ICYMI - Opinion: Anti-inflation policy is all about the money — via fpcomment inflation
increased 22 per cent. If the Bank had kept the ratio of money to GDP constant, the money supply would have increased 22 per cent or $0.6 trillion, not 32 per cent or $0.8 trillion, which implies the excess money supply held by the Canadian public in 2022 was some $200 billion.Article content
Since this extra $200 billion was more than Canadians needed to carry out their financial affairs, they disposed of it by spending it on goods, services and assets. But all this new demand was not accompanied by an equivalent increase of production, which is what would have happened under normal conditions when Canadians earned money in return for producing goods and services. In fact, the Bank of Canada created this excess money supply with the stroke of a pen.
The Bank of Canada created the excess supply mostly in the second quarter of 2020, when M3 grew eight per cent, four times its normal growth of about two per cent. Why did it do that? To provide the federal government with the money it needed to bring financial relief to needy Canadians affected by the pandemic. That burst of government spending was justifiable on moral grounds.
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