Letter to Mario Draghi of ECB about QE and "Helicopter Money"

| No TrackBacks

Here is the text of a letter sent on 28th January 2016 to Dr Mario Draghi, President of the ECB, about quantitative easing:

I am writing to you as an Irish citizen who, like yourself, is concerned about the state of the EU's economy. I refer to your recent statements about extending the ECB's programme of quantitative easing to help stimulate Eurozone growth and inflation.

If I may be so bold to say so, I don't think that simply acquiring financial assets from major institutions will achieve these objectives as your measure is much too remote from the real economy where growth and inflation actually occur. My view is supported by many leading experts (including the Fed) who seem to agree that QE may not be working as intended1

I have raised concerns about QE and offered a solution in two 'letters to the editors' published in Irish media last year (see copies of Irish Times and Sunday Business Post letters below). I hope these are self-explanatory. Could you please explain how and why my views are flawed and would be less effective than QE?

Although not strictly comparable, I would like to mention a very substantial State-supported savings scheme (Special Savings Incentive Accounts 2 ) established in Ireland in 2001-2. This had a huge uptake thanks, in part, to a 25% tax-free top-up by the Exchequer. Maturing SSIAs were estimated3 to inject €14 billion into the Irish economy during 2006-7 and to boost consumer expenditure by 1.9%. It is worth noting that, while the scheme had been originally introduced to dampen inflation in the early noughties, it undoubtedly boosted inflation in many key consumer sectors e.g. construction, travel, leisure, consumer durables, cars etc., when savings were released.

It seems to me that the ECB's QE-type efforts should be directed more at boosting consumer expenditure directly via national governments rather than acquiring bonds etc. from financial institutions.

Thank you for your attention.

1.  For example, see http://www.washingtonsblog.com/2015/08/the-federal-reserve-which-created-quantitative-easing-admits-qe-doesnt-work.html
2.  In simple terms, taxpayers could save up to €254 a month for three years and after two further years would receive their savings plus a 25% Exchequer contribution plus interest earned over the five years. This could amount to about €25,000 for a dual-saving household. See  
https://en.wikipedia.org/wiki/Special_Savings_Incentive_Account and http://www.revenue.ie/doc/specialsavings.doc


Letter published in the Irish Times on 16th March 2015:

The ECB's commencement of quantitative easing will result in it spending over a trillion euro acquiring financial assets held by institutions at the rate of 60 billion euro a month until late 2016. This carries huge risk as most euro economies lack the growth and confidence needed to pull this funding from the newly cash-rich institutions into the marketplace. The danger is that the ECB's initiative will merely inflate asset values mainly to the benefit of the already wealthy.

Surely, it would be much more effective for the ECB to simply gift €3,200 directly to every euro zone citizen over the coming months. We could be much more confident that this windfall would be spent quickly and directly spur much needed growth and inflation.

Letter published in Sunday Business Post on 22nd November 2015:

David McWilliams mentioned (15th November) that advisers to UK Labour leader Jeremy Corbyn and US presidential candidate Bernie Sanders had suggested at Kilkenomics that the ECB should switch its massive quantitative easing programme from buying financial assets to gifting cash directly to citizens.

If the ECB adopted this suggestion, about €60 billion of 'free' money could be distributed each month till late 2016 to all EU citizens at minimal cost via tax and social welfare credits. A tax-free gift of €1,400 per person would quickly transform Dr Draghi's problem into one of moderating growth and curtailing inflation.

No TrackBacks

TrackBack URL: https://www.planware.org/cgi-sys/cgiwrap/bf/managed-mt/mt-tb.cgi/305

Monthly Archives

Powered by Movable Type 4.38

About this Entry

This page contains a single entry by Brian published on April 6, 2016 1:33 PM.

Outcome of GE16 was the previous entry in this blog.

Lessons for Politicians from Brexit is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.