Years ago Milton Friedman coined the term “Helicopter Drop”. This was made famous by Ben Bernanke in a November 2002 speech, and earned him the name “Helicopter Ben”.
“Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” (Milton Friedman, “The Optimum Quantity of Money,” 1969)
This was proposed as a last-resort strategy for policy makers when normal fiscal policy isn’t enough to keep the economy going. And now we are there. The Federal Reserve has expended nearly all its ammunition, lowered interest rates to zero, and started huge Quantitative Easing. So now the Federal Government is planning to send checks to many Americans who are suffering economically due to restrictions intended to slow the spread of COVID-19.
To do this and other measures to deal with COVID-19, the government will take on an additional trillion dollars in debt. Likely more before all of this is over.
This is causing turmoil in the bond markets as investors digest what an additional $1T in bond issuance will mean. The assumption is that the Federal Reserve will print money and buy most of these bonds. But since nothing this big has ever happened before, there is uncertainty.
In many ways we are living through the biggest economics experiment ever. Interesting times indeed!