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'Helicopter money' on the horizon, fund manager Dalio says

Section: Daily Dispatches

Robin Wigglesworth
Financial Times, London
Thursday, February 18, 2016

Bridgewater's Ray Dalio has argued that central banks' ability to invigorate economic growth has atrophied, and he predicts a new era of radical monetary policy possibly involving "helicopter money."

Central banks around the world have been attempting to revive durable economic growth and combat deflationary forces through conventional measures like interest rate cuts and unconventional policies such as quantitative easing -- or bond buying -- and even negative interest rates.

But Mr Dalio, by one measure the most successful hedge fund manager of all time, argued in a note to clients that these measures have been exhausted and are increasingly ineffective.

"While QE will push asset prices somewhat higher, investors/savers will still want to save, lenders will still be cautious lenders, and cautious borrowers will remain cautious, so we will still have 'pushing on a string,'" he wrote.

He therefore predicts that central banks will eventually have to usher in what he calls "monetary policy 3" -- where rate cuts were the first stage and quantitative easing the second phase -- which will more directly and forcefully encourage spending.

The Bridgewater founder says this third era of monetary policy will range from central banks directly financing government spending through electronic money-printing to what the famous economist Milton Friedman coined "helicopter money" in 1969 -- in other words, central banks disbursing cash directly to households. ...

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