Helicopters, Grandmothers and Frogs – Personal Attitudes

Why is there so much fear that most economic entities will not “beat”, or that they will dismiss workers permanently, if their economic activity is interrupted for less than two months? If such a short period of suspension or reduced activity cannot be supported, you should “look in the mirror.”

If the number of such cases is frequent, then the state must “look in the mirror” and see what is wrong with its economy, so that the business of a large number of economic entities is “on the edge of a knife”.

President Vučić also announced “money thrown from a helicopter” in economic measures, and tried to explain what he meant by that, and economics doctors spoke after him, explaining how we would borrow most of that money in the market. financial, as a foreign country. also domestic.

‘Let the President not know what it means to’ throw money out of a helicopter ‘, given his formal education and experience, but that doctorates in economics advocate such construction and establish connections between airplanes and financial markets … Ccc ?

The term “helicopter money” is related to the main problem of central bank money or, as people would say, printing money. Financial markets have nothing to do with the fact that the Fed in the United States, the ECB in the Eurozone and other central banks around the planet will “print” as much money as a particular country needs to overcome this type of crisis. .

This means that the state of Serbia, which lacks 250-350 billion dinars to cover the obligations conditioned by the measures adopted and the disturbed public finances, should take said loan from the NBS for a period of 30 years, with a period 10-year grace period and an interest rate. one percent per year.

Of course, the loan should not be indexed, without being linked to any currency, inflation rate or BELIBOR, because that is the only legally correct one.

It is a loan, not a loan, which according to our Obligations Law does not allow indexation or a monetary clause.

However, from those who are formally PhDs in economics, will we hear that the ECB or the Fed can approve loans to your country with a major problem, but that Serbia cannot do that?

We will hear that in accordance with Article 62 of the National Bank Law, our central bank is prohibited from lending to the state or buying its securities.

We will also hear choral songs about the reserve currency, about confidence, about inflation, bad experiences with hyperinflation … but we will not hear anything about the amount of money in circulation.

Does Serbia have enough money in circulation? What does it depend on?

The conservative and erroneous dogma until 50 years ago stated that the amount of money depends on the amount of gold that the state has at its disposal.

The same slightly modernized dogma now says that there should be as much money as a country has foreign exchange reserves.

NBS statistics show us that we have around 10 billion euros in dinars (monetary aggregate M2) of cash, checking accounts and short-term deposits as of March this year, and that, at the same time, our foreign exchange reserves are of just over 13 billion euros.

This means that, even in accordance with this dogma, there is room for an additional issue of money by the NBS for those 350 billion dinars, that is. three billion euros.

In the language of the common man, this means that if they had much bigger problems than the virus, every dinar issued or printed could be exchanged for the euro, in theory, the same day. Therefore, there is no place for fear or panic, inflation or anything else.

This is how grandmothers and frogs meet. Those who would like to seriously approach monetary policy would look for a connection between the aforementioned monetary aggregate M2 and GDP.

This relationship is known as the level of monetization and speaks of the sufficiency of the amount of money in an economy. Those who understand monetary policy will adjust the size of GDP for the foreign trade deficit or surplus. If you have a surplus, you have fewer goods and services on the market, so it stands to reason that you need less money in circulation.

In our case, the opposite is true, Serbia has a deficit, that is. it imports more than it exports. There are more goods and services on the market. so you need to have more money than GDP dictates.

How do we position ourselves with this parameter, that is? What is the level of monetization in Serbia?

If M2 is around 10 billion euros in equivalent dinars, and the corrected value of GDP is around 48 billion euros, it means that our level of monetization is around 20 percent.

Comparative analyzes with countries in transition, which (like us) do not have developed financial markets, say that this value should be around 50 percent.

And our academic experts say that Serbia should not use the main program, although it should have 2.5 times more money than now. It turns out that Serbia cannot “pull” even three billion euros from a helicopter, although, according to all laws of science and economic practice, it lacks 14 billion euros in circulation!

It is foolish to cite, as an argument, legal restrictions when we were in a state of emergency.

So not all laws apply. The state of emergency was the legal basis for the Serbian budget to borrow from the NBS and thus correct the lack of money in circulation. It seems that the economy is playing much more at the “edge of the knife” due to a decades-long problem with a huge lack of money in circulation, and not due to two months of reduced activity.

The author is an economist and entrepreneur.

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