Helicopter drops might not be far away - Martin Wolf

More recently, this is the policy foreseen by Ray Dalio, founder of Bridgewater, a hedge fund. The world economy is not just slowing, he argues, but "monetary policy 1" -- lower interest rates -- and "monetary policy 2" -- quantitative easing -- are largely exhausted. Thus, he says, the world will need a "monetary policy 3" directly targeted at encouraging spending.

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No simple solutions for the global economic imbalances of today exist, only palliatives. The current favourite flavour in monetary policy is negative interest rates. Mr Dalio argues that: "While negative interest rates will make cash a bit less attractive (but not much), it won't drive . . . savers to buy the sort of assets that will finance spending." I agree. I cannot imagine that businesses will rush to invest as a result. The same is true of conventional quantitative easing. The biggest effect of these policies is likely to be via exchange rates. In effect, other countries will be seeking export-led growth vis-à-vis over-borrowed US consumers. That is bound to blow up.

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If the fiscal authorities are unwilling to behave so sensibly -- and the signs, alas, are that they are not -- central banks are the only players. They could be given the power to send money, ideally in electronic form, to every adult citizen. Would this add to demand? Absolutely. Under existing monetary arrangements, it would also generate a permanent rise in the reserves of commercial banks at the central bank. The easy way to contain any long-term monetary effects would be to raise reserve requirements. These could then become a desirable feature of our unstable banking systems.

The main point is this. The economic forces that have brought the world economy to zero real interest rates and, increasingly, negative central bank rates are, if anything, now strengthening. This is what the world economy is showing. This is what monetary policy is indicating. Increasingly, this is what asset prices are demonstrating.

Policymakers must prepare for a new "new normal" in which policy becomes more uncomfortable, more unconventional, or both.