Helicopter money worked in India, perhaps too well.

Famous economist, Milton Friedman was responsible for inventing the term 'helicopter money' in which the government drops cash from a helicopter, which is collected by the people, resulting in a surge in demand as they spend their windfall, thereby stimulating growth in the economy. Apparently, economists are beginning to discuss such a possibility because quantitative easing and negative interest rates, where you pay to keep your money in the bank, have not dispelled the fear of deflation. Central banks of developed countries feel that an inflation level of 2% is ideal, low enough for people to plan their expenses, but with no danger of falling into deflation. 'Helicopter money' could be achieved by the central bank transferring money to bank accounts of citizens or by the government reducing taxes. Trouble is, that too little will not work and too much may result in prices jumping too high, so that tough measures have to be taken to bring them under control. Why the panic? The US payroll figures show that 242,000 jobs were added in February, bringing the unemployment level down to 4.9%. No economy can achieve 100% employment because then companies will not find any worker and wages will rise to unsustainable levels. Some unemployment will always be there as people change jobs and new applicants enter the job market from schools and universities. So what is the ideal rate of unemployment? The Federal Reserve considers that 4.5-6% is the normal long-term unemployment rate so the present rate should be satisfactory. Some think that the Fed should be aiming for an unemployment level of 3%. The US economy grew strongly last year and inflation has increased to 1.3% but some are predicting a 100% certainty of a recession in the US by 2018. The Chinese government is increasing credit towards keeping the rate of growth above 6.5%. Interest rate has been cut 6 times. Problem is that China already has an excess of infrastructure lying useless so would the increase in credit work at all. Despite buying bonds worth $661 billion per year, also known as quantitative easing, Japan's economy contracted by 0.4% in the last quarter of last year. In desperation the central bank cut interest rate to negative in January. Barclays Bank is predicting that negative interest rates could last for years in Japan and the Eurozone. But is there any evidence that 'helicopter money' will work? There is some evidence from India. The Congress increased handouts to hundreds of millions resulting in inflation levels of over 11% in 2012 and a fall in the growth of the economy. It was at a high of 5.69% in January. Yet stock markets have risen sharply because the recent budget predicts a fiscal deficit of 3.5% for the year. Why? Because the RBI may reduce interest rate, helping the rich to accumulate more assets. The rest of us will become poorer.