The first time that “helicopter money” was mentioned with any relevance was at the time of 2008 financial crisis and 2011 sovereign debt crisis in Europe, at that time the idea seemed unreliable and was associated with the political left within the concept of welfare assistance challenging several market laws, namely that of the sustainability of a country’s economic system. With the gradual resumption of the world economy, the theme fell a little into oblivion until the world was subjected to a shock like never before in recent times, the pandemic of COVID-19, and without any time for debate the right thing is that both the US and the European Union have implemented aid programs that include such “helicopter money”, for example with weekly checks for $600 or through non-repayable loans including even the central bank in the process.
But if the needs for these measures in the short term is relatively consensual, given the violent impact on economic activity of the quarantine measures imposed by governments to contain the spread of the pandemic, it remains to be seen how the economy will react to the suppression of these measures, as well as in the public debt and interest market over the next few years, as high budget deficits are causing debt-to-GDP ratios to worsen, putting the striding to that level, despite economic growth. Now, this gigantic indebtedness operation is being supported by central banks, by acquiring very substantial volumes of sovereign bonds entering the market, which has increased the amount that the FED holds in US debt to more than double, to more than $4.6 trillion in less than a year.
The magic question that everyone thinks but that nobody knows or wants to answer, namely by the political and financial leaders, is how this bubble will be emptied, not least because, as already noted in the case of low interest rates and easy loans, which have lasted for several years and with no end in sight, what has been realized is that politicians, companies, investors and markets were stuck with this “remedy” implemented in response to the 2008 crisis, but which should have ended, so it is necessary to reflect on the future of helicopter money and its consequences for the credibility and sustainability of the economic and financial system, as we know it, as this will influence the Forex market in the coming years.
