Jim Grant: The Next Thing From Central Banks Might Be Direct Checks to Citizens

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You’re saying there’s an accident waiting to happen? JG: The central banks lifted off the stock market so that aggregate demand is going to rise. But they forgot to consider that aggregate supply is likely also to rise: Oil drillers will have it easier to find financing with which to drill the marginal well and to produce the marginal barrel of oil. This will weight on the market causing lower oil prices which will lead the central bankers in return to print still more money to save us from what they call «the risk of deflation». So it’s seemingly a never ending, circular process of so called stimulus leading to still more stimulus and unconventional ideas leading to radical ideas. I dare to say that we have not yet seen the most radical brainwaves of the mandarins running our central banks. What do you think this will look like? JG: They don’t keep those things as a secret. They talk quite openly about «direct monetary funding» which is what Milton Friedman had in mind when he coined the phrase “helicopter money”. So the next idea is just bypassing the banking system altogether and mailing out checks to the citizens. Would something like that even work? JG: All this monetary stimulus does two things in a reciprocal way: It pushes failure into the future and brings consumption into the present. Providing marginal businesses with very cheap credit is inviting companies that have passed their useful days of their commercial lives to pretending some kind of an afterlife thanks to the subsidies from the central banks. But capitalism is inherently a dynamic system based on entrepreneurship and to new inventions. It’s a little bit like the forest for the trees: You need life but you also need death. Without death there is no room for a new generation and what you get is Japan: Standing timbers of ancient age, none of them too healthy. Quantitative easing and artificially low interest rates reduce the dynamics, the growth and the vibrancy of economic life.

Jim Grant: The Next Thing From Central Banks Might Be Direct Checks to Citizens