gold investment, silver investment

Precious metals investment terms A to Z

Helicopter money

Helicopter money, also called monetary finance or money-financed fiscal programs, has two meanings. Interpreting Milton Friedman’s metaphor of helicopter drops (from whence comes the name) literally, helicopter money is a money transfer from the central bank directly to the citizens, bypassing the financial sector or government (for example, imagine that the Fed transfers each month, let’s say, $500 to each American). The second definition, most common among economists, is an increase in public spending or a tax cut financed by a permanent increase in the money supply (for example, imagine that the Fed directly credits the government’s current account). In other words, it would be financing a budget deficit by the increase in the monetary base. This is why helicopter money may be regarded as a quasi-fiscal policy or even a monetization of public debt.

Helicopter Money and Gold

Helicopter money would be probably positive for the gold market. Although the yellow metal is not always a perfect inflation hedge, the introduction of helicopter drops should raise the fear of inflation overshooting (and the loss of central banks’ independence from the government) and spur safe-haven bids for gold, at least initially. The reason is that the idea of helicopter money is to give money directly to consumers (or via the government as an intermediary). Therefore, helicopter drops could lead to serious inflationary consequences, as newly created funds would ended up in the households (and not in the financial sector or the commercial banks’ vaults like with quantitative easing) which would probably largely spend them on consumer goods.

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