After today’s uneventful Fed announcement, all eyes turn to the BOJ where many anticipate some form of “helicopter money” is about to be unveiled in Japan by the world’s most experimental central bank.
However, as Nomura’s Richard Koo warns, central banks may get much more than they bargained for, because helicopter money “probably marks the end of the road for believers in the omnipotence of monetary policy who have continued to press for further accommodation in the midst of a balance sheet recession, when such policies simply cannot work.”
As he continues, believers “have doggedly insisted that it is possible to control inflation because (1) inflation is everywhere and always a monetary phenomenon and (2) central banks control the supply of money. Based on this belief, they have implemented a variety of policies including quantitative easing, negative interest rates, forward guidance, and inflation targeting, each of which has failed to produce expected results. Now they have reached the end of the line, and the signpost reads “Last stop: helicopter money.

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