All countries & companies are trying save themselves from the recession or depression by various tactics. In these tactics Fiscal & Monetary policies are major ones and remaining are the part these policies or slightly related to these policies.
Today when I was posting this article Dow Jones was down by 200 points mainly because of the negative news from General Motors & US Economy, which may be heading for another depression. After receiving 13 Billion US dollars package also, General Motors is on the verge of the bankruptcy. City bank, after getting stimulus packages also, its stock was trading below 1 US dollar because of lack of investor's faith in it.
To counter the cycle of the recession [which may lead to depression] UK has reduced the its interest rates to historical low of 0.5%. Today's UK move is towards the liquidity trap about which I have explained in the below paragraphs. Along with UK, European Region which is in recession technically, today its central bank, European Central Bank (ECB) has reduced the interest rates to 1.5% from 2%, lowest since it formation in 1999.
Some time back I wrote about the "helicopter money". Today I am posting about the "helicopter money" because, present situation is leading to that condition.
Before presenting the present condition, I would like remind my readers about the what is helicopter money? And when it arises?
Helicopter money is the ultimate solution to the liquidity trap. Now you may ask what is liquidity trap?
A liquidity trap is a situation in which a country's interest rate has been lowered nearly or equal to zero to avoid a recession, but the liquidity in the market created by these low interest rates does not stimulate the economy. In these situations, borrowers prefer to savings rather than spending. This makes a recession even more severe, and can contribute to deflation. And interest rate cant be negative. This situation leads to helicopter money.
Helicopter money is situation in which Governments/Monetary Authorities gives the money directly to the consumer/resident of the country bypassing the financial intermediaries like banks. Keynes is considered is as the inventor of the Liquidity trap & Milton Friedman has coined the Helicopter Money.
Now coming back present conditions, Japan has cleared the cash in hand bill to the every resident of the country. This is nothing but helicopter money concept where in every Japanese resident is expected to get the 12000 yen costing total about 20 billion US dollars. Children under 18 and people aged over 65 would get 20,000 yen as part of the scheme. Japan took this controversial step because, it left with no other option. Every thing has been tried & tested including the fiscal stimulus & lowering interest to 0.1% level.
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