CIBC: Canadians Have $90 Billion In Excess Cash, As Government Doubles Income Lost

Canadian households are sitting on a record amount of cash, waiting to be spent. CIBC Economics’ latest report shows tens of billions in cash just sitting in accounts in Q2 2020. The increase is due to a combination of government supports, lack of places to spend, and payment deferrals.

Canadian Households Saved $90 Billion More Than Expected

Canadians are holding onto an astronomical amount of cash in their bank accounts. CIBC estimates households have saved $90 billion more than typical in Q2 2020. They estimate the amount to be equivalent to 4% of consumer spending. So suddenly everyone’s a great saver, in a country with notoriously high household debt? Not exactly.

Government Transfers Equal $2.25 For Each Dollar of Income Lost

The bank believes this is largely due to government transfers. The lost income fell $100 billion seasonally adjusted at the annual rate (SAAR) for Q2 2020. This was matched with government transfers from programs like CERB, that add up to $225 billion SAAR. To put it bluntly, the government replaced every $1 of income lost, with $2.25 in the quarter. An unprecedented event for a recession. 

Canada’s Household Savings Rate Hits 28%

Combine the higher income delivery with restricted spending, and mortgage deferrals – and you get a lot of cash. Prior to the pandemic, the saving’s rate had reached 3.6% – already a worrying climb. During the pandemic, it escalated to as high as 28.2% in June. In periods of recession, savings rates tend to jump as people worry. When most places are shut down, it becomes pretty hard to spend, even if you try.

Canadian Household Savings Rate

The seasoanlly adjusted rate of household savings.

Source: Stat Can, Better Dwelling.

A second lockdown is approaching, but another surge of excess capital is unlikely. Programs are now much more targeted, and payment deferrals aren’t raining from the sky. However, this is still a very large capital pool that’s going to need to be deployed in a more efficient manner soon. However, a more important takeaway is there’s households with massive piles of cash waiting to spend, in an economy that has fewer and fewer players by the day.

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  • Simon 4 years ago

    One person’s increase in savings is another person’s decrease in income.

    • OM 4 years ago

      Good way to look at it. Also remember the demographic that saved from their mortgage, doesn’t need a house. It’s just going to be a further wealth gap the government just created.

    • Smaug 3 years ago

      But… one person’s savings is also another person’s future income. We need to stop viewing savings as a “leakage”. Safe, secure savings are an important component of long term economic growth. Something we’ve come to ignore with our obsession over “stimulus” and loose monetary policy.

      This store of savings will play an important role in any future economic recovery. If we let it. On the other hand, if we keep interest rates at zero, then much of that savings will end up just being used for down payments, driving house prices up farther. If you can’t get a return on your money in the bank, gambling on real estate comes to be seen as the “safer” alternative.

      • Simon 3 years ago

        If I were a restaurant owner, I don’t know why I would care about future income when rent is due now. Give me those savings! And you could prevent savings from going into non-productive sectors by taxing housing at a more progressive rate and creating a real public housing sector.

        I don’t get why savings is important to the economy, when it only means that it’s money that people aren’t spending.

  • straw walker 4 years ago

    In most recession cash is seen as king.. and no matter how low interest rates go. Cash is held..
    Why would anyone invest in a business, and more importantly bonds .??

  • Sam 4 years ago

    It sucks for the economy as a whole, but since this website is mainly about housing, one has to wonder if the pile of cash is going to create a run on real state at some point… Maybe next spring/summer when a vaccine is coming and people “think” everything will be back to normal?

  • Rick Hyne 4 years ago

    While many have saved the cash thanks to a very generous government payout designed to help many put food on the table, this generosity coupled with programs at the provincial level and several deferral schemes only deferred the inevitable and created inflation at the same time.

    I am a small business, and like many other small businesses, I have saved the $40,000 just in case.

    $30,000.00 of it will be returned. $10,000.00 will be added to income as per the program unless other options or needs decide otherwise.

    Also, I expect a lot of defaults of the $40,000.00 as businesses close down cash in hand. The money was not secured.

  • Bkl 4 years ago

    The biggest winner from all this are real estate speculators. People who own multiple houses got a huge pay day.

    Let me give you an example, if you are a speculator that has 4 mortgage homes each with 3000 mortgage due per month. With CERB how much did they gain? 2000 CERB per month for 6 month = 12k. 4 deferred mortgages 3000 x 4 house x 6 months = 72k. Just between mortgage deferrals and CERB they net 72k +12k = 84k or 84,000 in 6 months.

    Now if you add house prices increase of 15% of the 4 house at average price of 1 million. 150k x 4 = 600k!

    Whats the conclusion? The government used tax payer money to greatly benefit real estate speculators. This is a horrendous crime against all Canadians. Especially young families who cant afford a home and have pay more taxes due to the free money for speculators deficit.

    • Fight Back 4 years ago

      This kind of “capitalism” is worst than Communism, we need to punish the speculators or the politicians who prop up house prices.

      Actually we need to jail both for this housing crisis.

      Someone share and spread the above calculation.

    • Kolf 4 years ago

      To be honest, it would make a lot more sense to not allow people with multiple houses to defer mortgage payments. It was a good chance to force speculators to sell.

      • SH 4 years ago

        Well yes but Trudeau’s objective is to protect the housing market for foreign speculators. He’s not in office to represent the interests of Canadians.

    • SH 4 years ago

      Not to mention that renters weren’t given the option to defer their rent. The government forced banks to give mortgage borrowers a 6-month payment holiday without extending the same courtesy to renters.

      • Jupiter 3 years ago

        No mortgage deferrals should be given to anyone with multiple residential properties period.

        The government knew the math, they did it to prop up real estate prices. They pushed inequality further, benefiting only speculators and screwing young families. The Liberals lied to us in the election about foreign ownership tax.

        • Grt 3 years ago

          I agree. However it was the banks decision to allow payment deferrals and not the government. The banks benefited as well from the deferrals since the avoided potential defaults, lowered their LTV ratios as property values increased, and increased the profits by capitalizing the deferred interest which is now compounding interest for the life of the mortgage. Banks win, borrowers win and renters, savers, and working class lose as always.

          • SH 3 years ago

            No it wasn’t the banks that decided. The government and the CMHC forced the banks to offer the mortgage deferrals. What you think each of the big 6 just decided to offer the exact deferral program on the exact same dates? Evan Siddal said very clearly that anyone who needs a deferral will get one. Of course “need” turned into “want”.

      • Gary 3 years ago

        What makes you think the govt will ever support renters? They will always help the land lord until their last breath even if it means sacrificing renters at the alter

  • Herry 3 years ago

    Considering, Turdo and other wealthy Canadian POS DON’T pay their taxes, loss will happen. It’s guaranteed !

  • BoBnUSA 3 years ago

    most of the savings I assume are a result of 750K mortgage deferrals

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