Hugh Hendry made some remarks about confiscation last week that I addressed in my TV appearance on RT’s capital account (see video here). The gist of his comments was that he fears government’s ability to confiscate wealth as a means of dealing with the economic crisis in Europe. On RT, I said that I didn’t think the situation had reached that point in Europe and so I was not overly concerned. But I do want to flag comments by a major bank economist that touch on these issues.
Willem Buiter has come out with a piece suggesting not just QE but helicopter drops, a ban on currency and negative interest rates.
We think central banks in the US, euro area, Japan and UK could and should do much more, including
– (i)reducing rates, first by lowering them all the way to zero (UK and euro area),then by eliminating the effective lower bound on nominal interest rates (all four currency areas)– (ii) carrying out more imaginative forms of quantitative easing (QE) & credit easing (CE), in all four currency areas, by focusing on outright purchases of and/or loans secured against less liquid and higher credit risk securities, subject to a sovereign guarantee (joint and several in the euro area) for all such risky central bank exposures
– (iii)engaging in helicopter money drops (all four currency areas): a combined fiscal- monetary stimulus
Reading this commentary had me thinking not just of Hugh Hendry but also of Marc Faber because it is Faber’s assertion that "money printing" is in western central bankers’ DNA now and that when push comes to shove, they will always choose printing and inflation over allowing defaults that make the system collapse. In general, I think Faber’s comments are interesting if provocative and hyperbolic, but from an investing standpoint, I haven’t found this commentary useful. However, I am flagging this issue as one to watch because Willem Buiter is a well-regarded economist and these ideas he is mentioning are all ideas that have circulated in isolation but have never been coupled together as a suggestion for global action.
Zero rates are already policy in the US and Japan. So this is a well-established and even accepted view. Spain is already looking to ban large currency transactions (link in Spanish). The helicopter drop is something that has been bandied about for the Fed instead of QE. Even Ron Paul, who is anti-QE, anti-printing has said that a real helicopter drop would be preferable to QE. So, all of these machinations have precedent. It is the coupling of them which is unique.
My takeaway here is that Buiter is genuinely concerned that Europe is about to precipitate another Great Depression. He wants central banks to take draconian solutions to avert the coming crisis because fiscal agents are unable or unwilling to do so. In general, I tend to be less alarmist than this but I take notice and it is an issue I will be watching and reporting.