Canada's Pandemic Fiscal Stimulus was about $346-billion. The Bank of Canada's Monetary Stimulus? $2.5-trillion.
We need to stop ignoring monetary policy, debt, banks and the financial sector, and start getting real about "unintended consequences."
In today’s politics almost all of of the debates about the economy and government focus on “fiscal policies” how elected politicians are spending, taxing or borrowing, especially during and after a crisis. This means little or no attention is paid to the size and impact of central bank’s actions to stimulate or “cool” the economy through monetary policy, like raising and lowering interest rates. This is despite the fact that the impact of monetary changes on the sheer amount of money far outstrips governments’ fiscal expenditures, even in a crisis as significant as the global Pandemic. While fiscal stimulus, which was targeted by budgets was about $346-billion, while the monetary stimulus, which was up to borrowers to use as they saw fit, was about $2.5-trillion, of which $746-billion was captured by Canada’s top 0.01% - just 1,450 households.
This question of distribution is incredibly important. One reason it’s not focused on is that Robert Lucas, one of the U.S. economists who is responsible for the neoclassical economic revolution of the 1970s, who in 2004 wrote, “‘Of the tendencies that are harmful to sound economics, the most poisonous is to focus on questions of distribution,” and said it was better to focus on growth. From the position of data analysis, Lucas’ is an indefensible position. While political and ethical arguments may emerge from such an analysis, waving away the concentration of income or wealth as irrelevant to the discussion is wilfull blindness. If you can’t - or won’t - measure it, how can you know whether it matter or not.
Aside from not considering who ownership and income, central banks have not included banks or the finance sector in their models. When these models were being developed in the 1970s and 80s, wrote William White, it was considered that regulators would deal with it. There is also an idea that banks and the financial sector are just a series of complicated plumbing arrangements to move existing money from one place to another.
This is not accurate at all, and is one the greatest deficiencies with our current economics. There are two kinds of money in our economy: there is government created cash and cash-equivalents which are guaranteed by government, and there is credit-money, which is created by banks when they extend a loan, subject to a number of regulations and constraints, one of the important ones being the interest rate set by the central bank.
The amount of private credit created by banks exceeds that created by the Canadian government. This is one of the reasons for financial crashes, where money “disappears”. It was not fully there in the first place - credit was.
The Pandemic Stimulus, Fiscal & Monetary : Canada, USA, UK, Australia & New Zealand
The source for Canada here was the Bank of Canada’s own 2024 report, “Review of the Bank of Canada's Exceptional Policy Actions During the Pandemic." The 66-page document is notable in that it does not include a distributional analysis, while some of the documents it cites do.
In every country, the monetary stimulus was considerably larger than the fiscal stimulus:
Canada Fiscal: $346-billion; Monetary, $2.5-trillion
US Fiscal: $5.3-trillion; Monetary, $22-trillion
UK Fiscal: £400-billion; Monetary, £1,100-trillion
Australia Fiscal: $280-billion; Monetary, A$2-trillion
New Zealand Fiscal: NZ$90-billion; Monetary, NZ$ 280-billion.
Typical household gain in local currency
We can also break it down in more detail for each country (Click on Page 2 to see the rest).
These results are large enough that they are eyewatering. Both fiscal and monetary pandemic stimulus ended up being regressive, with benefits from increasing as we move up the income and wealth scale, with Canada being among the least progressive:
In Canada:
The Majority (80%) received a fiscal per-household stimulus of $14,000, and a monetary stimulus of $37,000, totalling $51,000, representing 98.6% of median annual income.
The Affluent (16%) received a fiscal per-household stimulus of $28,000, and a monetary stimulus of $158,000, totalling $186,000, representing 3.58 x median annual income.
The Upper (3.2%) received a fiscal per-household stimulus of $75,000, and a monetary stimulus of $583,000, totalling $657,000, representing 12.6 x median annual income.
The Elite (0.64%) received a fiscal per-household stimulus of $146,000, and a monetary stimulus of $158,000, totalling $1,800,000, representing 37.4 x median annual income.
The Ultra Elite (Top 0.01%) received a fiscal per-household stimulus of $2,740,000, and a monetary stimulus of $188,080,000 totalling $190,830,000, representing 3,670 x median annual income.
At 3,670 x median annual income, of the five countries we looked at, Canada’s multiplier was the highest, with Australia second at 3,346× income, New Zealand third at 3,132× income, the U.S. fourth at 2,782× income, and the UK last at 1,390× income.
The fact that the UK was last is because their interest rates were already lower in March 2020.
I will admit, I was amazed by these figures, but they represent both the incredible concentration of wealth in Canada, as well as the ways in which “supply-side” economics act to amplify inequality through sheer mathematical inevitability.
You can see the document with the charts and references here:
The Result: Driving up House Prices, Share Buybacks and Mergers and Acquisitions
As William White remarked in his 2023 paper “Why The Monetary Policy Framework in Advanced Countries Needs Fundamental Reform” (INET Working Paper No. 210): low rates don’t just inflate asset prices in isolation — they systematically shift economic activity toward financial transactions and away from productive investment. The FIRE share rising, M&A booming, and asset prices inflating are three manifestations of the same underlying distortion: the returns to buying existing assets exceed the returns to building new ones - at least in the short term.
In every one of the five countries, house prices rose sharply from Q2 2020 — immediately following the rate cuts and QE announcements of March 2020 — and peaked in late 2021 or early 2022. The correlation is not coincidental. As the Bank of Canada’s own 2024 review documents, QE kept 10-year bond yields 70–90 basis points lower than they would otherwise have been. Lower long-term rates directly raise the present value of future housing cash flows and expand maximum loan sizes.
Mergers and Acquisitions
M&A activity concentrates ownership:
When a private equity firm acquires 50 companies using cheap debt, the equity returns flow to the fund’s limited partners — predominantly endowments, sovereign wealth funds, family offices, and the top 0.01%, followed by layoffs in the name of claimed “efficiency” post-merger restructuring, and the company that is acquired ends up with the debt. Ultra-low interest rates provide large amounts of low-interest credit in supernormal quantities for the ultra-elites to buy more property and, in effect, kick employees off it.
Share buybacks — financial engineering at zero cost of capital
Share buybacks are the most direct mechanism by which near-zero interest rates transfer wealth to equity holders.
The logic is straightforward:
If a company can borrow at 1.5% and its shares yield (in earnings) 5%, it is financially rational to issue debt and buy back shares, the spread is profit, and EPS rises mechanically as the share count falls.
S&P 500 buybacks hit a record $881.7 billion in 2021 — up 70% from 2020 and above the prior 2018 record.
Global buybacks reached $1.31 trillion in 2022. In the US, $7 in every $10 of global buybacks are American. Buyback recipients are shareholders in proportion to their holdings — the same Pareto distribution that characterises asset ownership generally.
None of the $1.31-trillion to buy shares is being invested in productive investments, or to enhancing the value or the productivity of the company.
Instead of addressing the economic crisis of the pandemic, monetary stimulus made it worse. It has contributed to a global affordability crisis in housing, a private insolvency crisis for tens of millions of people, provided the weathiest people in society with amounts ranging from hundreds of billions to trillions to buy more property and companies, all while increasing worker layoffs.
It created the economic distortions and crisis that our countries are all living through, pouring trillions of money into driving up the price of existing assets while nothing is going into productive activities. Trillions of dollars that could have gone to modern infrastructure, new power plants, housing, research and development or building everything from chip factories to battery plants to electric vehicle factores was squandered.
What is just as frustrating is that while central bankers seem oblivious, elected governments keep getting the blame for economic disruptions caused entirely by bad monetary policy and tsunami of debt it has unleashed. This is equally true across the political spectrum: debates centre entirely on government taxing, government spending, but not on reforming the policies of central banks who, in addition to the trillions of dollars they created for quantitative easing, also helped create over USD $25-trillion in credit with nothing to show for it.
Instead of recognizing that the housing affordability crisis, our productivity crises, and our personal debt crises were caused by this mind-boggling misallocation of investment, the blame has fallen on people, especially immigrants and refugees, for the fact that people in developed countries cannot get jobs that pay enough to afford a roof over their heads. It’s blamed on immigration, or Indigenous people, or whichever usual suspect is on the list, including by respected economists, who fail to recognize that we have a money problem that needs to be solved with money.
Not only do central banks desperately need to update their monetary policy so that it can recognize and foresee the kind of damage and distortions that have been done, they need to play an active role in defusing and cleaning up the mess they’ve made.
PS
I’ve prepared a document that explains the sources and calculations that went into this, in case anyone would like to check my math. If it needs changing I will correct it.
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wow Dougald, I have to admit that my eyes glazed over in the 1st half of your essay, but when we got to the damage that corporations were doing by using cheap money to buy other companies, or to buy back shares instead of investing to build I certainly woke up. Thank you.
That's too bad. The banks are there to profit from us. To take more than they give. And they have been doing an excellent job of it. And the one who we elect to create balance and protect the people from this extraction is A F***ING BANKER!!!!