Central banks are carrying heavily loaded balance sheets after coming to the rescue in the GFC and now the pandemic. Now they want to end the piling-on. We assess how much they are carrying and how the loads compare

Many central banks are now considering winding down their money printing programs, perceiving that the heat of the COVID pandemic crisis is passing and they need to start to get back to 'normal'.

Of course, that doesn't mean they will be paying down the extra monetary stimulus they added, just not adding more to the reservoir. Draining those reservoirs is a project for another day (which might be quite distant).

So now is time to assess how much has been added by monetary authorities. (Fiscal additions are something else, although to be fair, central banks have been big buyers of emergency-issued government debt and therefore some of it does appear in their balance sheets.)

The amounts have been very large - but perhaps not as large as many have assumed and critics have charged. Central bank balance sheets in the three countries that interest us haven't grown to anything like annual economic activity. But the extra juice is substantial all the same.

The RBNZ's balance sheet has assets equivalent to 26% of NZ's current economic activity (GDP). That is up from less than 8% before the start of the pandemic.

Our Aussie cousins have grown their central bank balance sheet faster, raising it by +21% of GDP to almost 30% of GDP.

And the Americans have grown the Fed balance sheet to almost 38% of their GDP, but they started with higher levels having carried a lot of the burden from remediating the 2008-2012 GFC which hurt them harder than in New Zealand or Australia.

But interestingly, the extra COVID pandemic swelling of the Fed's balance sheet is less than Australia's and about the same as the RBNZ's.

If you have read this far, you might want to know how this compares to what happened in the Global Financial Crisis (GFC) between 2008-2013.

The numbers seemed scary then, but are just a shadow of the [decisive] actions taken in this latest economic crisis. The lessons of 'go hard, go early' this time seems to have substantially lessened the economic/social impacts, and the crisis has been very much shorter because of it. (However, we are now left with large public debt and many zombie enterprises, which will still have to be dealt with, even if we don't have the social problems of unemployment to the same extent).

Here is the GFC equivalent data:

Yes, the RBNZ and RBA 'ended' the GFC crisis with slimmer balance sheets. You might argue that this restraint extended the social pressures over this period. Or you might argue that they were being more 'responsible' in their management of monetary policy, and giving themselves necessary ammunition for the next crisis (which did come of course).

And yes, the US Fed did carry a heavier load over this period, a global load given the global crisis was caused by them - but it wasn't enough to counteract their social pressures. But you can also observe that the run-up in the Fed balance sheet with the money printing in the GFC was actually similar to what they have done for the [shorter] pandemic response. (+17.3% vs +18.5%).

These comparisons also prompted me to check out the same data for Japan, which has a famous reputation for trying to stimulate its way out of low growth. What I found wasn't quite what I had assumed.

Yes, Japan has these same issues. They have lower economic activity now than before the pandemic, but for all the talk about the Bank of Japan's aggressive monetary stimulus over a long period of time, its accumulated balance sheet at a massive ¥724 tln is now 'only' at just one third of one year of economic activity in their country. While that is higher than some other countries in our short review, it is probably much less than most readers will have assumed. And it is actually less than the US Fed. Surprised me.

By the way, there is no indication that the Bank of Japan is contemplating any tapering or wind-back of their stimulus programs.