LONDON (Reuters) - “Helicopter money” - giving people more cash in the hope they will spend it - is more likely after last week’s shock election results in Britain, Deutsche Bank analysts said on Monday.
Signs of strong turnout from young voters in Thursday’s snap election, which left the ruling Conservative party without a parliamentary majority, could have major repercussions for politics and markets in Britain and possibly beyond, Deutsche analysts Jim Reid and Sukanto Chanda said.
They said in a note that young voters making their voices felt suggests economic policy may be more focused on wealth redistribution. At the same time, an unwillingness to alienate older voters means politicians will struggle to tax the old while helping the young.
“In short, governments can possibly be forced to spend more across the developed world until bond markets rebel at the high level of debts that this implies and then central banks would be forced to monetise this debt,” Reid and Chanda said in Deutsche Bank’s daily fixed income note.
“Thursday’s election makes helicopter money more likely ... This is different from QE (quantitative easing) as it’s central banks buying bonds that are attached to fresh spending rather than independent of it.”
Helicopter money is a form of policy easing envisaged by U.S. economist Milton Friedman, using the metaphor of a helicopter dropping money, and has gained attention in recent years as a possible tool to fight deflation.
It would be funded by a permanent increase in the money supply, not a temporary boost by bond issues that eventually have to be paid back.
The idea of central banks printing money for government spending in a “people’s QE” was a prominent part of the 2015 leadership election campaign for British Labour Party leader Jeremy Corbyn.
Reporting by Dhara Ranasinghe; Editing by Robin Pomeroy