In the US, the Trump-government on March 17 announced that there will be helicopter money. To cushion the coming recession and to avoid depression, each US citizen is expected to be sent 1,000 US dollars by check. This package of measures is part of an overall $850 billion aid package. In contrast to previous central bank measures, this means that the real economy is reached. The money arrives directly at the citizens instead of pausing at the commercial banks as they no longer dare to lend.
Helicopter money in Europe
The action of the USA is understandable and it can be expected that Europe will follow suit. Even in times of crisis, people have to be able to pay rent and buy groceries.
In Italy in particular, this is likely to cause some problems for some people as early as next month. Without helicopter money, it will be difficult to keep people in quarantine. To maintain control over the state of emergency, however difficult it is, the basic provision of all strata of the population must be ensured.
In a crisis, every country is next, but that does not mean that states corresponding to border closure are now focusing on domestic rather than foreign policy. Stability at all costs also means keeping the population calm.
Without direct aid such as helicopter money in the USA, there will soon be riots in the EU. Europe cannot afford to do without a radically expansive monetary policy. All states and central banks are devaluing, so it would be fatal for the internal stability and the euro exchange rate not to move here.
Central banks are disempowered
However, it is unclear what the exact financing of helicopter money in Europe can look like. The question is whether the ECB puts the helicopter money directly on its balance sheets or whether the financial injections to the citizens are financed through the national budget, especially since not all EU member states are part of the eurozone. The first talks, if they are not already underway, are likely to be held this week, so that it can be eagerly awaited to see what outcome states and central banks will reach.
The independence of the democratic central banks is no longer given. It still exists on paper, but ultimately the current government decisions are also central bank decisions. If Donald Trump wants certain central bank measures, then he will get them. Things are not much different in the EU, even if everything is a little more complicated than in the USA. The mandate of monetary stability is now finally over.
Inflation at all costs
The biggest specter of a state is not deflation, but inflation. In their final form, both lead to a collapse of the economic and financial system, but the ways to do it are different. There is also a fixed order of when which scenario occurs.
In the first phase, as is currently being observed, the state tries to avoid everything to slip into depression and consequently deflation. The lessons learned from the deflationary spiral of 1929 are deep, so it is imperative to avoid falling prices and drying up investments. Accordingly, maximally expansionary monetary policy measures, such as helicopter money, will follow in the coming months. This can keep the economy running so people can keep and consume their jobs. The problem, however, is that deflation can only be postponed given the severity of the economic damage. At the same time, the measures are becoming increasingly extreme, so that the likelihood of inflation following deflation continues to increase.
Inflation soon also in the real economy
Even before the coronavirus broke out, central banks pursued an inflationary central bank policy to avoid slipping into deflation. The difference to the current situation is that the money has only reached the real economy to a very limited extent. The countless billions have led to asset inflation. Real estate and stock prices have skyrocketed, while the rate of inflation when visiting a coffee house, buying jeans or flying to the South Pacific has hardly changed.
Now, however, direct measures are being carried out on the real economy. This time the financial sector is being avoided, since it no longer fulfills its function, in particular, to grant loans. Even if not in the next few months, we could also experience inflation in real economic goods in the coming years. Despite all the historical precedents, we are in a gigantic monetary experiment, the developments, and consequences of which are difficult to estimate.
This role plays Bitcoin as an anti-euro
Just as the financial system is currently being pushed to its limits, it makes more sense than ever to deal with Bitcoin. It is not about whether the Bitcoin price can start a counter-movement or not, but whether Bitcoin can secure purchasing power in the long term. As has been explained many times, it is perfectly normal for Bitcoin and the entire crypto market to get stuck in a sales panic on the markets.
Bitcoin is a long-term hedge because it is not subject to devaluation like Euro & Co. Nor is there any overwhelming economic debt on the Bitcoin money system. Just like gold, Bitcoin is currently being sold because you now need cash to fill the holes. However, as soon as selling pressure ceases and expansive monetary policy and devaluation begin to take hold, bitcoin as an anti-inflationary asset is a must for every portfolio.
It doesn’t matter whether you find Bitcoin good or bad. From a purely portfolio-theoretical point of view and risk aversion, it makes sense to own an asset that is largely decoupled and non-political. You cannot print Bitcoin at will and, unlike the euro, Bitcoin does not have to carry the burden of a gigantic bailout. The system failure insurance called Bitcoin is also essential for conservative investors who cannot gain much from the crypto economy.