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“When the next crisis hits, QE for the People – both helicopter money (or financing of the fiscal deficit) and investment bond buying – should clearly be the policy tool of choice. However, other policies have their place too, including QE for the Banks. When banks are damaged, and everyone is paying off debt and saving like crazy, both Main Street and Wall Street need new money, and central banks need to be able to use every tool at their disposal. Together, QE for the People and QE for the Banks make up ‘QE for Everyone’.

The primary argument against the use of helicopter money is perhaps as much about politics as economics. Helicopter money is essentially a merging of fiscal and monetary policy, because new money is being created by central banks but distributed in the form of fiscal transfers. Central banks lack the authority to cut taxes or increase government spending. In this regard, helicopter money could threaten the independence of central banks by giving politicians some control over the money supply and the ability to finance increased government spending by printing money rather than with present or future tax hikes. Even if helicopter money were promised as a one-time occurrence, politicians could always come back for seconds. Any short-run benefits of helicopter money could be greatly outweighed by the long-run harm of reduced monetary independence, which most economists strongly agree makes monetary policy less effective over time and creates inflationary pressures.

Additionally, helicopter money’s effects may be hard to predict because its success depends largely on its ability to shape consumer behavior and inflation expectations. If consumers see such a policy as a sign of desperation, they may actually lose faith in the ability of central banks to conduct effective monetary policy, leading them to save the money instead of spending it — making helicopter money a failure. On the other hand, helicopter money, through its effects on expectations, could end up raising inflation well beyond annual 2 percent inflation targets.

Helicopter money requires central banks to make choices they cannot make while undermining their independence and inflation-targeting mandate. Attempts at explicit fiscal coordination may not be feasible and may create unresolvable conflicts between central banks and political governments.

In the post-financial crisis world, unconventional monetary policy has become so mundane that the name is a contradiction in terms. Everybody does it, few know when they’ll stop it and it has probably been stretched beyond the scope of its abilities. The frustration brought about by the realisation of the latter point is such as to make it now popular to consider a more direct version of quantitative easing.

However, debt jubilee has some serious difficulties. Relieving debt distress among banks and corporations costs taxpayers billions of dollars. Relieving debt distress among mortgage holders could cost the same. It is difficult to see why a young person on a low income who is struggling to pay their rent should, through their taxes, pay off the million-dollar mortgage of a business tycoon. It is also hard to see why homeowners who limit their borrowing to what they can sensibly afford should receive less from the government than people who mortgage themselves to the hilt in the expectation that house prices will always rise. Debt jubilee could be very unfair to people who are too poor to have debts or too responsible to over-borrow.

There is a second problem with debt jubilee. For every debtor, there is a creditor; and creditors are savers. Writing off debts therefore means writing down the value of savings. But working hard and building up savings is widely regarded as virtuous. Imposing losses on people who have saved, to write off the debts of those who have not, would be very unfair. Somehow, a debt jubilee would have to avoid hurting savers.

Founded in 1913 by an act of Congress, the Federal Reserve System — also referred to as the U.S. central bank — originally was created to prevent bank panics. Historically, people would withdraw their funds in droves in times of uncertainty and, like dominoes, collapse the entire banking system. The system has since evolved to support a stable banking system and, more generally, a healthy economy. By design, the Fed is an independent agency that can conduct its duties without political pressure. How is the Federal Reserve structured? The Federal Reserve System is divided into three components: the Board of Governors, the 12 regional Reserve Banks, and the Federal Open Market Committee, or FOMC. Who owns the Federal Reserve? The Board of Governors is a federal government agency. But the 12 regional Reserve Banks are not part of the federal government. Instead, they have been established like private corporations where member banks hold their stock, which can’t be sold or pledged as loan collateral.

This myth is a bit similar to the last one, but it has a life of its own. For this one, we turned to David Wyss, former senior economist at the Federal Reserve Board. "The Board of Governors of the Federal Reserve System is a government entity. The 7 members (including the chairman) are appointed by the president with the advice and consent of the Senate, and report semiannually to Congress," Wyss says. Where it gets a bit more complicated is with the 12 Fed district banks. Wyss says the district banks "are quasi-private and are legally owned by the member banks." "Each district bank has a board of directors, with 3 appointed by the Board of Governors and 6 elected by the member banks in the district. Each member bank owns a share in its regional Fed, which pays a 6% dividend. All earnings above that percent go to the U.S. Treasury," he says. If you define the member banks in terms of where they pay their profits, they go straight into federal coffers. By the way, the U.S. flag flies outside the Federal Reserve's headquarters in Washington, D.C.

The Federal Reserve derives its authority from the Congress, which created the System in 1913 with the enactment of the Federal Reserve Act. This central banking "system" has three important features: (1) a central governing board--the Federal Reserve Board of Governors; (2) a decentralized operating structure of 12 Federal Reserve Banks; and (3) a blend of public and private characteristics. The Board of Governors in Washington, D.C., is an agency of the federal government. The Board--appointed by the President and confirmed by the Senate--provides general guidance for the Federal Reserve System and oversees the 12 Reserve Banks. The Board reports to and is directly accountable to the Congress but, unlike many other public agencies, it is not funded by congressional appropriations. In addition, though the Congress sets the goals for monetary policy, decisions of the Board--and the Fed's monetary policy-setting body, the Federal Open Market Committee--about how to reach those goals do not require approval by the President or anyone else in the executive or legislative branches of government. Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.

QE for the People’ is politically attractive too. There was widespread popular anger about governments and central banks pouring money into financial markets while ordinary people lost their homes and their jobs. Initially, that anger was mainly expressed against banks, for instance through the Occupy protests. But now, people are turning their anger against economic ‘experts’, central banks, and centrist politicians. Politics is polarizing: the centre ground previously occupied by mainstream political parties is hollowing out, and popular opinion is shifting to extremes, both on the right and the left. Populist politicians on right and left alike now promote a nationalist and protectionist agenda which threatens the international legal and institutional framework painstakingly constructed since the Second World War. Had QE for the People been the policy choice during the Great Recession, the resurgence of destructive nationalism might have been avoided.

Monetary policy refers to the actions of central banks to achieve macroeconomic policy objectives such as price stability, full employment, and stable economic growth. Fiscal policy refers to the tax and spending policies of the federal government. Fiscal policy decisions are determined by the Congress and the Administration; the Fed plays no role in determining fiscal policy.

The U.S. Congress established maximum employment and price stability as the macroeconomic objectives for the Federal Reserve; they are sometimes referred to as the Federal Reserve's dual mandate. Apart from these overarching objectives, the Congress determined that operational conduct of monetary policy should be free from political influence. As a result, the Federal Reserve is an independent agency of the federal government.

Can enough money be created to make a real, lasting difference?

One of the challenges posed by the current shortfalls in infrastructure investment, including those relating to climate change, is the sheer scale of the money required to tackle the issues that arise. By 2020 it is expected that climate change requirements might reach $100bn per annum, for example.

Alternatively, helicopter money could be used to finance infrastructure spending. The advantage of such “monetary financing” is that such spending, while adding to the deficit and leading to a permanent increase in the money supply, would not increase the national debt, because the government would “owe” the money only to its own banker. This would eliminate the offsetting negative expectation of higher taxes.

Toomey is just plain wrong. Addressing banks’ climate risks is core to the Federal Reserve’s legal mandate. In fact, to ignore climate change and the risks it poses would be contrary to their congressionally given mandates. Doing so would not end well for the Fed — or the economy.

Long ago, Congress recognized that a strong economy needs a sturdy and inclusive banking system. Banks help savers build wealth, provide loans to entrepreneurs to start and grow businesses and allow the Federal Reserve to target full employment and reduce inflation by transmitting monetary policy decisions to the rest of the economy. Consequently, Congress tasked the Federal Reserve and its fellow federal banking regulators with ensuring banks do not operate in an “unsafe or unsound condition,” responding to “emerging threats to the stability of the United States financial system,” and encouraging banks “to help meet the credit needs” of their communities, among other requirements.

A second clarification is also required at this point: helicopter money is also different from the so called “quantitative easing” (QE) policies that have been implemented by several central banks, although they pursue a similar objective: boosting the money supply to avoid deflationary pressures.

Under QE, central banks create money (the so called central bank’s reserves) and mobilize those reserves to purchase financial assets on a large scale and over a certain period of time. Usually, central banks purchase sovereign bonds with the intention of pushing down interest rates on those bonds, to encourage the financial sector to move away from investing in sovereign bonds and to instead lend money to riskier projects under the so-called “portfolio rebalancing effect”. This type of money creation is therefore targeted to the financial sector, with assets as collateral on the central bank’s balance sheet and, more importantly, is a temporary operation: the central bank destroys the money once the bonds it holds come to maturation.

From those different objectives also stem different institutional frameworks. If the objective of helicopter money’s proponents is merely to stimulate demand, then transfers to citizens is only one practical means by which to achieve this single clear goal. From this viewpoint, it also makes sense to give independent central banks the legal capacity to distribute a citizens’ dividend as a new instrument in the monetary policy toolbox.

If basic income pursues more numerous and complex objectives, by contrast, it then makes sense that it should be the responsibility of elected governments to design and implement it, just like any other fiscal policy.

For helicopter drops, there is a simple answer. There is a clear distinction between fiscal policy and helicopter money. The purpose of fiscal policy is to redistribute existing resources. The purpose of helicopter money is to create and distribute new money. Increasing the base money stock to counter deflation caused by falling bank lending is the central bank’s job.

In the legislative branch, the U.S. Congress passes laws and appropriates spending for any fiscal policy measures. This process involves participation, deliberation, and approval from both the House of Representatives and the Senate.

The so-called Taxing and Spending Clause of the U.S. Constitution, Article I, Section 8, Clause 1, authorizes Congress to levy taxes. However, the Constitution really only specifies two legitimate purposes for taxation: To pay the debts of the federal government and to provide for the common defense.

(Lev Menand, Associate Professor of Law, Columbia Law School, “The Logic and Limits of the Federal Reserve Act,” 40 Yale J. on Reg. 197, pg lexis//um-ef)

A third cost is more subtle. Relying on the Fed an institution that can create money to perform nonmonetary tasks presents risks to the proper functioning of our democratic institutions. The problem lies in the dynamics over time. If the Fed can print money to advance government priorities outside of monetary system stability, it can reduce the incentive for Congress to legislate. Among other things, the Fed's expenditures do not have to be financed through taxation or borrowing, nor are they included on the government's balance sheet. The Fed's asset purchases and lending programs also do not have to get through the various veto gates that slow ordinary appropriations bills. From a short-term perspective, this alternate route for government disbursement may be appealing. But when the Fed satisfies certain powerful constituencies through its programs, it alleviates pressure that would otherwise drive broader legislative action.395 In this way, Fed expansion on the asset side of its balance sheet threatens to crowd out political action by benefiting certain groups like homeowners who would otherwise lobby elected officials for economic legislation.396 Accordingly, the Fed's expansion may have shrunk the scope for democratic deliberation, further limiting legislators and increasing demands for additional action by the Fed.

Indeed, Article I, Section 8 of the Constitution provides expressly that “[t]he Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts,” to the exclusion of any other branch’s exercise of those powers. The upshot: the separation of powers, especially Congress’ power over appropriation priorities, is eroded as executive agencies and executive allies have access to funds not appropriated by Congress. In order to keep their power of the purse intact, Congress originally enacted the Miscellaneous Receipts Statute in 1849. That law is now codified today in Title 31 of the U.S. Code. It requires all government officials in receipt of funds, such as settlements from civil or criminal enforcement, to deposit that money with the Treasury. As a structural point, the law effectively aims at stopping executive agencies from self‐​funding through enforcement or other receipts of money. It maintains their dependence on Congress for their annual appropriation. However, the Justice Department has found a way around this law to fund political allies on the left or executive priorities without congressional approval: settlement agreements. As Wall Street Journal columnist Kimberley Strassel recently reported, “[i]t works like this: The Justice Department prosecutes cases against supposed corporate bad actors. Those companies agree to settlements that include financial penalties. Then Justice mandates that at least some of that penalty money be paid in the form of “donations” to nonprofits that supposedly aid consumers and bolster neighborhoods.” The trick here is that Justice never “receives” the funds within the meaning of the Miscellaneous Receipts Statute, and thus has no requirement to deposit the funds it exacts from defendants with the Treasury—the donations are made directly without money ever being received into Justice’s hands. Despite the fact that Justice Guidance discourages the practice because “it can create actual or perceived conflicts of interest and/​or other ethical issues”—and, indeed, it was almost banned in 2008 due to perceptions of abuse—Justice continues to push this method of funding political allies and favored priorities of the executive. In fact, “[i]n 2011 Republicans eliminated the Housing Department’s $88 million for ‘housing counseling’ programs,” Strassel reports, “which spread around money to groups like La Raza. Congress subsequently restored only $45 million, and has maintained that level… [B]ank settlements pour some $30 million into housing counseling groups, thereby essentially restoring all the funding.”

Not only are many of the charitable groups benefitting from this rule left‐​wing activist organizations like the National Council of La Raza or the National Urban League, but many times defendants are given double credit for these donations, receiving $2 towards the total penalty in the settlement for each $1 given to nonprofits. Hundreds of millions of dollars have been funneled to left‐​leaning groups by this method. Congress’ power of the purse is effectively curtailed by the end‐​run of the Miscellaneous Receipts Act. As my colleague Ilya Shapiro and I pointed out in a recent National Review article, this comes on the heels of a several‐​year‐​long effort by Justice to reduce the level of culpability required to hold corporate managers responsible for actions of the company. The easier it is to prosecute, the easier it is to force a big settlement. But the problem is broader, for not only have Congress’s appropriations powers been diminished by aggressive agencies, but Congress itself has all but abdicated its power over the purse through modern budgetary practices. Since 2001, Congress has funded the federal government not through the traditional 12 separate appropriations bills covering various sets of executive branch agencies, but through an unending series of Continuing Resolutions, or CRs—omnibus statutes that extend the previous year’s entire federal budget with broad percentage adjustments. As the Hudson Institute’s Christopher DeMuth recently noted:

The expansion of the money supply by permanently implementing MMT clearly raises more of an inflation risk than does QE. Still, proponents of MMT offer a second reason for being sanguine about the risk. Namely, an aging population increases the propensity of society to save, as individuals build savings for their projected retirement. The demographic phenomenon is being augmented by the economic uncertainty created by the COVID-19 crisis. Households and businesses save more during periods of uncertainty. An aging population and economic uncertainty suppress the growth of private-sector consumption.

After the financial crisis of 2008, a new phrase entered the lexicon – ‘Quantitative Easing’, or QE. As people lost their jobs, defaulted on debts and lost their homes, and banks and businesses failed, central banks feared a repeat of the Depression of the 1930s. To ward it off, they poured money into the economy. They did so by buying assets – their own government’s debt, government-guaranteed assets such as mortgage-backed securities issued by quasi-government agencies, and in some cases corporate stocks and bonds. They paid for the assets with newly created money, which went directly into deposit accounts in commercial banks. As a result, money ‘in circulation’ ballooned, while interest rates fell to historic lows.

But the money didn’t circulate to the places where it was really needed. The problem with asset purchases is that assets are owned mainly by the rich, and the rich don’t need to spend money. So, when they sold their assets, they simply reinvested the money in other assets. Prices of prime real estate in city centres soared. Oil prices, commodity prices and the prices of essential foodstuffs soared. Stock prices rose to extraordinary heights. Corporate bond yields fell to unprecedented lows.