Hello I’m Callen young and I’m Steve Scranton today’s video discusses the topic of helicopter money what the term means, how it would work, and why it’s being discussed. Our goal is to help you understand another financial term that has surfaced and may be causing confusion over what it really means. Steve when someone hears the term helicopter money they’d probably get the image of the Federal Reserve dumping money out of helicopters. That’s interesting, but what is a real meaning of helicopter money? It is an interesting concept. The term helicopter money came about because it represents the concept of the Federal Reserve creating free money and giving it directly to individuals and businesses. Currently the Federal Reserve provides monetary stimulus by injecting reserves into the financial system with the goal financial institutions would lend us money out to businesses and the ultimate goal of creating spending. It appears that existing monetary policy has not worked very effectively in this economic recovery because financial institutions still have large cash balances in the federal reserve accounts and spending has remained muted by historical standards. That is true. As a result the idea has been thrown out that the Federal Reserve should simply create cash deposited directly into individuals and businesses accounts with the belief that the money would be spent and help stimulate the economy. Seriously? You’re saying that the concept is for the Federal Reserve basically give free money to u.s. citizens and businesses? Kind of hard to believe right? Yes that is the concept. Now you can see where the term helicopter money came from. It is the financial equivalent of the Federal Reserve dropping cash from a helicopter. Unfortunately, that may sound like a great concept, but as a fixed-income securities analyst, you know that it’s not that simple. Right, the Federal Reserve conducts their monetary policy by buying or selling US government securities. If they want to stimulate the economy their authority to buy US government securities and credit the reserve accounts of member financial institutions. That’s what happened during their quantitative easing operations. The Federal Reserve does not have the mechanism to deposit money directly into consumer business accounts and it’s questionable if they have the authority to simply print money. I think the more important point is that a mechanism already exist if the U.S. truly wants to give free money to individuals and businesses. Congress has the authority to pass legislation that would authorize the U.S. treasurer to issue checks or electronic deposits to individuals. This occurred during the last recession when congress authorized the US Treasury to send checks to qualifying individuals. The problem is that this would balloon the deficit. The reason that proponents suggest helicopter money originating from the Federal Reserve is because creation of money by the Federal Reserve does not increase the deficit. As mentioned earlier how the federal reserve and get this money to individuals and businesses is not clear at all. And don’t forget that giving free money is not actually free. Otherwise all countries would be doing this. All else being equal giving free money to individuals and businesses via the Federal Reserve printing money would ultimately lead to higher inflation. Giving free money via Congress passing legislation would increase our deficit. Either of those scenarios would potentially be bad for fixed income investors, consumers, and businesses. Fixed income investors would demand a higher yield for bonds if they believe that inflation or debt problems would result and this would cause bond prices to fall. Higher bond yields would then drive borrowing costs up for individuals and businesses with the potential unintended consequence that they cut back on spending. There are also two other risk to consider. First consumers might not spend the money, simply put into savings. As we saw with the temporary tax cut that occurred during the recession not all of that money was actually spent. Second this is something that has never been tried and it would be a giant economic laboratory experiment with actual results unknown. We would be testing an economic theory in a real world economy. I would simply remind everybody that the age-old adage still applies. There is no free lunch. This has been a brief discussion on helicopter money. If you have more questions about the potential impact to your financial well-being contact a relationship manager with numbers listed on the next slide. On behalf of Callen and me, thank you for taking the time to watch this video.