MNI INTERVIEW: US Avoiding Dangerous Helicopter Money - Boivin

By Greg Quinn

     OTTAWA (MNI) - Policymakers in the U.S. and elsewhere are coordinating

moves to push cash into the economy without reaching the "slippery slope" of

imperiling central bank independence, BlackRock Investment Institute chief Jean

Boivin told MNI.

     Congress is working on a USD1 trillion package and the Fed is adding even

more liquidity to stabilize markets, as economists predict double-digit

quarterly GDP declines. Treasury Secretary Steven Mnuchin has called for checks

to be sent to households.

     "We know what the Fed is doing, we know what the Treasury is doing, and

right now the checks that are being sent to individuals, this is fiscal policy,

this is the Treasury that is ending those checks. So we aren't in the helicopter

money world," Boivin said in an interview.

     "But it does have one feature of what we thought the future policy should

be, which is to go more directly and put money in the hands of people and

entities that can use it and deploy it," he said.

     Boivin last year argued for the establishment of standing emergency fiscal

facilities, partly to dull the temptation of uncontrolled fiscal spending and

damage to institutional credibility. He wrote the paper with former Fed Vice

Chairman Stanley Fischer, former Swiss National Bank chief Philipp Hildebrand

and BlackRock's Elga Bartsch.

     "Coordination doesn't undermine independence, in fact, it's the opposite,

you need to have independence to effectively coordinate," Boivin said. "They are

slippery slopes, if [they] aren't addressed under pressure they could sort of

blur the distinction between monetary and fiscal policy."

     Boivin, a former Bank of Canada deputy governor and treasury official, also

cited UK and Canadian policy moves as examples of mature fiscal and monetary

coordination.

     The global economy can make a strong comeback from the COVID-19 pandemic if

governments follow through with major aid to bridge incomes lost through

shutdowns needed to contain the virus, Boivin said.

     "We are seeing now a lot more evidence of fiscal policy measures that are

in line with what would be needed," he said. "The role of policy is to make sure

it bridges households and companies, so this tough period doesn't turn and

create permanent damage."

     --NO DELEVERAGING

     The situation is more like a natural disaster than a recession, with

negative data having little bearing on the potential recovery, he said. The good

news is there are few signs of persistent headwinds like deleveraging seen

through the global financial crisis.

     "It's about containing the virus, and in fact the more you contain it the

more negative the data should be, but it also should lead you to be more

confident about the medium-term health of the economy," Boivin said from London.

     The health situation is "unprecedented" for policy makers and the economy,

he said.

     "It's going to be very sharp and deep, we don't know how long it's going to

last until we have more visibility on the scale of the issue and whether we

contain it, but after that we should go back to the healthy fundamentals of the

economy," Boivin said. "If we are addressing these tensions properly, there is

nothing that is going to prevent the economy then from recovering quickly."

     Global supply chains are one area that companies will be hesitant to

rebuild in the same way. "We already had a dynamic in play that was questioning

the supply chain arrangement globally, and now we have on top of that an

appreciation that there are vulnerabilities and risks that require more

diversification," Boivin said.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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