, CRAMDOWN. Let the courts decide fair value. Investors in those fraudulently arranged CDOs take a hair cut down to the scalp. Those now bald investors class together and go after the banks. It’s actually a double win – home owners remain home owners with extra, economy stimulating cash and the TBTF banks are destroyed by investor lawsuits. All is right in the world.

Posted by mutt3003 | Report as abusive

The author of this article, Anatole Kaletsky, is correct.

And if the original TARP $770 Billion had been distibuted out directly to the American common people, many would have deposited it in their bank accounts. Others would have spent it. But in either case, it would have ended up injecting liquidity and health into the American banking system.

And the direct increase in consumer spending would have flowed from the consumer into American business and created jobs.

It’s sad to see that most Commenters to this article seem to think giving away huge amounts of money to rich people, as happened, is perfectly fine, but that instead giving the same amount of money to middle class America is inflationary or irresponsible.

Beyond the Treasury’s TARP fiasco, the Fed itself has been buying up giant quantities of toxic debt instruments from the high-gambling wealthy, when nobody else would buy them, at prices nobody else will pay, making the wealthy gamblers whole again.

Now those garbage debt instruments are on the Fed’s books, and the wealthy are wealthier than ever. Guess who is left holding the bag? The American common people.

Anatole Kaletsky, great article.

Posted by AdamSmith | Report as abusive

[...] banks could distribute it directly to the public. Technically such cash handouts …” (Ganzer Unfug auf “Reuters” [...]

[...] Quantitative Easing prints money to prop up bond prices – what if you printed money and gave it to the public instead, wonders Anatole Kaletsky. [...]

It is hard for me to grasp how someone with your supposed educational background and experience cannot seem to grasp that this is NOT NEW MONEY.

This is DEBT THAT HAS BEEN CREATED BY THE GOVERNMENT TO BAIL OUT THE WEALTHY AT THE SOLE EXPENSE OF THE MIDDLE-CLASS!

Posted by Gordon2352 | Report as abusive

People seem to have short memories. I recall two or three tax “stimulus” checks distributed by the last Bush Admin. My self employed income was too low and I didn’t get any of them.

The first “stimulus checks” were started under Bush and were aimed at all tax payers. Mortgage bailouts were considered under Bush but they moved instead to shore up the big banks. That didn’t work.

Obama was elected and he moved to shore up incomes overall, but through Trap. That didn’t work.

With that many infusions of major cash – one could suggest that the patient is in critical condition and developing a tolerance for cash infusions. I think they’ve done just about everything they can do but totally falsify the bookkeeping and they are probably doing that too.

I think all they can do now is wait until the patient dies.

Posted by paintcan | Report as abusive

The Government can take anything they want, whenever they want, from whomever they want. That is the first law. The rest of law is that they do not have to do anything they do not want to.

Get used to it. Living next door to thugs will cause your stuff to disappear and your future to be uncertain.

Posted by usagadfly | Report as abusive

What is the purpose of the article? I assume to continue the illusion that we are all in debt, recession upon us, what can we do? The solution seems fairly clear (Premise, we have accountable,representative governments)

1 Governments issue money and not private banks.
2 Corporate lobbying and conflict of interests regulated.
3 Introduction of a monopolies commission that works.
4 Introduction of an FSA that does more than just ensure it’s own profitable survival.
5 De-centralisation of decision making.
6 Budget taken from military adventures/interference in other sovereign nations and applied to services people require.
7 Official censoring of media regulated

Actually the list goes on however I did have the premise of an open government. This by no means would solve current issues but would go a long way in restoring confidence. As an end note, like the article, all pie in the sky.

Posted by yoyo0 | Report as abusive

Quantitative easing to the general populace instead of the 1 percenters would put it where it needs to be. We need it to pay our bills, buy food, keep electricity turned on, buy transportation, pay our taxes, pay doctor bills, make repairs to our homes and probably could name a hundred other things the populace could do with the money. We wouldn’t use it for bonuses or pay raises. Just think all the things I have mentioned would be going back into the economy and producing work for all the people that supplied all the things I mentioned. Oh well.

Posted by David123456789 | Report as abusive

Excellent article, glad I finally ventured back to reuters after all this time, you guys put some genuine, honest stuff out there! By the way, the real numbers given to banks are closer to the 10-15 trillion dollar range with bailouts/ QEs included. This was uncovered in the partial audit of the Fed last year. So, if we can print that amount of money and see almost no effect on inflation, then what is stopping us from printing another trillion or so to forgive student loan debt, build a high speed rail system, etc. etc.

Posted by timshel | Report as abusive

Was an idea in early 2009

To: Saxby Chambliss
Sent: Thursday, January 15, 2009 8:32:04 PM
Subject: ECONOMY

As America heads into the new bailout season, I wish to add my two cents!

Giving money directly to the banks is not going to stop the flood of losses by Americans deeply in debt and losing their jobs.
As more Americans go under water, losses will mount and all the money the Treasury puts out will be like water on a hot stone.

Individual Americans need a bailout. The banks will still get the money if we help pay back individual mortgages.

Have the IRS search the database of Form 1098, the mortgage interest statement. Use this list to idenify everyone who is paying a mortgage. Select some sane criteria and pay off mortgages of individuals. The banks will get money, Americans can get out of debt and start spending again. Americans spend and jobs are created. At least we get to decided how to spend our own money.

The mortgage pay offs could be once a month until things get better. Maybe it won’t cost $825 billion

Posted by whyknot | Report as abusive

In case it wasn’t noticed in my too long comment. There are many seniors living in nursing homes, retirement communities or still in their own homes who may be drawing annuities from “reverse mortgages”. Those don’t seem to get mentioned in the concern about collapsed home prices.

The US wants to create a very regulated economy and doesn’t want to create a regulated economy. It wants to inflate bubbles and is afraid of the bubbles. They really don’t know what they want to do or have much of an idea about how to fix the problem. And it has already used every technique it can think of. It can’t adapt to the lower cost of labor throughout the developing world without lowering it’s own standard of living and further depressing it’s own economy.
Ten years of war is only aggravating the situation and making more difficulties for it in the future. It will limp along and flail at enemies until it is exhausted and the government itself collapses. Then the problems really begin: because capital will flee to more stable countries with growth potential and the country will start to look like scenes from “Bladerunner”.

My father sees the future as a world of “hospices” for the low income (lots and lots of them) where they group in communities of mutual aid while the rich will be living in their own worlds of opulence and sybaritic luxury.

He has a point but he forgets they can’t abandon their investment in the sinking status quo without entering a future world severely starved of cash assets. They would have to create almost shaker style communities that can live without money and rely on their own labor and whatever resources they could somehow manage to acquire. The assets of the wealthy would shrink in value as substantial numbers of the population abandoned them.

It might be the time to consider experiments like Arcosanti for far more people and even with government seed money to get them started. But giving away cash is a waste of time and energy. Land – labor – capital is the triad – capital is abundant, labor is underutilized and over priced, land is available in decaying industrial centers and elsewhere. It only needs a better model of community life and that is the hardest part of the problem. People have to stop thinking like passive consumers in the market, media and advertising driven societies and realize that they are the origin of social life – not the dumb recipients of the industrialized and, more or less, burned out post war consumer economies.

It will be impossible for many because they don’t know how to live like that. In fact this country never did.

Historically, it happens to the best of them. The only trouble is, any attempts at creating alternative communities seem to fritter themselves away like the communes of the 60s or end as nightmares like Jonestown or Koresh and his adolescent messianic pretensions. Of course – anything better and more stable may never be mentioned by an economic system that needs captives or are not at all appealing to a population that has no imagination and has lost it’s ability to be very creative without being sold their creativity in a plastic wrapped carton. Shopping till you drop, or speculating on everything in sight until the money itself is a disgrace and embarrassment, is not creativity.

Posted by paintcan | Report as abusive

If a nation state with a central bank want to not only purchase its debt and simultaneously devalue its debt to its GDP, then whats the issue as long as inflation doesnt make home basics & products unaffordable?(and you can get round that by short-term subsidies anyway!)

Posted by Raymond.Vermont | Report as abusive

Given that voters get to elect candidates selected by monied interests, it is those who Legislators must serve. Common sense leads to public campaign funding which would be a reality today if endorsed by media! Even the Supreme Court would yield to the court of overwhelming public opinion!

Posted by donee | Report as abusive

No matter to whom you give new money, you don’t solve any major long-term problem – you could only increase inflation.

In reality, money is a VALUE representation, nothing more. When you print money and give it away, you are basically taking value away from people who are not receiving your “new money”, but you don’t create value.

The big question is which countries today create value, efficiently. Not the US, for sure. I think it would be China – although people around the world see China as a slave-nation, that’s an exaggeration, a generalization.

Nations, like businesses, should worried about being efficient – unfortunately democratic nations face the harm of political pressure, so governments try to do what is right for too many parties, and end up serving no one. And China? Well… they are “free as a bird” (so to speak)… it’s a terrible contradiction, and I can’t think of a solution, but the truth is that democratic nations doesn’t have what it takes to do the right think long-term.

Posted by michel_behr | Report as abusive

[...] banks | quantitative easing | recession Last week I discussed in this column the idea that the vast amounts of money created by central banks and distributed for free to banks [...]

@tygerr

BRAVO!

Posted by chris9059 | Report as abusive

how about public banking?

the typical american family pays 50% of its interest as mortgage, auto, education loans…..why not establish a public banking system that finances these loans….with all interest paid IN LIEU OF TAXES?…..this would amount to a tax cut of the current tax rate, fund the government with 5 times the money it gets now, pry the government AWAY from the private bankers, and wind down the too big to fail banks, all in one fell swoop……i guess its too simple and easy! i hope they don’t assassinate me for this obvious idea….think about it…..if all consumer debt loans were refinanced (at rock bottom rates) with any interest paid used AS TAX REVENUE for the government, how fast do you think people would refinance at this public bank? and only GOOD loans would be refinanced! the private banking system can keep all their liar loans, etc…..they would be out of business within a year……the banking system reformed, and if you think the private bankers have power to get paid back…..think what the government tax office power! you don’t pay your loan? TO JAIL WITH YOU!

Posted by zulzie | Report as abusive

There are serious consequences as a result bad fed policy over the past decade, primarily, deflation. All the “corrective” measures have been about staving off deflation. But at some point the fed will have to succumb to this eventualality. The sooner the better. It is well established the longer the postponement the more pain as a consequence of deflation. Ideally, this correction should’ve been addressed in 2007. Had it been, the country would’ve been on the mend by now. It gets worse with each passing year postpone?

Posted by amibovvered | Report as abusive

it makes absolute no sense to finance debts and after that finance the debts for the debts,
because you know at the end you get a bail out

Posted by piccolomini | Report as abusive

I have a better idea, why don’t we actually pay interest to people who have worked hard, lived within our means and saved their money. Our retired parents/grandparents don’t deserve to be penalized for the mistakes of others.

Posted by minipaws | Report as abusive

Good article! Certainly giving the general population x-amount of money would certainly give the economy the boost that it needs instead of going to the bankers. More importantly, however, is for people to have faith in the economy again and that their future is secure. What is going on at the moment, certainly in Europe, is that people fear the future and they fear whether they are going to be out of work tomorrow. If plenty of jobs could be created then the fear factor would be reduced and people would spend money, thus an automatic boost to the economy.

Posted by chrisb1959 | Report as abusive