What’s Next - NIRP & “Helicopter Money”?

It would be way too simplistic to say ‘I told you so’ to the US Fed that the current market drop is because of them raising their rates just 0.25% in December.  But what a coincidence huh…  The reality is the world is so strung out on debt amid slowing growth that US rates are but one trigger amid many.  The problem the US Fed has now is ‘where to from here’?  Late last week saw a number of key economic data prints reinforce that the US economy is anything but strong together with 4 of the US Fed governors reiterating policy is still ‘data dependent’ and giving the market strong hints that there won’t be more rate rises for some time (again).  You saw the reaction after Bullard in particular – up she went, but only for one session, it dropped again 2.5% Friday night.  That for now is more ‘Fed talk’ – you’d think the market would know better by now but it is desperate for the free money game to continue and will jump on any hope.

The data is also still being skewed by debt.  New car sales for instance are at record highs.  Hooray!  But look behind that and you see car debt finance is through the roof and reminiscent of the sub prime debt on houses before the GFC.  Wage growth is stagnant and debt into depreciating assets is skyrocketing… you do the math.

What is starting to get more traction in the market now, and the next thing to look out for as a gold and silver investors in particular, is how they recommence monetary easing should this rout continue. US Fed governor Dudley has already explicitly said negative interest rate policy (NIRP given ZIRP didn’t work…) would be considered if things worsen.  Bernanke, Krugman, and even last year banking giants Citi and Macquarie have called for ‘helicopter money’.  As opposed to QE which printed money and deposited it with banks to loan out (which in hindsight only bolstered share margin loans and artificially inflated financial assets – plus a whole bunch of new auto sales of course..), ‘helicopter money’ would see freshly printed USD essentially going straight to the public in the final throw of the dice to get some kind of inflation going.  Watch out for this term, you’re going to see more of it.  Make no mistake, deflation is poison for a world at all time record debt levels.  As we’ve said many times, there are 3 ways to get rid of debt.  Pay it off (GDP is abysmal and less than debt growth), default (see how that works out for you…), or inflate it away.  They clearly have but one tool available and they will do all they can.