When an article appears in Foreign Affairs, the mouthpiece of the policy-setting Council on Foreign Relations, recommending that the Federal Reserve do a money drop directly on the 99%, you know the central bank must be down to its last bullet.
The economy continues to teeter on the edge of deflation. The Fed needs to pump up the money supply and stimulate demand in some other way. All else having failed, it is reduced to trying what money reformers have been advocating for decades, get money into the pockets of the people who actually spend it on goods and services.
It's well past time, then, for U.S. policymakers -- as well as their counterparts in other developed countries, to consider a version of Friedman's helicopter drops. In the short term, such cash transfers could jump-start the economy. Over the long term, they could reduce dependence on the banking system for growth and reverse the trend of rising inequality. The transfers wouldn't cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them.
The main reason governments have not tried this approach is the widespread belief that it will trigger hyperinflation. Only when demand is saturated and productivity is at full capacity, will consumer prices be driven up. The difference between actual output and potential output, is currently estimated at about $1 trillion annually. That means the money supply could be increased by at least $1 trillion without driving up prices.
Fully 76% of Americans now live paycheck to paycheck. When they get money, they spend it. They don't trade in forms of investment. Assume a $1 trillion dividend issued in the form of debit cards that could be used only for goods and services. A back-of-the-envelope estimate is that if $1 trillion were shared by all US adults making under $35,000 annually, they could each get about $600 per month. If the total dividend were $2 trillion, they could get $1,200 per month. And in either case it could, at least in theory, all come back in taxes to the government without any net increase in the money supply.
Other ways to get money back into the Treasury so that there is no net increase in the money supply include closing tax loopholes, taxing the $21 trillion or more hidden in offshore tax havens, raising tax rates on the rich to levels like those seen in the boom years after World War II, and setting up a system of public banks that would return the interest on loans to the government.
One reason for handing the job to the Fed is Congress has been eviscerated by a political system that keeps legislators in open battle, deadlocked in inaction. It's probable that they don't actually have the legal right to do anything like this. Their authority is this: who's going to stop them? No one wants to take on responsibility for this mess themselves.
Creditor and debtor are in a symbiotic relationship. Like parasites and cancers, compound interest grows exponentially, doubling and doubling again until the host is consumed; and we are now at the end stage of that cycle. To keep the host alive, the creditors must restock their food source. Dropping money on Main Street is thus not only the Fed's last bullet but is a critical play for keeping the game going. (Ellen Brown)