Helicopter Money

Canadian banknotes falling from sky.

I have, and I checked, $85.00 in my pocket. I have had that for several days. We also have a few hundred dollars in the proverbial cookie jar.

We, like virtually everyone else, use our debit cards and online banking to do 95% of our transactions. I know how much money I have by checking into my bank account online. If I get a cheque I take a picture of it and it is cashed.

Money is now, effectively, digital. So is credit but that is another story. I receive a small pension and my wife gets the Child Tax Benefit. Digitally.

We are in the middle of a health crisis but also an economic meltdown. Hundreds of thousands of Canadians will be laid off. Businesses will close, the markets are in turmoil. We are at the middle of the month but, in 14 days, rents and mortgages will have to be paid. Day to day bills have to be met and, in a couple of weeks, a lot of people will have literally no money because COVID-19 will have destroyed their income.

The Quebec government announced today that it will pay people who do not have Employment Insurance $573 a week to self-isolate. I expect other provinces will follow suit. I also expect that the Federal Government will announce some sort of allowance to get people through what is going to be an economically fragile period.

Assuming that there are 23 million adults in Canada, it would cost 23 billion dollars to give everyone of them $1000. Which is a lot of money. Even for a Liberal government. (Of course the net cost could be reduced a lot by a) making it taxable, b) restricting it to people receiving the GST credit.)

An injection of $1000 per adult would goose the economy and make getting through the next month a heck of a lot easier for Canadian families. But is it prudent or even possible economically?

Right this instant, world wide interest rates are at all time lows. Sovereign debt can be had at less than 1% and even if the entire payment was borrowed it would be a blip on Canada’s overall deficit and interest payments. Essentially, the Government of Canada would be giving its citizens a long term loan using our excellent credit rating to raise the funds. Of course, those citizens would be paying that loan back over time through their taxes; but acting quickly could reduce real economic harm to a manageable economic problem.

We may have to do this for a few months. Which is ugly for the balance sheet but probably good for the nation.

There is the obvious risk of inflation and an equally obvious risk for the Canadian dollar. But, against that, we have to recognize that the enemy here is deflation as the economy contracts due to “lockdown” and despair as individuals and families hit the economic wall.

Yes, this would be Ben Bernanke’s “Helicopter Money” . It was not actually Bernanke’s idea, it was Milton Friedman’s. Read the article at the link. The original idea of “Helicopter Money” was that it was a tool of last resort when monetary policy has run out of bullets. (And when the prime interest rate is at .25%, that is an empty gun.)

Friedman and Bernanke saw this in strictly financial terms; they did not see the possibility of a non-financial crisis. COVID-19 is just that. A health crisis with a nasty financial side effect.

I am a hard money guy. I despise the lazy pseudo-Keynesians happy to spend in the bad times and just as happy to spend in the good times. I hate deficits. But, right now, I am hoping some adult in Ottawa – there has to be at least one – is getting ready to push billions of digital dollars into the hands of a bewildered Canadian public.

Now, to be fair, they will probably spend it on “beer and popcorn” (as the lame Liberal strategist said back in 2005 blowing Paul Martin’s election chances.) But for many Canadians it would be a lifeline through layoffs, cut hours, business slowdown and having to stay home.

It can be done in an hour. 92.5% of Canadians filed their taxes online in 2019. Most will have a bank account registered with the CRA. So will a lot of us who have a pension or a GST rebate or a Child Tax Benefit entitlement.

Pushing the button and sending a chunk of money to Canadians who are reeling from lock-down, social distance and losing their jobs makes a lot of sense.

We’ll deal with the fiscal consequences when COVID-19 is done.

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One thought on “Helicopter Money

  1. […] in the process of shutting down as economic activity is judged too risky. The markets have crashed. Helicopter money is being loaded. (Although I note that the Trudeau government missed a chance when the Child Tax […]

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