Too Much Cash Is Not A Good Thing

Happy new year! We hope that those celebrating holidays at the end of 2021 were able to relax and enjoy the season.

I wasn’t able to relax as much as I had hoped. Gift giving was stressful: despite numerous admonitions to shop early (the better to avoid shipping delays), I got a late start. As I struggled to figure out presents for loved ones that would be in hand on time, my wife advised giving cash instead. It allows the recipient to get what they want, she noted, and it can be delivered instantaneously through any number of online platforms.

As I considered my wife’s suggestion, it occurred to me that policy makers have been acting on her advice for almost two years now. They have been handing out so much cash, in fact, that recipients haven’t been able to spend it all. The accumulation of all that money in the global economy will present both opportunities and problems in 2022.

When it first arrived, the pandemic represented a substantial threat to the global economy. There were no vaccines or proven therapies, and the unknowns surrounding it prompted a high level of risk aversion. Societies shut down very tightly, and tens of millions found themselves un- or underemployed. A global depression was a distinct possibility.

To offset the crash in private demand, governments stepped forward aggressively. Massive fiscal stimulus was applied, far in excess of what was passed in the wake of the 2008 financial crisis.

Weekly Economic Commentary - Chart 1

Funds were liberally distributed to households, both directly and in the form of unemployment support. Small businesses, many of them at risk of failure, were also a common target. Industries that were severely damaged, like travel and hospitality, were granted specific relief.