How the pandemic changed your money – What do the pandemic, inflation, and your loan installments have in common? The story of "Helicopter Money"
Imagine that the economy suddenly comes to a halt. Companies close their doors, people lose their jobs, and no one knows what will happen next. This is exactly what the beginning of the COVID-19 pandemic looked like. Governments around the world faced a huge challenge – how to prevent mass bankruptcies and unemployment? The answer became something that economists called "Helicopter Money," or massive injections of money into circulation.
In Poland, this took the form of anti-crisis shields, zero interest rates, and interventions by the National Bank of Poland (NBP), which bought bonds to ensure financial liquidity. At first glance, everything looked great – companies received help, consumers had money, and the economy avoided disaster. But was it really?
Today, looking back, we see that what was supposed to be a rescue also brought serious consequences – zero interest on deposits, expensive loans, and inflation that drastically reduced the purchasing power of our money.
What are M2 and M3 – or how do we measure the amount of money in circulation?
Before we explain why "Helicopter Money" caused such significant changes, it is worth understanding how economists measure the amount of money in the economy.
M2 – is cash in circulation and money that people hold in their personal accounts and short-term deposits. It is capital that can easily be converted into cash and spent.
M3 – is a broader category that includes not only M2 but also long-term deposits and other financial assets that can serve as money.
During the pandemic, the amount of money in circulation (M2 and M3) increased by several dozen percent. Where did this money come from?
The government literally "poured" cash into the economy by providing companies with grants and support for employees.
The central bank bought bonds, which in practice meant "printing" new money.
Record-low interest rates made loans very cheap and easily accessible.
How did Helicopter Money change the economy?
1. The economy received a cash injection
At first, it looked like a rescue. Companies had money for salaries, people could spend, and banks received additional liquidity. Thanks to this, we avoided a wave of bankruptcies and mass layoffs.
But there was one "but" – too much money in circulation always leads to problems. And these problems began to appear very quickly.
2. Interest rates on deposits fell – banks didn't want your savings
Since banks already had plenty of cash, they didn't have to compete for customer deposits. Therefore, interest rates on deposits began to fall until they reached almost 0%.
This meant that keeping money in the bank became unprofitable. People looked for alternatives – they invested in real estate, the stock market, and even cryptocurrencies.
3. Loans became cheap – until they became expensive
In the first phase of the pandemic, loans were very cheap. Banks were eager to lend, and people were taking out loans en masse – especially for apartments. The effects?
Real estate prices skyrocketed.
The demand for consumer loans also increased.
But then the situation reversed. As inflation began to spiral out of control, the central bank had to act. The solution was to raise interest rates. However, this led to a new problem:
Mortgage payments increased by as much as several dozen percent.
People who once easily obtained loans suddenly lost their creditworthiness.
Banks began to approach lending more cautiously.
As a result, the credit market literally collapsed.
How did Helicopter Money lead to inflation and a credit crisis?
In the short term, "Helicopter Money" saved the economy, but over time its effects became painful:
✔ Companies did not fail, but the excess cash caused inflation to rise.
✔ Deposits became unprofitable, forcing people to invest elsewhere.
✔ The credit boom caused real estate prices to rise, and subsequent interest rate hikes hit borrowers hard.
This is a classic example of a situation where solving one problem creates new, even more difficult challenges.
Could this have been avoided? Of course! It would have been enough for governments and central banks to do something different than usual – but that would have been too complicated. Why look for creative solutions when you can simply flood the economy with money and pretend there is no problem?
And now we can only wait for history to repeat itself. Because if Helicopter Money works so "great," why not repeat this wonderful experiment? Maybe next time they will throw in a free umbrella with every mortgage – to shield themselves from the rain of cash and the impending inflation storm.
Imagine that the economy suddenly comes to a halt. Companies close their doors, people lose their jobs, and no one knows what will happen next. This is exactly what the beginning of the COVID-19 pandemic looked like. Governments around the world faced a huge challenge – how to prevent mass bankruptcies and unemployment? The answer became something that economists called "Helicopter Money," or massive injections of money into circulation.
In Poland, this took the form of anti-crisis shields, zero interest rates, and interventions by the National Bank of Poland (NBP), which bought bonds to ensure financial liquidity. At first glance, everything looked great – companies received help, consumers had money, and the economy avoided disaster. But was it really?
Today, looking back, we see that what was supposed to be a rescue also brought serious consequences – zero interest on deposits, expensive loans, and inflation that drastically reduced the purchasing power of our money.
What are M2 and M3 – or how do we measure the amount of money in circulation?
Before we explain why "Helicopter Money" caused such significant changes, it is worth understanding how economists measure the amount of money in the economy.
M2 – is cash in circulation and money that people hold in their personal accounts and short-term deposits. It is capital that can easily be converted into cash and spent.
M3 – is a broader category that includes not only M2 but also long-term deposits and other financial assets that can serve as money.
During the pandemic, the amount of money in circulation (M2 and M3) increased by several dozen percent. Where did this money come from?
The government literally "poured" cash into the economy by providing companies with grants and support for employees.
The central bank bought bonds, which in practice meant "printing" new money.
Record-low interest rates made loans very cheap and easily accessible.
How did Helicopter Money change the economy?
1. The economy received a cash injection
At first, it looked like a rescue. Companies had money for salaries, people could spend, and banks received additional liquidity. Thanks to this, we avoided a wave of bankruptcies and mass layoffs.
But there was one "but" – too much money in circulation always leads to problems. And these problems began to appear very quickly.
2. Interest rates on deposits fell – banks didn't want your savings
Since banks already had plenty of cash, they didn't have to compete for customer deposits. Therefore, interest rates on deposits began to fall until they reached almost 0%.
This meant that keeping money in the bank became unprofitable. People looked for alternatives – they invested in real estate, the stock market, and even cryptocurrencies.
3. Loans became cheap – until they became expensive
In the first phase of the pandemic, loans were very cheap. Banks were eager to lend, and people were taking out loans en masse – especially for apartments. The effects?
Real estate prices skyrocketed.
The demand for consumer loans also increased.
But then the situation reversed. As inflation began to spiral out of control, the central bank had to act. The solution was to raise interest rates. However, this led to a new problem:
Mortgage payments increased by as much as several dozen percent.
People who once easily obtained loans suddenly lost their creditworthiness.
Banks began to approach lending more cautiously.
As a result, the credit market literally collapsed.
How did Helicopter Money lead to inflation and a credit crisis?
In the short term, "Helicopter Money" saved the economy, but over time its effects became painful:
✔ Companies did not fail, but the excess cash caused inflation to rise.
✔ Deposits became unprofitable, forcing people to invest elsewhere.
✔ The credit boom caused real estate prices to rise, and subsequent interest rate hikes hit borrowers hard.
This is a classic example of a situation where solving one problem creates new, even more difficult challenges.
Could this have been avoided? Of course! It would have been enough for governments and central banks to do something different than usual – but that would have been too complicated. Why look for creative solutions when you can simply flood the economy with money and pretend there is no problem?
And now we can only wait for history to repeat itself. Because if Helicopter Money works so "great," why not repeat this wonderful experiment? Maybe next time they will throw in a free umbrella with every mortgage – to shield themselves from the rain of cash and the impending inflation storm.
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