Why I Don’t Think a “Helicopter Drop” Will Ever Happen

In a piece yesterday, Matthew Yglesias of Slate wrote what seems like a very simple solution to the current weak economy:

“Print Money. Mail Everybody a Check.”

He describes how the Fed should just print up money and mail everyone a check.  Now, aside from the illegality of all that (which Yglesias notes) there is a much larger issue in all of this that I think is overlooked by most.  Our monetary system is designed around private banks as the money issuers.  Our government issues facilitating forms of money, but the vast majority of the actual money supply is loans that created deposits.  In the case of government money things like cash (which is created by the US Treasury and shipped to Fed bank and then to member banks) facilitate the use of a bank account (such as having the ability to draw down funds via ATM for spending).  Additionally, the Federal Reserve System exists almost entirely for one purpose – to support and facilitate the existence of the private banking system.  In other words, the Federal Reserve System was created to bring oversight and efficiency to the payments system by creating the interbank market.  These forms of outside money (cash and reserves) facilitate the use of inside money (bank money).  They don’t directly compete with inside money.

And this is where the helicopter drop runs into a problem.  If the Fed was created specifically to support the banking system in various ways then why in the world would it ever just print money and send it to people when that would clearly be cutting into the business that banks exist for?  You can think of it as taking market share from banks as money issuers and banks aren’t in the business of trying to lose market share.  A helicopter drop in the form of cash straight to households would compete with money issuance by banks who create money as debt.  Of course, banks are in the business of making a profit by making loans (primarily) and the Fed’s entire existence is in support of this business.  When the Fed enacts policy it is largely trying to influence the health of the private banking system because the banking system is how it interacts in the US economy.  To circumvent the banking system like this appears to go against the Fed’s primary purpose for existence, which is NOT to serve its dual mandate, but to serve its dual mandate by FIRST supporting private banks (it can be no other way since the Fed works primarily THROUGH the banking system).

A helicopter drop sounds nice in theory, but the odds of this actually occurring are probably close to zero.


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Frederick

    If the Fed were ever going to do something like this it would just print up money and send it to banks, not households.

  • http://kiddynamitesworld.com Kid Dynamite

    wait – isn’t this what happened 8 or so years ago with the “stimulus” checks?

    ps – you have a typo in your post title… “happy” should be “happen”

  • http://www.orcamgroup.com Cullen Roche

    The stimulus checks were just an extra expense that added to the Federal deficit. That means they sold bonds to Peter to pay Paul and issued a bond to Peter (a net financial asset) whose bank money went to Paul. Fiscal operations are basically govt bond helicopter drops. But they’re not issuance of money in the same sense that a bank deposit is. Paul, at some point, will still have the desire to exchange his govt bond to something with higher moneyness like a bank deposit.

    Direct money issuance from the Fed (or the Treasury via things like the Trillion Dollar Coin) are self funding in essence. It’s a form of the govt circumventing the private banking system to issue money directly to the private sector. It’s all interesting, but counterproductive to the current design of the system as I see it.

  • Frederick

    I see. So, do you think a helicopter drop begins to change the playing field from a system where money is issued primarily by banks to a system where money is issued directly by the government? Just trying to gauge why you don’t think this would ever happen when it already kind of happens through deficit spending. Thanks.

  • http://kiddynamitesworld.com Kid Dynamite

    got it. thanks

  • haris07


    Exactly. The intense focus on the mechanical items like this is what undermines this whole MR/MMT thing! Spend hours and hours talking nonsensical items like this when as you correctly pointed out, the Fed would do it via the banks!

    Same issue with whether you are printing money or not, or whether a sovereign issuer can actually default on its debt or not….EVERYONE who is somewhat sane understands these things already.

    Get over the focus on these small mechanical items.

    The bigger question to ask still remain – is this the right policy? If it is is so easy, why doesn’t every government that issues its own currency (let’s put aside Europe for now) just do that and voila, every recession is solved. Just have the government issue more debt or if you prefer, don’t even bother with that, just credit the bank accounts of all the people with some printed or keystroked money – again, stupid focus on whether it is actually printed or created via keystrokes!

    No need for productive work, hey the US has sovereign rights over its own currency and a significant (all?) of its debt is in USD – just print and hand it out to the people/corporations already.

    The focus on these kind of matters is obscuring the real good message and accounting identity and other such things (inside/outside money concepts)that came out of MR/MMT. These contribute a great deal to understanding the system of money. But, then the drift into stupid details like this….sigh!

  • http://www.orcamgroup.com Cullen Roche

    Yes, self funding and direct money issuance is essentially circumventing the private bank system. That’s not what occurs today. When the govt deficit spends it redistributes the bank money into the banking system and issues a bond.

  • Matt McOsker

    Seems to me, while not ideal, it is better than austerity through higher taxes and lower deficits, which is the current policy.

  • Jay

    It would also be highly preferable to being slaves to bank debt and usurious interest.

  • But What Do I Know?

    It seems to me that Yglesias has come to the realization that there needs to me more money flowing in the economy (read:income) and is trying to figure out how to do it. He might be confused about the mechanism, but what’s more interesting is that fact that a pundit has figured out that QE doesn’t actually do much for ordinary people and is groping towards something else.

    Of course, there are many ways other than a money drop to increase income: my favorite is to have the government offer a savings account with a guaranteed interest rate of, say, 4%. But then again, I’m a would-be rentier. . .

  • Johnny Evers

    Why would the Fed do this? Presumably if the Fed was ordered to do so, it would comply. It would be an interesting test to see if the Fed is more public or more private.
    I find depressing the acceptance of the idea that the Fed exists solely to support the banks and that an idea to support the economy that end-runs the Fed should be dismissed outright.
    The idea should be debated on its merits, leaving aside if it would make the banks unhappy.
    Would it get more money out into the real economy? Yes.
    Would the consequences be more negative than positive? Maybe, maybe not.

  • krb

    This is the closest I’ve seen Cullen come to agreeing with what I’ve said all along…….Fed policy has always been a bank support policy DISGUISED as an economic revival policy. Openly and clearly describing their policy for what it is, further bailing out the very people responsible for causing our persistent depression, would invite outrage…..so they go through their charade. The irony, is that the way they’ve chosen to “support the economy” and revive inflation, has limited effect, other than speculative inflation via asset markets. Which brings up the bigger reason the Fed doesn’t do a helicopter drop……it would unleash the inflation genie big time, with little chance of getting her back in the bottle.

  • Geoff

    A helicopter drop would basically be an equity drop. The more equity (or capital), the greater the borrowing capacity of the system. The banks should be all in favor of a helicopter drop!

  • Lyndon

    Why is the people’s money supply being run for private profit? Is there any logical reason for this?

  • Frederick

    The alternative is that the government manages the money supply through some sort of bureaucracy that issues loans or money. Is that a better option?

  • Victor

    what if the govt deficit spends and cuts cheques but doesn’t issue the bond ie. just monetize the additional spending? thanks

  • http://www.orcamgroup.com Cullen Roche

    The govt can’t legally spend without first selling the bonds and procuring the funding. It must obtain credits to the Tsy General Account before it can credit someone’s bank account. Bypassing this process would be self funding, circumventing the banking system and issuing money directly. This is the sort of thing the banks don’t want the govt to start doing because they’re in the business of issuing the money or working as the govt’s middleman in issuing bonds. Changing the system to a self funding mechanism is a massive change in the way the system is designed and begins to alter the need for private banks.

  • Anonymous

    You’re completely misinterpreting the helicopter drop. The theory is stimulation to the point that the market expects it to continue (or grow) without further “helicopter drops”. With the fiscal and monetary stimulus since 2008, we are in the midst of a helicopter drop. So with all due respects you’re completely wrong :-)

  • http://www.orcamgroup.com Cullen Roche

    Fiscal policy vie deficit spending is always a bond helicopter drop as I said earlier. If you understand how our monetary system is designed (which most people don’t) this just becomes obvious.

  • Andrew P

    Congress could legally self-fund a multitrillion dollar stimulus if it wanted to. Doing it outside of a national emergency would incur the wrath of the bankers, and lots of Congressmen would go down in a hailstorm of bullets as a result, but they could do it if they were willing to risk death.

    The only way I could see Congress self-funding would be if there really was a national emergency, such as all the TBTF banks going down simultaneously when the EU goes down. Congress might have to self-fund to make good on 5 trillion worth of FDIC insurance.

  • http://www.orcamgroup.com Cullen Roche


  • Anonymous

    All that I am saying is that you are misinterpreting Friedman. The crux of the helicopter drop was how to set inflationary expectations.

  • http://www.orcamgroup.com Cullen Roche

    I am not sure why you think I’ve “misinterpreted” this….

  • Nils

    I wonder how many people would pay down their debt if they got some free money coming their way. That’s directly taking food of the bank’s plates.

  • Frederick

    I think that’s part of Cullen’s main point. If the government just spent money into the economy without actually using bank money then it wouldn’t subsidize banks through the bond sale process and it would essentially be creating money that could then be used to pay down existing debt. It would completely change the way the current monetary system actually works.

  • Matthijs

    It all makes sense what you write Cullen. However, it does raise the question: what can and what should a government do as an alternative measure and when? It’s almost like a government has privatized bread baking to a cartel of a dozen bakeries. They don’t bake enough bread and now many citizins are starving. The government could do something (baking bread is just as easy as creating money), however it doesn’t allow itself to help its citizins. How would you explain this? What should be enough reason to take more drastic measures? War?

    It’s all a very strange discourse. On the one hand, people will think that a government shouldn’t borrow so much money because otherwise “our children have to pay the bill”. But then, after you’ve explained where money comes from and that money is created ‘from nothing’ by a privatized cartel of banks and NOT by the government or central bank, people are angry as well that a government cannot (or doesn’t allow itself to) create its own money!

    Just read that here in Europe, in some countries youth unemployemt is more then 50% (!), average unemployment 25%. A lost generation is created. When is it bad enough?

    Sure, I understand that a complete overhaul of the system, by having governments directly creating their own money, might be a shock too big to the system. And we all know financial markets are the hyper sensitive type … ;) But what is the reasonable, pragmatic alternative narrative and resulting measures which can be taken, to at least soften the suffering?

  • Johnny Evers

    Love the break making analogy. Government already competes with private enterprise in all sorts of areas.
    In another sense, isn’t the government already handing out money when it issues bonds, which the Fed then turns around and buys? So why not just issue money and dispense with handing out interest bearing bonds to wealthy investors. If that smacks of illegality — either change the laws, or let the Fed buy the bonds directly. It’s not just private banks which have the ability to create money, so does the Fed.

  • Geoff

    Disagree. As I mentioned above, a helicopter drop would basically be an equity drop. This would give the private sector the capacity to INCREASE debt, not decrease it. The banks should welcome a helicopter drop.

  • Austin

    Since 2008 household debt in the US has decreased $833 billion. That makes it sound like consumers are deleveraging, right? The problem is that household mortgage debt has decreased by $1.3 trillion due to foreclosures, but other debt has increased by $467 billion, including a $317 billion increase in student loans. The households that were foreclosed on typically move into a rental, so it’s doubtful they have any more disposable income than before even though their total debt has decreased (no house.)

    There has been no recovery and there can be no recovery until:

    1) Consumers feel more confident about their economic future

    2) Discretionary income for the lower and middle class households begins to rise


    Austin, you make some good points. Thanks for the post.

  • http://www.nowandfutures.com bart

    I submit that it can happen again.

    Politics involves strange bedfellows and ideologies.

  • Victor

    Thanks Cullen and Andrew:
    perhaps a bond drop then…
    since the non-govt sector is not borrowing, the govt should pick up the slack or alternatively we should find some way to write off or archive a portion of private household debt. But then there’s that pesky moral hazard question.
    thanks again.

  • http://kiddynamitesworld.com Kid Dynamite

    Cullen –

    can you explain how this all fits in with the difference between
    1)the Fed buying Treasury bonds via QE from the primary dealers as it currently does, and
    2) if the Fed were to just buy the Treasury bonds direct from the Treasury?

  • http://www.orcamgroup.com Cullen Roche

    One uses the banking system primarily and the other would not use the banking system. The current monetary design is bank centric. So we use banks as middlemen to auction bonds. The govt uses bank money when it taxes and spends bank money when it spends. The whole design is private bank centric. If the Fed just started crediting the Tsy’s account so it could spend you’re circumventing the banking system in all of this. It’s the govt using its OWN BANK and not the banks that someone else owns.

    MMT describes the govt using its own bank (they consolidate Fed/Tsy). Actually, MMT describes the current arrangement as the govt using its own banks because they thinks banks serve public purpose and are nothing more than “agents of the govt”. I think that’s a pretty naive view of a world that is obviously centered around banks who serve private purpose before all else.

    So, when you start having the Fed just credit the govt’s account then you start down the road of self funding which brings up the obvious possibility – why do we use banks at all if the govt can create all of the money without them? Anti govt people will say it’s better to have the money supply controlled by private competitive forces (private banks). Pro-govt people might say that the banks have corrupted the system and that the govt should manage the money supply. Both could be right to some degree.

  • http://kiddynamitesworld.com Kid Dynamite

    ok, but…

    what currently happens, correct me if I’m wrong, is basically:

    1) Treasury says “we’re auctioning off $10B of Bond X this week”
    2) The Fed says “we’re buying $2B of Bond X next week
    3) Banks buy $10B of Bond X from Treasury and sell $2B of Bond X to the Fed

    so how would the functional result be any different if the banks weren’t “in the middle” on that $2B, and instead the Treasury sold $8B of bonds in an auction to the market, and the Fed bought $2B direct from Treasury?

    isn’t the net result the same? regardless of who created the money (banks or The Fed) ?

  • http://www.nowandfutures.com bart
  • http://www.orcamgroup.com Cullen Roche

    The govt isn’t the one creating the money here. The banks create the money and the govt redistributes it. Remember, when Peter buys a bond he sends the govt his bank deposits and the govt redistributes his bank deposits back into the system. Peter gets a t-bond and Peter’s bank deposits go to Paul. But it’s all bank centric. If the Fed were to actually buy all the bonds upfront then there’d be no need for bank created money in the process at all. It’s govt self funding. Remember, the govt spends today by using private bank money. QE isn’t about self funding, it’s about supporting private banks. That’s why the Fed exists. If the banking system were not bank centric then we could nationalize the banks, call them all Bank of America and get rid of the Fed by placing under the Tsy’s umbrella because there would be no need for interbank payment settlement (the primary purpose of the fed system) and no need for bank money in all of this since it would all be what MR refers to as outside money (govt created money).

  • http://kiddynamitesworld.com Kid Dynamite

    i’m not ashamed to admit that I dont understand your point. i will take this offline and send you an email. thanks for your time

  • Matthijs

    Indeed. I’m not sure myself how the system should be changed or even if it needs to be changed, maybe there are enough tools already to fix the major problems and these tools just aren’t used yet or are misunderstood and therefore not used. It’s just that this helpless “sorry we (as a government) can’t do anything, we ran out of money” seems a bit incredible.

  • http://www.orcamgroup.com Cullen Roche


    It’s not just incredible, it’s dead wrong. Anyone who understands MR knows the govt can NEVER “run out of money”. That is a silly excuse used by people who don’t understand the money system.

  • http://brown-blog-5.blogspot.com/ Tom Brown

    Cullen you write “QE isn’t about self funding, it’s about supporting private banks.”

    I agree, however, there’s a little (unintended?) “self funding” that happens as a consequence. I think that’s what Kid is getting at (perhaps?). You and I have discussed this before:


  • http://www.orcamgroup.com Cullen Roche

    Absolutely, Tom!

  • http://brown-blog-5.blogspot.com/ Tom Brown

    BTW, is it true to say that:

    TGA + private bank reserves (both electronic and vault cash) + private non-bank cash = total of all Fed liabilities

    So in other words, the sum of all the electronic reserves (TGA+private) out there and all the cash held in the private sector (bank+non-bank) all sum to the Fed’s total liabilities?

    I’m assuming here that the gov doesn’t hold cash for spending purposes (I realize that Treasury mints cash, but then they essentially “give” it to the Fed to exchange w/ the private sector, true?)

  • Witt

    What if banks fail and the helicopter drop is simply to reinstate the insured deposits the FDIC can’t. I mean, you’re talking total systemic meltdown, but I think it makes total sense then. Of course, we’d have to wipe the derivatives slates clean…

  • Matthijs

    Well that might be true (for the US and most countries with their own currency), but that is what the general perception is, even among economists. And for us here in Europe, in a certain sense our governments do run out of money, without any lender/spender of last resort.

    Here in the Netherlands, it’s all about fear of increasing interest rates on government debt and therefore the only policy option on the table is austerity. This year GDP shrinks again, tax revenue decreases and that’s another big spending cut next year, etc etc.

    It’s really frustrating. I don’t want to be and am not a big-governemnt type, and see all the advantages of having a privatized money creating system. However, the tools available for (central) governments and central banks aren’t even understood, discussed or used.

  • http://www.orcamgroup.com Cullen Roche

    Well, we know better and we can teach other people to know better. That’s a big part of MR. It’s about informing and teaching.

  • Matthijs

    Yes and thanks again for all the effort you put in. Really appreciated and it helps in a big way. If one reader spreads the message to ten others and those ten again spread it to ten others, at first it will not reach many but at some point a threshold will be reached and the knowlegde will reach many.

  • Patrick

    Twice when I lived in Hong Kong, during economic downturns, the government refunded a proportion of taxes paid back to the taxpayers themselves.
    Very smart, they gave the money back to those who knew how to make it in the first place.
    It’s called “backing a winner”.

  • Explorer

    In Australia in 2009 as part of the stimulus at the start of the GFC the Australian government sent about 80% of families a cheque for $900. We called it the “cash splash”.

    It’s not illegal if the government legislates a bonus payment to qualifying people, or a one of tax refund, or a subsidy for housing costs or whatever. The goal is simply to increase the spending capacity of people to prevent recession and maintain employment. It’s legal if the government legislates it, or the minister has power to change tax rates or to make certain types of payments.

    There was criticism that it paid for imports, that it was drunk and gambled away, that ti was just used to pay down debt and so created no stimulus and that the macro saviour of our economy ws Chinese stimulus and commodity prices and volumes as a result of the Chinese stimulus. Some people just criticise becasue they are in oppposition to everything a government of the opposite persuasion does, but the cash splash and the home insulation grants and school building program saved a lot of jobs for the 2 years of the crisis. That some jobs were in importers and hotels and clubs was really important to the families that depended on those jobs.

    However a lot of it was spent and kept people in jobs and it was a psychological circuit breaker for people as they looked forward to getting it and planned what to do with it.

    For more info:

  • Warren Buffett

    The Trillion Dollar Platinum coin actually circumvents your constraints.

    Even if you don’t believe in the Trillion Dollar Coin, Remember What Bernanke said, “The Fed doesn’t have to unwind its Balance sheet” which is the exact equivalent of “Dropping money from helicopters”

  • http://www.orcamgroup.com Cullen Roche

    The trillion dollar coin, which MR co-founder Carlos Mucha first discovered, is a form of govt self financing. It’s full blown MMT. It will never happen because the system we have is designed around private banks and you’d have to convince the private banks that they’re not necessary in order for the govt to start issuing all the money. Good luck with that.

  • Ville

    But it’s not about capacity alone, it’s also about demand for loans. In a balance sheet recession there’s a big possibility that people would pay down existing debt and then banks would definitely suffer. It’s hard to predict how the consumer would behave in a helicopter drop situation.

  • JoeBob

    You’re taking an article from Slate seriously? This blog really is a joke…best stick to Zero Hedge in the future!

  • http://brown-blog-5.blogspot.com/ Tom Brown