Over here, I expressed confusion at Mark Carney's reported remarks to the effect that 'whatever
good news existed was caused artificially by massive government and
central bank stimulus':
It occurs to me that I hadn't actually made that point here before. So here is a graph of the 12-month moving sums (the monthly data are very volatile and have significant seasonal elements) of federal government expenditures and revenues up until March 2009.
Ottawa has moved into deficit over the past few months, but not because it has been indulging in an increase in spending. The 12-month moving sum of program expenditures declined in the first three months of the year; the deficit is due to an even more rapid decline in revenues.
eta: Okay, the GM/Chrysler bailouts should probably be added, since the loans haven't been written off yet. But still.
Worthwhile Canadian Initiative 
That is a surprising graph. The falling revenues makes sense, given the GST cuts, falling stock prices (less capital gains tax revenues), and the recession. Falling debt service makes sense (declining debt and interest rates). But why are program expenditures declining?
I don’t know – it’s weird.
What part of that decline in income is due to the cut in the GST?
It isn’t fiscal stimulus in the way we normally think about it, but the federal government has played an important role in providing credit directly to market participants, especially through the IMPP. The IMPP was by far the most important liquidity facility set up to help the Canadian banks and financial system. Basically, the government swapped over $50b worth of bundles of mortgages from the banks (that it had already guaranteed through the CMHC) for highly liquid GoC Tbills and bonds. In the US, a similar liquidity facility was set up much later in the crisis but it is run though the Fed’s balance sheet. The IMPP was much more important in keeping Canadian banks liquid and lending than any of the liquidity facilities set up at the Bank of Canada. The last federal budget also included timely increases in the lending authority of the EDC, and the BDC. I think the former helped deal with the shortage of trade credit for exporters (but I’m not sure how well the latter has worked out…). And of course, as you mention, we have to somehow keep track of the “loans” to the auto industry in measuring the size of the direct lending.
IMPP?
IMPP = Insured Mortgage Purchase Program
November 13, 2008.
Ottawa to Buy More Mortgages
Pasted:
Interestingly, most Canadians are oblivious to how vital Canada’s CMB program is these days. The fact is, it’s exceedingly tough to securitize (re-sell) mortgages at good prices in our subprime-rattled market right now. Without the CMB program, some lenders we know would probably not survive. The government performs a critical service by supporting the securitization market with the Canadian Mortgage Bond.
Angelo: I agree. Those “credit market” policies (for want of a better word) were probably very important, as well as very efficient, or cost-effective. It’s hard to know how to categorise them, because they lie somewhere between fiscal and monetary policies. I think of them as closer to monetary policy, since it’s the swapping of one financial asset for another. But they needn’t have any implications for the money supply.
Yes, I was thinking more along the lines of goods markets. The government and the Bank have certainly been active in financial markets, and I think we can all be glad they were.
Some of the stimulus shows up as tax credits that reduce revenue, rather than as program spending, I imagine (I’m thinking of the $1.35B Granite Countertop Subsidy Program in particular here, but likely there are other similar programs) and some of it will be money spent locally in anticipation of supporting federal funding that has been promised but the cheque hasn’t been cashed yet (e.g. the Evergreen rapid transit line in Vancouver), however I suspect that allowing for these stimuli wouldn’t change your original point much.
In other words, fiscal policy moves with an enormous lag. If only there was someone who saw this coming… 🙂