Is President Trump Preparing to Launch Helicopter Money?
The markets are bouncing hard this morning.
The Trump administration announced last night that they are planning a number of fiscal measures to prop up the economy. Those include a payroll tax, loans to companies that are being hurt by the economic fallout from coronavirus, and other items.
The actual plan will be unveiled sometime today.
After it is unveiled, the president will have to figure out how to get it through Congress… which is a whole issue.
On top of this, the president has invited all of the Wall Street CEOs to the White House to discuss the economy and financial markets. This is a very similar move to the phone call Treasury Secretary Steven Mnuchin had with Wall Street during the December 2018 meltdown.
Put simply, the Trump administration is about to throw the “kitchen sink” at the coronavirus situation. Whether this will alleviate the pressure in the debt market remains to be seen.
The U.S. is not alone in this.
The Bank of England is preparing to take “joint action” with the UK Treasury on Wednesday. And the European Central Bank meets Wednesday and Thursday.
Put simply, we are about to see another round of coordinated global interventions. The big difference this time is that policy makers are introducing fiscal measures, rather than monetary ones.
So rather than having central banks funnel money into the markets, governments are now trying to inject money directly into the economy.
This is the beginning of helicopter money.
A Coordinated Fiscal Intervention to Try to Stop the Sell-Off
It’s called “helicopter money” because it’s metaphorically the same as the government literally dropping cash from helicopters down onto the ground. This is a very different thing from mere rate cuts or quantitative easing (QE) from central banks.
The markets are going to bounce based on all of this. Whether this is a major bounce that kicks off a real V-shaped recovery, or just a dead cat bounce, remains to be seen.
Stocks need to hold 2,750 on the S&P 500.
If they fail to do so… it’s crisis time.
Editor, Money & Crisis