FSA Turner - in defense of fiat money

Adair Turner, FSA Chairman, has made a strong case for the defense of fiat money and quantitative easing, "helicopter money". He argues that there is a strong need for central banks to extend money in times of extreme financial instability. Helicopter money or OMF (Overt Money Finance)  is not bad as long as it is not abused. His argument is simple, using money to finance deficits is not inherently evil and is the most direct way to link money with either inflation or real output. It can be abused but it should be viewed as one of the set of monetary tools available to central bankers. When other policies fail such as when you are at a point of zero bound, OMF can be effective. Fiscal policy becomes more useful at the zero bound and the financing can be done through OMF. QE as currently structured is a special case of OMF

The tradition or view that helicopter money is long and Turner argues that even Milton Friedman would be in favor of it in certain circumstances. Interestingly, he does not view it s useful for the UK; however, it is a tool that should be included in the policy discussion mix.

He made his case through his paper presented at the Cass Business School.

DEBT, MONEY AND MEPHISTOPHELES: HOW DO WE GET OUT OF THIS MESS?

The slides for the presentation are included here.