'Helicopter Ben' Should Shower Us With Cash

Fed can prevent deflation, but problems lurk down the line
By Jason Farago,  Newser Staff
Posted Dec 17, 2008 11:56 AM CST
Federal Reserve Chairman Ben Bernanke speaks on housing and housing finance, Thursday, Dec. 4, 2008, at the Federal Reserve in Washington.   (AP Photo/Jose Luis Magana)
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(Newser) – With interest rates functionally zero, Ben Bernanke is soon going to have to resort to the central banker's ultimate weapon: printing cash and showering Americans with money. There's no question that the "helicopter drop" will prevent the dreaded spiral of deflation, writes Martin Wolf in the Financial Times. But the longer-term consequences aren't pretty: "unexpectedly high inflation, though probably many years hence."

Bernanke has been a keen student of Japan's "lost decade," and in 2002 he gave a speech on preventing deflation that has become an economic classic. As the Fed chairman knows, "curing deflation is child's play" when money has no intrinsic worth. But as he fires up the helicopters, writes Wolf, Bernanke should remember that the real challenge comes later, when he must "mop up the excess money."