Posted Apr 21, 2016 by Martin Armstrong
So-called helicopter money involves using a central bank’s power to create money to directly inject funds either into government coffers or straight into the pockets of the public. Yet, nothing has been working and the ECB is now stating that they will continue to buy in debt, but they will also buy corporate debt. On the other side of the table lies the banks. The banks are advising the ECB what to buy so they can clean out the crap from their books. This is by no means in any textbook on how to manage the economy for dummies. The ECB is just shooting in the dark, hoping this will one day have some effect.
While in theory this should be creating money that would be inflationary, no such impact would take place if all they are doing is buying in debt from banks who are desperate to get their balance sheets in order. This money is just monetizing money already lost. Hence, they are not really creating helicopter money until the real money supply increases and passes through the banks into the hands of the public, which has NOT been taking place.
Central banks rely WAY TOO MUCH on commercial/investment banks who both front-run them in the markets of today. The ECB says they will buy corporates and the spread comes in 30bp instantly because the banks have a buyer who has announced they will be a buyer. Those in government are really clueless. When Gordon Brown announced in advance that he would see the British gold reserves, the price fell, the market bought the gold and then it rallied. Those in government have absolutely no idea how markets function.
This is the same with the claimed market “manipulations” in currency and commodities. The banks knew where the stops were and knew when orders would come in. They ALWAYS hunted for stops and moved spread according to the activity of the players. When you just trade, that is one thing. When you have inside info as to where those stops are that become manipulation.
The banks are front-running the ECB today and there is nothing wrong with that. If I said I was going to punch you in the face, would you just stand there and wait? Those in government are fools. Anyone would anticipate and move the market when you announce you will be buying billions.