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Comment by ikeboy | Hacker News Reader

Because monetary policy is more effective than fiscal policy?

> Because monetary policy is more effective than fiscal policy?

It’s difficult to justify such a broad statement. Consider that the Fed likely deepened and lengthened the Great Recession by reducing the availability of liquid assets (QE) and simultaneously encouraging banks not to lend out the bank reserves they received in the process (IOER).

The Fed making mistakes doesn't mean the claim is wrong.

My understanding was that QE helped, but IOER was a mistake.

> The Fed making mistakes doesn't mean the claim is wrong.

I was trying to highlight that policy missteps are damaging and can occur with either monetary or fiscal policy.

> My understanding was that QE helped, but IOER was a mistake.

I’m familiar with an argument that QE1 was effective while QE2 and QE3 failed to provide the same degree of stimulus, but I can’t recall the substance at the moment. Comparing the QE responses of US, Eurozone, and Chinese central banks indicates QE did stabilize economies, but it also drained liquid, fungible assets from the market at a time where liquidity was most needed.

When interest rates are negative, monetary policy has literally zero effectiveness. That's the whole problem being discussed.

And the whole point of the comment I was responding to was that fiscal policy would be saner than a specific monetary policy. They don't claim the monetary policy wouldn't be effective or even that it would be less effective.

No. The central bank can stilll create money. Create enough money and inflation will result. There is no doubt about this. None at all.

Sort of misses the point. Despite the name, printing money isn't normally something one considers as "monentary policy", which is about interest rate setting and bank balance regulation. Yes, you can print your way out of a negative interest rate trap, because at its core printing money is exactly the same thing as deficit spending in the immediate term. So I don't see that's responsive: this is isomorphic to "just spend your way out".

I think common terminology would say that printing money is about as core a function of "monetary policy" as is imaginable. If the government has outstanding bonds, "printing money" by having the central bank buy them does not seem like "deficit spending". If the government has no outstanding bonds, and isn't running a deficit, it would be necessary to cut taxes to create a deficit (and hence bonds for the central bank to buy), or for the central bank to buy non-government assests. But this hypothetical is entirely unrealistic in present circumstances anyway.

But what you call things doesn't really matter. You don't offer any argument for why printing money wouldn't solve the problem, assuming there is one.

Except it stops working when you can't go below 0?

> Except it stops working when you can't go below 0?

Central banks are able to utilize other policies (e.g. helicopter money via TLTROs) to provide economic stimulus at this level.

How is helicopter money substantially different from fiscal policy though?

My understanding is that helicopter money expands a central bank’s balance sheet (irreversibly) whereas fiscal policy does not, but the distinction is murky when considering policy like tax rebates.

Well, yeah, so the central bank bears the debt instead of the government general fund. So I guess I repeat the question.

I meant "how is it more effective stimulus?". The contention upthread was that we shouldn't use government spending for stimulus when monentary policy works better, to which I replied that monentary policy doesn't work at all in this situation, to which the suggestion comes back "well, just helicopter in money from the central bank as stimulus", which is... not monentary policy. It's just the same thing as spending modulo some accounting.

> The contention upthread was that we shouldn't use government spending for stimulus when monentary policy works better

I actually disagreed with this assertion in another comment [0], so I think we're in agreement here.

> monentary policy doesn't work at all in this situation

This is incorrect, though. A central bank may loan money to banks at a negative rate, with the condition that the loan funds non-financial and household spending (TLTROs) [1]. Such policy can provide stimulus at or below 0% interest rates.

> "well, just helicopter in money from the central bank as stimulus", which is... not monentary policy

As stated, whether helicopter money is monetary or fiscal policy is murky, but likely depends on its implementation:

"In other words, fiscal policy is about managing the net financial assets of the non-government sector relative to the state of the economy, and monetary policy is about managing interest rates (and through it, to the best of its abilities, bank lending and deposit creation) relative to the state of the economy." [2]

If, for example, the legislature were to issue a tax rebate to each citizen, it would satisfy Fullwiler's definition of fiscal policy. However, if implemented by directly altering bank lending, as TLTROs attempt to do, it should be considered monetary policy.

[0] https://news.ycombinator.com/item?id=20080372

[1] https://www.ecb.europa.eu/mopo/implement/omo/tltro/html/inde...

[2] http://neweconomicperspectives.org/2015/06/what-is-helicopte...

For one, it doesn't add to the debt.

It does, though. Or neither does, maybe. "Debt" in macroeconomics isn't a zero sum thing. The central bank lifting in money creates inflationary pressure instead of a negative number in the general fund transaction log, so to counteract that the promise is always made via whatever mechanism is chosen ("helicopter money" is a bewildering variety of distinct tricks) to "buy back" the stuff you dropped later on, to prevent the runaway inflation scenario.

So in practice, it's no different than spending with concomitant bond issue, which also promises to pay the money back. And is also an inflation pressure if the market decides the promise isn't worth the nominal interest rate.

I thought the whole point of helicopter money is because you want inflation and shouldn't be buying it back later.

That's not true, negative interest rates and QE are means of "going below zero".

QE clearly has "worked" in that the markets were propped back up, for the time being.

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