By Mark St.Cyr
For those who might not get the intended pun in the above title, it’s a play on words Ricky Ricardo (Desi Arnaz) would use when demanding his wife Lucy (Lucille Ball) as to explain whatever mischief or crisis she suddenly found herself in on the “I Love Lucy” show. I think it fits the bill today as to describe just what type of “mischief” or “crisis” the now Chair of the Fed., Janet Yellen may now find herself painted into. The only issue that’s not laughable for the comparison is the fact that Lucy’s escapades were fictional. Ms. Yellen’s are going to be on public display in an all too real reality – although it might be quite the spectacle rivaling anything on current reality television.
As I’m typing this it has been less than 48 hours since presidential candidate Donald Trump gave a speech in Philadelphia calling for a vast expansion of the military. Already there are arguments across the media about “how to pay” for such an expansion. As usual the main stream outlets are throwing “cold water” all over such an idea. After all, it’s easy to say “We can’t afford it!” Easy to say yes, but the problem is – the same outlets have praised how easily we could afford, and “can do more!” to cure the ills of this current economic malaise via The Federal Reserve and its toolbox of monetary magic.
Now let me say this directly, and as forcefully as I can so that there is no misinterpretation of what I’m stating here: I am not endorsing one candidate or another. I’m not saying I agree or disagree with either’s positions or proposals. That is for you to decide. What I am stating is a factual based retort that has ramifications for all of us because regardless of who wins, the facts are the facts, and it will be from the next victor of the “bully pulpit” that the current Fed. Chair will need to explain why she can – or – why she can’t do “X” when it was they themselves who are the ones that showed the world how money ex nihlo truly works.
As of today the Fed. has swollen its balance sheet to some $4,500,000,000,000.00 That’s 4.5 TRILLION (give or take a few Billion, but what’s a few Billion among friends, right?)
A few years back I made the argument that people (and the main stream financial/business media in particular) were throwing around numbers as if they were talking about nickles or dimes. A few Billion here, a couple more there, and pretty soon you were talking about “chump change” in the eyes of the media. $100s of Billions of dollars were discussed as if they were nothing but pocket change in the “larger scheme of things.”
It was to these ridiculous, incredulous, and outright callousness to remain clueless of what these figures really represented that I penned an article as to understand what these numbers truly represented. Here’s a sample of that argument. To wit:
“So here’s a quick example I used to give perspective. This is not – I repeat – not an endorsement of what I believe we should be spending our money on. It’s just an analogy so one could wrap their heads around the differing circumstances. For if we are talking BIG numbers, you’re going to need BIG things to represent them.”
“Bring up the subject whether they should or shouldn’t stop or taper and people seem to have no problem with spending or printing the $85 Billion month after month if that’s what it takes. Regardless if they understand what $85 Billion represents or not in any other form. It’s a fools way to look at it in my opinion. So here’s some perspective using items procured through the military.
If the Federal Reserve only cut their quantitative easing (QE) this month from $85 Billion to say $75 Billion. That cut would represent approximately the equivalent of building – FIVE – B2 Stealth Bombers. That’s per month. And that’s the reduction! Currently the Fed. is printing and pushing money into the markets as if we ordered (wait for it….) FORTY TWO brand spanking new B-2 Stealth Bombers – per month!
Let’s not forget Congress cut the building of the B-2 at a little over 25 planes down from the original 100 or so first envisioned because of costs. The Fed. today injects into the markets monthly the monetary equivalent to purchase double the existing force again – every month.
Want a better representation? In just 1 year, again just one year, the Federal Reserve has pumped enough money into the markets to have purchased, (Again, wait for it...) FIVE HUNDRED and TENnew B2’s. Remember – we now have somewhere in the mid 20’s. (I used 2 billion for each plane since that’s in line where they were when first ordered, however at that pace would a discount be in order? Just sayin’)
So again to make it clear – that’s just one year in planes. What would it be if we used say the most expensive and technological marvels on the planet? The Nimitz Class Nuclear Powered Aircraft Carrier.
Currently they have an approximate price tag of around $13 to $14 Billion dollars each. Based on the above math QE pumps into the markets the equivalent of purchasing SIX brand new state of the art Nimitz Class Aircraft Carriers – per month!
In just one year the same amount of QE dollars would purchase SEVENTY TWO. Again for a little perspective our current navy stands at around 19 commissioned ships. That’s both old as well as new combined. Once again in just one year, we could replace and expand our entire aircraft carrier fleet with the newest and greatest available nearly 4 times over.
Let’s just throw one more technological marvel in for the fun of it. One of my absolute favorite marvels the world has created. The submarine. Using today’s most advanced example aka “Boomers” or Ohio class. You could build approximately TEN per month at the pace the Fed. is injecting money.
At only $6 to $8 billion a piece that means in one year you could build nearly One Hundred and Twenty brand spanking new technological marvels. Again – in just one year. I believe that would replace all existing vessels also by multiple folds.”
Now let me reiterate what I just outlined here again as to get some perspective on not only the dollar amounts but, what those dollar amounts truly entail.
“In just 3 years the Federal Reserve has pushed into the financial markets via the QE programs the equivalent in dollar amounts to have purchased
510 B-2 Stealth Bombers,
72 Nimitz Class Air Craft Carriers,
120 Ohio Class Submarines,
and I still have nearly 2 more years of money to appropriate where ever or for what ever I desire. i.e., Two TRILLION is still in my pocket left to spend. QE and its equivalents are now nearing 5 years.
I still have plenty left to buy the aircraft, to man them or, the missiles to outfit them. Heck, that’s just if I stop here. So far there is no indication the Fed. is going to stop and there’s also talk that the new Chairperson might be inclined to spend more!
Maybe we should add a few M1 Abrams tanks just for the fun of it. They’re about $7 Million a piece so we can get Oh let’s say TWELVE THOUSAND a month. Yes that’s 12,000 per month or One Hundred Forty Four Thousand (let that number sink in – 144,000) in a year. Sounds like a bargain when I state it that way doesn’t it? And I would still have a Trillion left if they stopped printing today.
But here’s the real crux of this argument and why I stated it as such. Sure it’s a little hyperbole and the math is not exact. We would never do now nor would anyone ever approve of such a plan. However, think of where GDP and the economic output as to where it would be today as to employ the talent needed to build those marvels. The engineers, the skilled labor, the steel, the copper, the mechanized equipment, the hotels, restaurants, and more to feed those that just supply the day labor, never mind the industrial backbone of supply that would be needed and more.
If one thinks there is a spin-off in trickle up or down money in housing or cars – just think about the economic impact building one of these marvels entails. At the above run rate you probably couldn’t have an unemployment issue. The impact would be far too great across far too many industries. Yet…”
So with current FOMC members stating that they need more “fiscal policy” along with some in the “Ivory Towered Halls” of economics/academia openly touting a “doubling” of its balance sheet (after all what’s another $4Trillion among friends, right?) should be considered to foster economic growth; there lies an even bigger question on the horizon for Ms. Yellen….
What exactly will the chair do when the call of “Ms. Chairman – get back to work” comes this time from the President with the “bully pulpit,” as opposed to just one of 100 senators relegated to CSPAN™ and Wall Street? Nan you just imagine the badgering that will be unleashed when something like “We can’t afford to do that.” comes up when it was done for Wall Street?
The new fall season for reality TV just got a whole lot more interesting from my perspective.
© 2016 Mark St.Cyr