Ben gets his chopper out

Fed Chairman Ben Bernanke is an expert on the Great Depression of the 1930s. A few years ago he commented that the Fed could prevent a rerun of that lost decade simply by printing dollars and dropping them on the United States from a helicopter. This earned him the nickname "Helicopter Ben".

We're about to find out if he was right, because after Tuesday's FOMC meeting, the Sikorski is revving up on the helipad. As well as cutting the funds target to zero (0-0.25% to be exact), the Fed has announced a programme of printing money, though these days it's more polite to call it "quantitative easing". The Fed will boost the size of its balance sheet, and take the pressure off commercial lenders, by purchasing Treasuries in the new year, and it stands ready to offer credit directly to the commercial and personal sectors.

The unexpected move gave Wall Street a boost, but there are already fears that the Fed has shot its bolt: if this doesn't work, what else can it do to revive to US economy? Well, it can't cut rates below zero, but it can keep the quantitative easing going for a long as it takes to be effective. With the incoming President apparently having a fiscal stimulus plan all set to go right after his inauguration, there's no doubt that the US is doing everything it can to prevent a return to the dirty thirties. There'll be a price to pay later, of course -- all that public debt will have to be repaid, and the Fed will have to remove the stimulus very abruptly once the economy starts to turn: failure to do so would trigger an almighty bout of inflation.

I'd have been happy to live out my days without finding out whether this part of the Keynesian textbook is correct, but there you go. One thing that strikes me, though, is that in one sense today's policymakers have it harder than their forerunners in the 1930s did. In an electronic age, people expect everything to work instantly, including economic policy. In more "normal" times, when a central bank cut rates, media commentators would carefully point out that it took time for monetary policy to take effect -- anything from 9 to 18 months. That's all gone out of the window. Nobody's prepared to wait and see whether the record low interest rates already in place are going to work. They haven't worked yet, we need more action, and we need it yesterday!

One of the worst at this is, of course, my old pal Anatole Kaletsky. Having failed completely to spot the onset of the credit crunch, and having downplayed its seriousness for many months, he is now looking not just for Plan B but a whole alphabet of new measures. His latest wheeze is that the UK government should give itself access to a cheap source of borrowing by doubling reserve requirements on the commercial banks. How that makes sense so soon after the Government recapitalised them so that they could resume lending is quite beyond me. But it suits the temper of the times (or should I say, The Times?). Kaletsky has decided that the banks are not doing enough, so we need to do something else RIGHT NOW. There may well be a need to do more, but it would be nice if we at least avoided doing things that undermine what's already been put in place.