Just say no to whirl with ‘helicopter’ money

DONALD Trump’s first job if he becomes president should be to gut the Federal Reserve Board, where desperate members are saying some pretty crazy things.

The problem is, Trump may agree with the craziness.

The latest eye-popping statement from someone on the Fed board came last week from Loretta Mester, president of the Cleveland Fed and a member of the Open Market Committee, which makes important decisions about the economy.

Mester is one of those Ph.D. economists long on academic credentials but short on real-world experience and common sense. So she uttered words that no central banker charged with being watchful of inflation ever should: “helicopter money.”

Speaking in Australia, Mester said: “We’re always assessing tools that we could use. In the US we’ve done quantitative easing, and I think that’s proven to be useful.”

Quantitative easing, of course, served a limited purpose — it may (and I stress the word “may”) have helped persuade Americans that the US financial system wasn’t going to collapse at a time in 2007 and 2008 when Washington politicians were doing their best to convince everyone otherwise. And it also made Wall Street rich. What it didn’t do, however, was allow the economy to grow at any kind of normal pace for the past eight years. The stunted growth is causing the anguish among voters that is making Trump’s candidacy possible.

The slow economy also has Fed members and government officials so agitated that they are willing to say stupid things.

Back to the rest of Mester’s statement: “So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative,” Mester was widely quoted as saying.

The phrase “helicopter money” isn’t meant to be taken literally. So don’t get a bedsheet and wait on the front lawn expecting a drop anytime soon.

In the literal sense, a government would drop bales of bills from a helicopter onto the public. In real life, either the Fed or the Treasury would give people money to spend.

It might be through an extra tax refund. Or some kind of rebate to anyone who has filed a tax return and maybe even to those who haven’t. Maybe Washington will just leave piles of money on the street corner and have people help themselves.

The rebate idea has been done before. It hasn’t worked. Currency dumps from helicopters? Never tried.

Most economists with any sense would shudder at the thought of rebates, or helicopter drops, at this time in our nation’s history. For one thing, the US debt level is coming ever closer to an astounding, historically unprecedented $20 trillion.

And even worse news was put out just the other day by the Congressional Budget Office, which said the government’s deficit for 2016 — which ends in a couple of months — will be $544 billion. That’s a $106 billion jump from last year. Want even worse news? OK, then. The deficit is being kept down because of “profits” the Fed turns over to the Treasury — profits that will decline once interest rates normalize.

So, how much money would Mester like to drop from helicopters? $200 million? $400 million? She doesn’t say and that’s probably because nobody has really thought out the ramifications of such nonsense.

Right now interest rates are remaining extraordinarily low because the US economy hasn’t shown much life in nearly eight years. But if the economy ever does accelerate — and, after all, that would be the purpose of helicopter money — interest rates could skyrocket, inflation would take off in an uncontrollable manner and the cost of Washington financing its deficit would zoom.

And that would snuff out any economic gains the helicopter money would provide.

Booming inflation and borrowing costs might sound farfetched, but borrowing costs and risingg prices do change rapidly, as anyone who lived through the 1980s inflation and rate spikes knows.

A helicopter drop really isn’t much different from the Fed’s quantitative easing program that ended a couple years ago. QE, in all its variations, was essentially extra money printed by the Treasury that the Fed bought in order to keep it out of the monetary system where it could stoke inflation.

QE didn’t cause inflation, but it could still.

So Mester’s suggestion is doubly dangerous since there could still be some latent effects of QE that need to be purged from the system.

Trump probably has no thoughts on the idea of helicopter money even though he had been pretty rough on the Fed during the early part of his campaign. But we do know a couple things about the guy — he’s built his campaign on improving the US economy and he’s a risk taker who has used debt all his life in business.

Mester might not have been picked as Trump’s running mate but, on financial matters, she could be his soul mate. Maybe Trump can pop in on Mester after he’s coronated this week in Cleveland. Her office is right down the block from where the Republican convention is being held. A better idea than Mester’s: mine. Change the rules on how people can use the many trillions they have locked up in their retirement accounts. The rules can be changed so that this money — and not irresponsible rebates or “helicopter money” — can stimulate the economy. Trump should look into this. And I’m sure he will.