Reader Richard wonders if debt forgiveness is the next step in central bank efforts to fight deflation.

Richard picked up that idea after listening to an interview with Steven Major, Managing Director, Fixed Income Research at HSBC.

Richard writes:

Hello Mish,

Congratulations on the upgrade to WordPress.

I was listening to an interview Steven Major at HBSC. Major believes, without identifying the timing, that the next stage of unconventional monetary policy would include debt forgiveness. Major called it “helicopter money”.

I would love to see your thoughts about this.

Thanks,
Richard

Helicopter Drop?

In contrast to central bank padding of balance sheets, QE, and lowering interest rates to zero or negative, debt forgiveness would indeed be a true “helicopter drop”.

However, there is no way banks would forgive debt. And there is no way the Fed could forgive debt, even if it wanted to.

Free money is certainly highly inflationary but it's debatable the Fed would do that even if it could. The Fed serves the banks, and banks make money by making people debt slaves.

If banks get into serious trouble again (as I believe they already are) evidence points to bail-ins not free money.

Unlike the Fed, Congress could forgive debt in a roundabout way by giving everyone enough money to pay down debts. Is that likely? I don't think so although some effort on student loans could be in the picture.

Mike “Mish” Shedlock