Memo to Bernanke: Call the Peruvian Air Force. See if their Russian-built Mil Mi-6 “Hook” helicopters, long the biggest in the world, are available. The chopper you are using now to scatter money obviously isn’t big enough!
History is rich in irony. Historians of the great U.S. housing bubble blowup will note that many Wall Street pundits derided Federal Reserve Chairman Ben Bernanke as “helicopter Ben” when he was nominated to replace Alan Greenspan.
Their scorn arose from a paper Bernanke once had written on how central banks could control deflation. After Japan’s asset bubbles collapsed around 1990, many saw deflation, a force that might be impossible to control, as a greater threat than inflation.
Bernanke disagreed. Central banks have unlimited power to create money, he wrote. In extremis, the Fed could print greenbacks and drop them out of helicopters.
Bernanke’s suggestion, while joking, was correct. And it differed little from one made by John Maynard Keynes 60 years earlier. He said the British government could put five-pound notes in bottles and bury them in abandoned coal mines. Digging these up would put people to work and the increased money supply would supply further stimulus.
Wall Street gurus proved naive in interpreting Bernanke’s paper as evidence he advocated high inflation, in contrast to the prudent restraint of his predecessor, Alan Greenspan.
How things have changed. The same pundits now excoriate Bernanke for not increasing the money supply enough. And Greenspan’s star falls a little every day as the imprudence of his handling of the Fed money supply and banking regulation policies on his watch becomes increasingly apparent.
The Fed has eased monetary policy since mid-August but was not satisfied with banks’ willingness to borrow at its conventional discount window. So, in concert with other central banks, it implemented an auction of fresh money that banks might bid on without the perceived stigma of approaching the Fed hat in hand.
Reaction to the initial $20 billion auction was positive. The Fed actually received bids for $63 billion, evidence that banks are interested in the offered cash.
This is peanuts, of course, compared with nearly $500 billion the European Central Bank pushed out the hatch. Such amounts are more likely to panic markets than soothe them.
Things thus seem good so far. But if even more dramatic measures are needed, the Fed can start leasing helicopters. Let’s see, a brick of 1,000 $20 bills weighs about two pounds. Those elephantine Mi-6’s Russia unloaded on Peru decades ago can carry 17,600 pounds of cargo. Hmmm, Bernanke himself must weigh about 165 pounds, and he will need a couple of helpers to cut the straps on the money. … If they use $20 bills, they can throw out about $170 million per sortie. Maybe they had better use hundreds, or the old Hooks will break down before a thick enough layer of green paper flutters down on Wall Street.
© 2007 Edward Lotterman
Chanarambie Consulting, Inc.