Helicopter money and central bank independence

There has been more talk about the direct financing of debt through monetary policy, helicopter money, in the last few months. A recent paper by the Global Society of Fellows written by Paul McCulley and Zoltan Pozsar discusses helicopter money and the cooperation between fiscal and monetary authorities. This is an important piece of work and represents the latest monetary thinking by many. From the executive summary:

The aim of this paper is to describe the nature of secular private deleveraging cycles and explain why during such episodes...
...(1) monetary policy on its own is ineffective as it lacks willing private borrowers to respond to monetary stimulus; that...
...(2) fiscal policy is highly effective, but on its own it may be politically constrained to embark on meaningful stimulus; and that...
...(3) fiscal-monetary cooperation under such macro constellations can help solve the problem that each authority faces on its own:...
...(4) fiscal policy can solve monetary policy’s problem of a lack of borrowers by becoming a borrower and spender of last resort, and...
...(5) monetary policy can solve fiscal policy’s problem of too much government debt by monetizing some portion of this debt, and so...
...(6) give the sovereign’s balance sheet a “facelift” and hence the political license and the balance sheet capacity to borrow.
What this means is that that during secular private deleveraging cycles what matters is not monetary stimulus per se,...
...(7) but whether monetary stimulus is accompanied by fiscal stimulus for as long as the private sector deleverages, and...
...(8) whether monetary policy is communicated in a way that helps allay concerns over the debt-to-GDP impact of ongoing fiscal stimulus...
...(9) which in turn is the surest possible way to generate the nominal income growth necessary for the private sector to deleverage.
This cooperation framework is consistent with inflation (or nominal GDP) targeting frameworks at the zero bound.

This fits with their earlier work which discusses central bank independence.The authors argue that central bank independence is a function of the environment. There are times when a central bank which is independent is needed and there are other times when cooperation with the fiscal authority is necessary. When there is rising inflation and there needs to be an independent body which can put the brakes on inflation, there is a reason for independence. However, when there is private delevering and the threat of deflation, there needs to be a cooperation with the fiscal authority. Monetary policy through private banks who are delevering will not be effective. In this case, buying debt directly from the Treasury will be workable. The direct link will finance the debt and get the desired effect with monetary policy in a liquidity trap.   

If growth continues to be slow, there will be greater pressure to use a more direct form of helicopter money. We are already doing this with QE but the form may be more explicit. This will be a strong signal to buy hard assets and stocks in even greater size.