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What it actually means when the Government starts 'printing free money'

There's been a lot of talk about the Government booting up the money printer and printing free cash, but what does it actually mean?

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Newsroom Pro editor Bernard Hickey joined Breakfast to explain. Source: Breakfast

Quantitative Easing (QE) is a process where banks essentially get to add a couple of extra zeroes to their spreadsheets and it's here, Newsroom Pro editor Bernard Hickey explains.

"[They're] creating it out of thin air then giving it to a bank or a pension fund or a large corporate in exchange for a bond," he told TVNZ 1's Breakfast this morning.

"Most of the money printing is done to buy Government bonds. 

"It all sounds very fine but what it actually means is that it's fresh cash being handed over to people who already have lots of money."

Part of the issue is that the money goes into financial markets for people who already have bonds, shares and assets, Mr Hickey says.

"Those people who already have assets are rescued, if you like, and get richer, because all that money has to flow into the system," he says.

"Those who don't own assets, who are renters, or are on unstable work, gig economy, three or four different jobs, they are not being rescued and they're not seeing that money filter down."

An alternative solution is giving the money straight to those people, where it would actually get used in the economy, Mr Hickey says.

"One of the risks here is that the financial markets and the people who own all the assets feel fantastic about this, they feel really good," he says.

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"In fact on Monday we saw record-high stock prices in America at the same time as there were riots in the streets, as the people who are not benefitting in this policy said I've had enough of this. 

"But those who are rich are saying I don't really have a problem with how the economy is going."

Such a cash boost is often nicknamed "helicopter money" and was floated as a potential fix after Covid-19.

It's intended to encourage people to spend and help stimulate the local economy.

However it wasn't included in the Budget 2020 and was ruled out by Deputy Prime Minister Winston Peters