Even the Council on Foreign Relations Is Saying It: Time to Rain Money on Main Street

You can always count on Americans to do the right thing, after they’ve tried everything else.                      —Winston Churchill

When an article appears in Foreign Affairs, the mouthpiece of the policy-setting Council on Foreign Relations, recommending that the Federal Reserve do a money drop directly on the 99%, you know the central bank must be down to its last bullet.

The September/October issue of Foreign Affairs features an article by Mark Blyth and Eric Lonergan titled “Print Less But Transfer More: Why Central Banks Should Give Money Directly To The People.” It’s the sort of thing normally heard only from money reformers and Social Credit enthusiasts far from the mainstream. What’s going on?

The Fed, it seems, has finally run out of other ammo. It has to taper its quantitative easing program, which is eating up the Treasuries and mortgage-backed securities needed as collateral for the repo market that is the engine of the bankers’ shell game. The Fed’s Zero Interest Rate Policy (ZIRP) has also done serious collateral damage. The banks that get the money just put it in interest-bearing Federal Reserve accounts or buy foreign debt or speculate with it; and the profits go back to the 1%, who park it offshore to avoid taxes. Worse, any increase in the money supply from increased borrowing increases the overall debt burden and compounding finance costs, which are already a major constraint on economic growth.

Meanwhile, the economy continues to teeter on the edge of deflation. The Fed needs to pump up the money supply and stimulate demand in some other way. All else having failed, it is reduced to trying what money reformers have been advocating for decades — get money into the pockets of the people who actually spend it on goods and services.

A Helicopter Drop on Main Street

Blyth and Lonergan write:

[L]ow inflation . . . occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. . . . At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality. [Emphasis added.]

A money drop directly on consumers is not a new idea for the Fed. Ben Bernanke recommended it in his notorious 2002 helicopter speech to the Japanese who were caught in a similar deflation trap. But the Japanese ignored the advice. According to Blyth and Lonergan:

Bernanke argued that the Bank of Japan needed to act more aggressively and suggested it consider an unconventional approach: give Japanese households cash directly. Consumers could use the new windfalls to spend their way out of the recession, driving up demand and raising prices.

. . . The conservative economist Milton Friedman also saw the appeal of direct money transfers, which he likened to dropping cash out of a helicopter. Japan never tried using them, however, and the country’s economy has never fully recovered. Between 1993 and 2003, Japan’s annual growth rates averaged less than one percent.

Today most of the global economy is drowning in debt, and central banks have played all their other cards.  Blyth and Lonergan write:

It’s well past time, then, for U.S. policymakers — as well as their counterparts in other developed countries — to consider a version of Friedman’s helicopter drops. In the short term, such cash transfers could jump-start the economy. Over the long term, they could reduce dependence on the banking system for growth and reverse the trend of rising inequality. The transfers wouldn’t cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them.

The Hyperinflation Bugaboo

The main reason governments have not tried this approach, say the authors, is the widespread belief that it will trigger hyperinflation. But will it? In a Forbes article titled “Money Growth Does Not Cause Inflation!”, John Harvey argues that the rule as taught in economics class is based on some invalid assumptions. The formula is:

MV = Py

When the velocity of money (V) and the quantity of goods sold (y) are constant, adding money (M) must drive up prices (P). But, says Harvey, V and y are not constant. The more money people have to spend (M), the more money that will change hands (V), and the more goods and services that will get sold (y). Only when V and y reach their limits – only when demand is saturated and productivity is at full capacity – will consumer prices be driven up. And they are nowhere near their limits yet.

The US output gap – the difference between actual output (y) and potential output – is currently estimated at about $1 trillion annually. That means the money supply could be increased by at least $1 trillion without driving up prices.

As for V, the relevant figure for the lower 80% (the target population of Blyth and Lonergan) is the velocity of M1 –– coins, dollar bills, and checkbook money. Fully 76% of Americans now live paycheck to paycheck. When they get money, they spend it. They don’t trade in the forms of investment called “near money” and “near, near money” that make up the bulk of M2 and M3.

The velocity of M1 in 2012 was 7 (down from a high of 10 in 2007). That means M1 changed hands seven times during 2012 – from housewife to grocer to farmer, etc. Since each recipient owes taxes on this money, increasing M1 by one dollar increases the tax base by seven dollars.

Total tax revenue as a percentage of GDP in 2012 was 24.3%. Extrapolating from those figures, one dollar spent seven times over on goods and services could increase tax revenue to the government by 7 x 24.3% = $1.7. The government could actually get more back in taxes than it paid out! Even with some leakage in those figures, the entire dividend paid out by the Fed might be taxed back to the government, so that the money supply would not increase at all.

Assume a $1 trillion dividend issued in the form of debit cards that could be used only for goods and services. A back-of-the-envelope estimate is that if $1 trillion were shared by all US adults making under $35,000 annually, they could each get about $600 per month.  If the total dividend were $2 trillion, they could get $1,200 per month. And in either case it could, at least in theory, all come back in taxes to the government without any net increase in the money supply.

There are also other ways to get money back into the Treasury so that there is no net increase in the money supply. They include closing tax loopholes, taxing the $21 trillion or more hidden in offshore tax havens, raising tax rates on the rich to levels like those seen in the boom years after World War II, and setting up a system of public banks that would return the interest on loans to the government. If bank credit were made a public utility, nearly $1 trillion could be returned annually to the Treasury just in bank profits and savings on interest on the federal debt.  Interest collected by U.S. banks in 2011 was $507 billion (down from $725 billion in 2007), and total interest paid on the federal debt was $454 billion.

Thus there are many ways to return the money issued in a national dividend to the government. The same money could be spent and collected back year after year, without creating price inflation or hyperinflating the money supply.

Why It’s the Job of the Fed

Why not just stimulate employment through the congressional funding of infrastructure projects, as politicians usually advocate? Blyth and Lonergan write:

The problem with these proposals is that infrastructure spending takes too long to revive an ailing economy. . . . Governments should . . . continue to invest in infrastructure and research, but when facing insufficient demand, they should tackle the spending problem quickly and directly.

Still, getting money into the pockets of the people sounds more like fiscal policy (the business of Congress) than monetary policy (the business of the Fed). But monetary policy means managing the money supply, and that is the point of a dividend. The antidote to deflation – a shrinking supply of money – is to add more. The Fed tried adding money to bank balance sheets through its quantitative easing program, but the result was simply to drive up the profits of the 1%. The alternative that hasn’t yet been tried is to bypass the profit-siphoning 1% and get the money directly to the consumers who create consumer demand.

There is another reason for handing the job to the Fed. Congress has been eviscerated by a political system that keeps legislators in open battle, deadlocked in inaction. The Fed, however, is “independent.” At least, it is independent of government. It marches to the drum of Wall Street, but it does not need to ask permission from voters or legislators before it acts. It is basically a dictatorship. The Fed did not ask permission before it advanced $85 billion to buy an 80% equity stake in an insurance company (AIG), or issued over $24 trillion in very-low-interest credit to bail out the banks, or issued trillions of dollars in those glorified “open market operations” called quantitative easing. As noted in an opinion piece in the Atlantic titled “How Dare the Fed Buy AIG”:

It’s probable that they don’t actually have the legal right to do anything like this.  Their authority is this:  who’s going to stop them?  No one wants to take on responsibility for this mess themselves.

There is a third reason for handing the job to the Fed. It is actually in the interest of the banks – the Fed’s real constituency – to issue a national dividend to the laboring masses. Interest and fees cannot be squeezed from people who are bankrupt. Creditor and debtor are in a symbiotic relationship. Like parasites and cancers, compound interest grows exponentially, doubling and doubling again until the host is consumed; and we are now at the end stage of that cycle. To keep the host alive, the creditors must restock their food source. Dropping money on Main Street is thus not only the Fed’s last bullet but is a critical play for keeping the game going.


Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her 200+ blog articles are at EllenBrown.com.


86 Responses

  1. This has been so obvious for so long, that one has to wonder what planet most economists live on?

  2. Thank you for mentioning the Velocity of money. A Crucial and critical measurement of the health of the economy that seems to have gotten lost by nearly every single economist today. Just take a look at this chart from the fed: http://research.stlouisfed.org/fred2/series/M2V

    It will truly show you what is wrong with the economy today.

    With that in mind. A big reason the fed’s normal tools aren’t working is technology+globalization and tax loop holes.

    1) Technology and Globalization allows the .1%’ers to extract money (profits) from the money in circulation at a rate that is way too fast for the traditional economy to keep up with. They take too much too fast, leaving too little circulating to grow the economy.

    2) Taxes used to serve as a form of redistribution for public purpose. Helping the needy, building infrastructure, providing public service without profit, and respectacle retirements. Today’s tax code is the greatest welfare program ever benefiting corporations and the .1%’ers. They are the true “takers” as in taking money out of circulation and just hoarding it.

    That’s why in addtion to a minimum basic income for all, we should eliminate the current special interest tax code completly and replace it with a flat .35% (yes that’s less than 1%) automated tax on every financial transaction that will raise the appropriate tax revenue fairly from all: http://www.apttax.com/ or http://thetransactiontax.org/

    This would also allow us to used taxes to control inflation instead of interest rates. Using interest rates to control inflation is really just a disguise to allow bankers to soak up all the deficit spending the government does to get the economy working again.

    GREAT GREAT GREAT Post on this one!!!!

  3. I came to the same conclusion independently in 2008 from an ethical and moral viewpoint, to wit: since FR lending cheats both debtors (by driving them into debt) and non-debtors (via price inflation especially in housing) then BOTH (i.e.everyone) should receive restitution on the form of new fiat – at least until all deposits are 100% covered by reserves lest borrowed reserves less the reserves used to buy MBS and other private securities.

    Belive it or not

    • And to prevent price inflation, at least until all deposits are 100% backed by reserves, further credit creation should be banned with the ban removed when banks are 100% private with 100% voluntary depositors. That will require a Postal Saving Service that makes no loans nor pays interest and which is free up to normal household account size and number of transactions and the abolition of government deposit insurance.

      We shall either embrace ethics as the basis of symbolic purchasing power creation or risk WW III and worse.

  4. If we are at the point of dropping money into households to repair our world, it seems like we have passed the point of no return.
    Wasn’t “cash for clunkers” similar to this suggested helicopter drop?
    What about the 2% reduction in Social Security taxes?
    Don Levit

    • What about the fundamental injustice of government-subsidized private credit creation?

      Or do you hold, like the Austrians (with their pitiful understanding of money and credit) that restitution is impossible in real terms?

  5. There is a third reason for handing the job to the Fed. It is actually in the interest of the banks – the Fed’s real constituency – to issue a national dividend to the laboring masses. Interest and fees cannot be squeezed from people who are bankrupt. Creditor and debtor are in a symbiotic relationship. Like parasites and cancers, compound interest grows exponentially, doubling and doubling again until the host is consumed; and we are now at the end stage of that cycle. To keep the host alive, the creditors must restock their food source. Dropping money on Main Street is thus not only the Fed’s last bullet but is a critical play for keeping the game going. Ellen Brown

    Well said but let’s also euthanize the parasites and move to ethical purchasing power creation. The basis of that, besides restitution for theft with new fiat, is co-existing government and private money supplies for the payment of private debts with no government privileges for any.

  6. Henry George would caution that landlords and other rentiers would likely absorb any such social credit, thus expanding the wealth gap further.

    • …unless a 100% land-value tax (LVT) were implemented also.

    • By banning further credit creation, at least until deposits are 100% backed by reserves and banks are 100% private and metering the social credit to just replace existing credit as it is repaid, the money/credit supply could be kept constant. And with a constant money supply, rentiers would find it difficult, if not impossible, in aggregate to raise rents.

  7. I would like to propose a 10yr / $10T spending plan for infrastructure and refinancing state and municipal debts at rate of 1%.

    The jist is that a 10yr/$10T spending plan be put in place that will make money available to states, on a pro-rata basis of their paid share of federal taxes for last 3 years, to use to fund public infrastructure improvement projects and use to refinance state and municipal debts. All at the fed wholesale rate of 1% direct from the fed.

    The north east is falling apart and badly needs modern infrastructure. It’s an amazing marvel of civil engineering, but how much longer is the Brooklyn bridge going to last? We can’t afford to replace it with so much debt already on the books with rentier rates. Then all the investors in state and muni bonds will actually have to put their money to work in the economy instead of collecting rent.

  8. Okay, for the record, I solemly promise to spend all the tax free money the Fed choses to dump into my bank account, and spend it with total and utter abandon, on anything that they feel will help them to help the economy, and do it responsibly, without deception, and in full compliance with any reasonable accounting system they choose…

    • Wasn’t this the same disclosure we signed when they chartered our bank?

      • We so need to disconnect from the global forces of the foreign owned, private banking system we call our Federal Reserve. These people are at the bottom of all wars. There interlocking board of directors contol our newpapers, our congress, the military JCOS, and all the major corporations, they control nearly the entire country, and they have all run out of tricks. Their last play is to create a false flag UFO invasion just as rocketteer, Von Braun told us was planned all the way back in the 50’s….first the commie threat, then wars on terrorism, then a UFO alien Invasion. All planned by neocon-Nazi-NWO-SSG. 

        All they can now do is keep us in perpetual wars, wars we and the entire world are growing tired of supporting for their profit. We’re beginning to wake up in mass and see their false game of divide and concur. Every NATO promise we made has been broken by NATO itself. All we have to do to start this change away from this Nazi scourge permanently over-running our national psyche, is to simply implement Kennedy’s Presidential Executive Order 11110 and issue US Treasury Direct Dollars rather than Federal Reserve Note Dollars.

  9. A more utopian solution would be to scrap the Fed and implement Soddy’s prescription for a currency system. Although he was originally dismissed as a crank, enough of his proposals have been adopted over the years (without giving him credit) to suggest that he was near the mark. If I remember correctly, he also suggested that money should issued directly to citizens in order to spur the economy.

    However, it takes money to bring products to market so I wonder whether the helicopter should hover over productive industry before moving on to the masses.

    • It is worth noting however, upon reading Soddy, that when we allow the exchange rates to float freely in the current central banking world complex of interconnected banking giants all owed by interlocked mega banks, (Shoddy favors free floating rates) rates tend to float way outside of anticipated channels and on the high side. The markets are gamed too heavily by controlling gaming masters under the Federal Reserve. Milton Friedman advocated something similar to free float, if not exactly free float and when it was finally set loose and tried, we got 19% interest rates all blamed politically on the President then in office….who of course had no say in the matter directly. We need to first disconnect from the existing Federal Reserve and Issue Treasury Direct Dollars.

      • If you are saying that FX rates are being rigged by central banks in order to preserve the USD hegemony, then I would agree with you. Soddy (not Shoddy) argues against this type of collusion as strongly as he does against the gold standard. And of course, the core of his thesis is that the state should issue money rather than private banks (I however think that power can and should be in the hands of the people rather than government) so I’m not sure what your point is.

  10. […] Juan Perez September 2, 2014 U.S. By Ellen Brown Global Research, September 02, 2014 Web of Debt 1 September […]

  11. Money is merely a medium of exchange between products. Money created out of thin air is just a meaningless number and it results in a zero sum game in which its recipients gain at the expense of the other side. This has been tried in Weimar Republic as well as more recently in Zimbabwe with predictable results.

    • A naive and false-to-fact view, Ulysses. When banks create money out of thin air they charge interest on it, so it certainly isn’t meaningless to them! And properly done by governments, fiat money is the opposite of a zero-sum game: needed money injected into an economy at the right time and in the right way allows idle workers and materials to be put to work and new enterprises to form that wouldn’t have existed otherwise–very non-zero. And the idea that fiat money per se results in hyperinflation is pure fantasy. Read Ellen Brown’s past articles on these subjects, as well as Web of Debt and The Public Bank Solution to educate yourself.

  12. How about just ending all forms of taxation and just create the money the government needs for necessary functions?
    If there is inflation then government must reduce spending and money creation or face the backlash.

    • It’s not likely that what we do on a federal level will translate into county and city taxation policies. However, Andy Basiago, pronounced Bashe-ah-go, is running for President and proposes to replace the current federal tax system by replacing it with one 1% charges on all banking withdrawals, coupled with a fiat currency. When you calculate the incidence of this tax, where it actually falls, the average income households would benefit immensely as to their costs of operating their household. My guess is that this would be about $500.00 per year for the average US gross household income of $50,000+- per year income.

      While I sense this will trigger capital flight out of the US, no markets ever get abandoned and essential goods and services would remain in tact.

      Andy Basiago claims he could balance the US Budget deficit in one to two years. I give him credit for thinking out of the box. I still prefer dropping the Federal Reserve and issuing Treasury Direct Dollars and pulling in all Federal Reserve Notes (without penalty).

  13. I remember Fed chair Ben Bernanke testifying before a congressional panel, and this topic of the “helicopter drop” surfaced. Bernanke said that his hands were tied, and he could not give money directly to consumers, because the Federal Reserve Act had been amended in such a way as to preclude the Fed from doing that. He told the congresspersons on the panel that they first would have to fix that part of the amended Act, before the Fed could help out consumers directly. The ball is in the court of the lawmakers.

  14. Ellen, I believe that there is a moral issue here – or at least there is a moral issue in the minds of detractors. The moral issue is that some folks, particularly the elite and their sycophants, believe that people are basically lazy and must be motivated to perform work. Wages are such a motivator. Any government action that appears to interfere with this scheme is then demonized. Who among us has not heard the term “Free S*** Army” in reference to those who receive any fraction of their income from government? From the perspective of the elite and their sycophants such fiscal stimulus as you suggest is not only wrongheaded (the inflation bugaboo you so nicely debunk) but evil – as such largesse presents a moral hazard (ignoring of course the hazard of allowing criminals to freely roam the halls of Walls Street), why work when the government insures I’m fed, clothed, housed….., no doubt leading to further decline in the U.S.’s economic prowess. Yes, of course it is bunk, but we will need moral suasion as well as broader acceptance of MMT to get this economy working again.

  15. This is, of course, a disastrous idea. But, then, most of Fed’s policies for the past century have been various disastrous ideas. All other things being equal (I mean, if the Fed *really* wants to destroy the economy), this is at least a better alternative than giving newly printed money to the banks. At least this way those who are more in need would benefit from it (at least for the short time until the prices catch up), instead of the mega-rich who already have more money than they know what to do with.

    Of course it will cause massive price increases (which is not inflation, it is a symptom of inflation. Inflation is the act of increasing the true money supply.) but since this is obviously the goal, let’s at least do it efficiently and be over with.

    Then when the economy finally collapses in an unrecoverable way, perhaps we’ll have the chance of building a new one, based on sound economic ideas.

    • The way to prevent price increases is to ban, at least temporarily, new credit creation by the banks. That would be hugely deflationary as existing credit is repaid with no new credit to replace it. That deflation could be precisely countered with a carefully metered new fiat distribution to the entire public, including non-debtors.

  16. No one has bothered to look at the spiritual and moral effects that this policy would have on the people and their society. This in itself is interesting because it shows that serious damage has already been done.


  17. Even if the Fed wanted to do this (it doesn’t), Democrats and Republicans will never agree to that.

    They are determined to break the American people and the country.

    They have abdicated their responsibility to govern.

  18. If the cash was tagged to paying off debt first, the average person would have more money in the form of less loan to pay off and the banks would get recapitalized at the same time.

  19. […] Ellen Brown, författare till Bankerna och skuldnätet, ser förslaget som ett tecken på att den amerikanska centralbanken, Fed, gjort slut på det mesta av sin ammunition: […]

  20. […] Even the Council on Foreign Relations Is Saying It – Time to Rain Money on Main Street – Ellen Brown […]

  21. Great article. Elizabeth Warren/Ellen Brown for the 2016 Presidential ticket.

    …well I could easily get behind that!

    Happy September Ellen.

  22. The real reason it’s never been done is the class warfare mentality. The government has no mental block to giving free money to rich people, giving it to poor people is blasphemy. So long as the money is produced as credit and not debt should be no problems. Automation is going to make this the way of the future regardless, either that or let all the displaced people starve.

    • What is “money?” And then how is it produce as credit but not debt? I distinguish gold & silver “money” from fiat currency, credit and computer bits representing unprinted currency or credit.

      • Money need not be debt. A glance at a balance sheet should inform that if money can be created as Liabilities (debt), it can also be created as shares in Equity, common stock.

        Thus no government subsidies for credit creation are needed. But why share when those with equity can legally steal via government subsidized credit creation for the private sector?

  23. While everyone should get money for nothing, not just the rich, should it come out of thin air? Doing it that way ignores the huge surplus that already exists and is being captured by the 1%. What is society’s surplus? It is all our spending for all the nature we use: land, resources, EM spectrums, both directly for those assets and indirectly, embedded in the price of all the goods and services we buy.

    It’s trillions of dollars every year and by overlooking it, we allow the theft of our common wealth to continue, to erect an elite that can take away our savings and houses just as well as pay us something freshly printed and minted. Trying to print money rather than confront the theft from our commons strikes me as a bit sneaky and not exactly brave anyway. Yes, there is a free lunch — or at least cheap abundance — and it is not new money but spent money, spent on things not made by labor.

    And fundamentally, the scheme misunderstands the purpose of money, which is to make possible an accounting system of our values, reflected in prices, which are constantly inflating while my pay is not. I’d like to know where Ellen shops (she seems to be a very decent person), but in my grocery store food keeps getting less and less affordable. We should no more tamper with honest money than we should constantly change, say, the number of days in the week. That said, people should still be getting an extra income, but it should come from the source that is now enriching only a handful of us, and that is the worth of Earth. More at Progress.org.

    • Jeff, great point. There is plenty of money in the system. Too bad it is being stockpiled and hoarded by the super rich and not put to use. That is why I mentioned in my early post on this post that we need a new tax code to get some of that money back into circulation and make it work for the economy. The current tax code is too riddled with special interest exceptions for super rich off shore’ers like Ellen calls out.

      The whole point about giving money directly to people to spend rather that disguised handouts to the rich, is the best option left.

  24. Thank you for the opportunity to reply. A helicopter drop will not work – short or long term. The over-arching problem is the total crushing burden of economic disincentives (each entitlement creates a disincentive), built up by all levels of government. A drop will address none of this. A one-time drop will yield a (short and small) one-time benefit. Repeated drops will simply be priced-in by the market (sellers).

    • Not necessarily. Don’t forget that the repayment of existing credit destroys it so a ban on new credit creation would be massively deflationary allowing an equally massive new fiat drop.

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