It’s struck me for a long time that much of monetary policy that’s meant to stimulate lending actually benefits people who are already wealthy and who are also, therefore, less susceptible to stimulus intended to increase their spending.
I also think that these policies are responsible for rising inequality in the world in the past decade or so as money has become cheaper and cheaper for people who already have it, with little real change for people who don’t already have it (since their wages have been stagnant and their borrowing ability is therefore limited).
A much more efficient program would be a form of helicopter money in which the government or central bank simply gave money to people who most “need” it, and who will quickly spend it. Such an approach would be much more efficient: it would get rid of all the middlemen and make every dollar much more likely to enter circulation since the poorer people receiving the checks would get immediate benefit from spending it (and, unlike rich people, relatively little benefit from saving it).
Such a direct stimulus program, however, is difficult to implement using current money technology: the government would literally have to write everyone checks, or physically hand them cash. This is part of the reason I believe we should build a new cryptocurrency-based backend for our money system — to make policy response to the next recession better and more efficient.
Anyway, the St. Louis Fed, as part of their ongoing research into the policy response to the Great Recession, has published a new analysis showing that Fed policies designed to stimulate bank lending weren’t all that efficient at achieving the policy goal:
To help address the Great Recession, banks were provided with lower-cost capital and liquidity. One of the goals was for banks to pass these benefits through to consumers by extending extra credit, encouraging them to borrow more to stimulate the economy.
Recent research shows that these credit pass-throughs made their way to some consumers. However, they didn’t go to the consumers who were most likely to spend and boost the economy.
The Fed and other central banks should be moving much faster to transition the monetary system so that they can deploy helicopter money effectively in the future.