Helicopter money—giving people cash in the hope they'll spend it—is a central bank's ultimate weapon in the fight to boost economic growth and avoid deflation. The trouble is, it might not work.
The idea is likely to fill Washington's conference rooms, bars and hotels this week, as the International Monetary Fund holds its spring meeting of the world's financial policymakers. Frustration is mounting that other stimulus measures have not had much effect.
In theory, helicopter money would be a boon for stocks and bad for bonds with longer-term yields rising sharply with inflation expectations. PIMCO, one of the world's biggest bond fund managers, has been warning policymakers off.
However, the same was said before every post-crisis monetary policy step, from "quantitative easing" bond-buying to slashing interest rates below zero.
Those measures shored up the global financial system and stocks rose in value. But so did bonds—around $7 trillion of government debt now carries negative yields, according to JPMorgan.
Inflation has sunk to record lows—turning negative in many developed economies—and the world's average annual growth in the eight years from 2008 is about 1.5 percentage points lower than it was in the eight years before the crisis.
Would things be different with 'helicopter money'?
"If you get to that moment when you do helicopter money ... then you may just want to hold riskless assets like German bonds to preserve capital because you are convinced the central banks cannot generate inflation," said Ryan Myerberg, portfolio manager at Janus Capital.
Manuel Streiff, head of fixed income for private clients at Lombard Odier, agrees.
"What's surprising is we haven't seen any slowdown in the trend in yields - it's as if the zero nominal floor didn't really exist," Streiff said. "The more extreme they have been, the more extreme they need to be to have the same impact, to gain more time."
Helicopter money is a form of policy easing envisaged by U.S. economist Milton Friedman, using the metaphor of a helicopter dropping money. The point is that it's funded by a permanent increase in the money supply, not temporarily boosted by bond issues that eventually have to be paid back.
It could take many forms: QE combined with fiscal expansion; direct cash transfers to governments; or, the most radical option, direct cash transfers to households via cheques, bank transfers or state pension payments.
By common consensus, helicopter money would probably be delivered first in the euro zone or Japan, where monetary policy in recent years has been ultra-loose and stimulus has been worth trillions of euros and yen.
In the euro zone, direct financing of governments would breach European Central Bank rules. But many believe the ECB could hand out cash directly to all euro zone citizens as a last resort.
A storm of protest erupted in Germany after ECB President Draghi last month described helicopter money as a "very interesting"—if unexamined—concept. Top ECB officials have since said the idea was not on the table.
Japan shows that huge monetary stimulus from the central bank doesn't always lift inflation or inflation expectations, consumer or business demand, and ultimately overall growth - what's known as the "liquidity trap".
The Bank of Japan has been fighting deflation for over 20 years, first cutting interest rates to a then-unprecedented 0.5% in 1995. They've barely been higher since, and its rate for bank deposits is now negative.
Japan's debt profile reflects the global trend, too. The country's outstanding debt has ballooned to around 250% of gross domestic product, the highest on the planet.
Global debt is so great that it could limit the intended boost to growth and inflation of helicopter money. People might choose to pay down debt rather than spend the windfall.
Still, the risk it won't pack quite the intended punch may not prevent the helicopters from taking off, if policymakers feel growth is too sluggish and deflation remains a threat.
"Certainly in the next five years there is a reasonable possibility that this could be used," said Gareth Colesmith, a senior portfolio manager at Insight Investment.
"Things like quantitative easing and negative rates, even 12 months before those policies were adopted, nobody was expecting them."