In an article I wrote in November of 2019 laying out how the Federal Reserve was supposedly losing control from the “in control” narrative portrayed for everything concerning monetary policy and markets. I used some very big examples to explain my points, for good reason.
Before this everyone was told that the Fed was “in control” and would easily be able to reduce its balance sheet and raise interest rates as the economy (supposedly “the best ever!”) was moving along with record employment and stock market record highs – and then it all fell apart – all to the Fed’s dismay.
Since that time Fed has not been able to do one thing it claimed it was going to do. Zip, Zero, Nada. What’s been even more striking, for those that want to look, is just how far the Fed has gone off the rails with its “print button.” It really is breath-taking.
I’ve used “big things” over the years to put some visual weight behind the $Billions that are thrown around today as if it were pocket change. Hint: It ain’t.
Below is that article, I’ve added and highlighted what is being done currently to contrast what I was saying back then for comparisons with what has transpired since. Again, to reiterate: The numbers are simply shocking.
You can read the entire article for perspective (Remember:this is just Nov. of 2019) or scroll down and just read the highlighted sections and strikethroughs. Both are just as stunning.
Back To Perspective When Printing $Billions
Back in 2013 and 2014 I penned a few articles pertaining to not just the fallacy of quantitative easing (QE), but what all this money printing really represented when looking at it through the hypothetical perspective of tangible assets that could have been produced, and its impact on GDP.
In other words: if it hadn’t been used for the sole purpose of inflating stock markets.
When I looked back over these two articles what struck me is just how little both the arguments, for or against, have changed. The difference this time, for perspective, is we have two very concrete results for those arguments to look at and compare. Here are those arguments. First:
The proponent arguments put forth via the entirety of the mainstream/business financial media, their next-in-rotation fund-manger cabal and their so-called “smart crowd” of think-tank aficionados to proclaim any and all Fed actions were proper and constructive. Year, after year, after year.
Those with a complete opposing argument from people like myself and others. I.e., We have also argued year, after year, after year none of them has a clue. They were all simply winging-it and slinging-it, hoping it sticks, any of it. Period.
However, now with the benefit of time past, we can now compare and see which side actually did “have a clue.” Hint: It’s not the former.
One of the items that struck me when reviewing these articles was just how openly hostile the media was becoming to anyone proposing anything other than a “Bull market” thesis. I use the term “becoming,” because back then they still allowed a variety of opposing viewpoints (though that number was dramatically diminished). But they very visibly turned these into an all out version of what I coined as “ambush the guest” segments.
CNBC™ appeared increasingly hostile and blatant in this manner, to the point where they just no-longer either invited these guests back, the guests just wouldn’t return, or were told “tone down” any-and-all calls for caution. This happened (my conjecture) to people like Bill Fleckenstein, Peter Schiff, David Stockman, Jeffrey Gundlach and a host of others, where I’ve made mention of it many times.
Now it appears they’ve just decided it was best to no-longer have any opposing viewpoints, because if you listen or watch today (those of very diminished few that still do) it’s Bulls-R-Us with its champion buzzer-king leading the bandwagon, 24/7.
Here’s a sample from my a fore mentioned article. To wit:
You can’t turn on a financial news program without being bombarded by panelists as well as the hosts ready-at-the-draw to pounce on anyone with an opposing view as to the “effectiveness” of the Federal Reserve’s quantitative easing program (QE).
Once again this played out just the other day on CNBC™ where this time it was Peter Schiff who found himself in the cross hairs of today’s version of “ambush the guest.”
You can agree or disagree with anyone’s viewpoint and I even encourage people to question mine if they see fit. However, you don’t have to be a rocket scientist to watch many of these anchors to witness for yourself what now has turned into all the appearances of – an ambush.
And the recurring foil used to defend their attack? (paraphrasing but it’s the gist) “You’ve been wrong about monetary policy for if you were invested in this market, you would be making money. And those who have listened to you have missed out. So won’t you now admit you were wrong?!”
Schiff wasn’t the first nor will he be the last and can defend his own calls and does so. But no one on these shows cares. And this is clearly visible for all to see in these exchanges.
You hear calls of “Admit it!, Admit it!” over and over again as someone is trying to clarify a position. Clarify in the real sense of the word. Not obfuscate it as the hosts or other “guests” are trying to imply by shouting over them.
It’s now gone from amusing to watch, to down right pitiful. Many times I’m left watching these hosts channeling that old quote, “Do you have no shame?”“Putting The Fallacy of QE Into Perspective” Oct. 29, 2014
So now here we are – five years later – and what has transpired? Hint: Rhymes with a complete and utter debacle and disaster of monetary policy and theory.
The “Keystone Cops” look more in control of their intervention and outcomes than the Fed. The only difference: one was a comedic cinematic event. This (current monetary policy) is an ever-increasing, ever-unfolding real time, real life consequential travesty.
We now have not just the Fed, but the entirety of those I highlighted prior signalling that they agree with the notion of the Fed buying Treasuries, once again, is not QE. That would be comedy genius for complexity and delivery if it wasn’t so blatantly tragic and devoid of any truth. i.e., Calling water “oil” doesn’t make it so. But don’t tell them that, for they’re convinced it can. But I digress.
[Note: this is the original statement I wrote in 2019, How much that’s changed you’ll read below.] The Fed is now buying $60 Billion dollars worth of treasuries every month. And – they are making available “at least” $120 Billion in overnight repo operations. And – they have cut interest rates three times this year. And – this is all transpiring in the same a year when they were supposed to be raising them, reducing their balance sheet by $50 Billion per month and all of it we were told was supposed to work like “watching paint dry” in the background on “autopilot.”
Here it is with today’s numbers, ready?
The Fed is now buying
$60 $120 Billion dollars worth of treasuries and MBS every month. And – they are making available repo’ing “at least” $120 Billion about $1 Trillion in overnight repo operations. And – they have cut interest rates three times this year continued cutting back to net zero where it remains. And – this is all transpiring in the same a year when they were supposed to be raising them, reducing their balance sheet by $50 Billion per month [which never happened because the markets fell apart] and all of it we were told was supposed to work like “watching paint dry” [publicly stated by Janet Yellen] in the background on “autopilot.” [publicly stated by Jerome Powell] [which was anything but because said markets went into outright free-fall.]
And they told us we were the ones that “just don’t get monetary policy.” Hint: I don’t think the Fed does either. Just sayin’.
However, the reason why I was looking back over these articles was due to the downright casualness this same crowd argues this latest “NotQE4” of $60 Billion is being tossed around. For as I tried to make clear back then, it appears even $Trillions is now considered chump-change.
It’s completely unhinged and devoid of reality, because no one appears able to conceive of just how much money we’re talking here. Which is why I was looking back, because I did just that, back then. And I feel it needs to be done once again.
Using just the latest round of
“NotQE4” at $60 Billion per month, QE at $120BILLION per month that is supposed to last (at the moment, look for it to go longer and possibly even increase) till the second quarter of 2020 indefinitely until they think about thinking about possibly curtailing it. That’s close enough to use $500 Billion ~$2TRILLION for example purposes. Here are those examples:
[Here’s where things get really big…]
At a run rate of
$60 $120 Billion a month you could purchase: 510 – B2 Stealth Bombers 24 – Ford Class (this is the newest) Aircraft Carriers 36 – Ohio Class (aka “Boomers”) Submarines 2040 – F22 Raptor aircraft 2040 – F35 Lightning aircraft 150300 – M1 Abrams (latest generation) Battle Tanks $8$16 Billion left over to purchase the fuel and ammunition needed to outfit.
The above only represents what the Fed is now injecting into the “markets” via their latest “NotQE4” program. [Note: The above equivalent is still transpiring, currently, month after month after month, with no end in sight or signalling. In other words – this could go on for years never mind months]
What does this represent
by Q2 of next year since March of 2020? Well here you go, using nine 16 months at a run rate $60 $120 Billion each (e.g. $540 Billion ~$2Trillion). But remember, that number is conservative when you add all the other injections (such as the now $120 Billion for repo alone doubling of its balance sheet to $8 TRILLION+) the Fed has now embarked on. To wit: In nine months In the last 16 months you would have purchased: 45160 – B2’s (currently we only have just over 20 and the program was halted for fears of cost. I know, crazy, huh.) 1864 – Ford Class Aircraft Carries (current inventory of all new and old commissioned: 20) 2796 – Ohio Class Submarines (current inventory: 18) 180640 – F22 Raptor aircraft (current inventory: 186) 180640 – F35 Lightening aircraft (current inventory: 171) 13504800 – M1 Abrams Battle tanks (current inventory: 5000 approx) $45$256 Billion left over to purchase the fuel and ammunition needed to outfit.
Now there are a few things that need to be pointed out that also help with not just the perspective argument, but also, why there would be no way possible the above could ever come to fruition without outright demands not just from the citizenry, but also, no other nation would allow it. Why? Easy…
One of those “things” are: If money was no longer a constraint – then every single country on the planet would do the same. Every. Single. One.
But making the equivalent in “cash” to the above, available for the banks and Wall Street?
Not only does nobody question it – but this is now taught in the hallowed halls of academia and beyond as “prudent monetary policy.” And speaking of “academia.”
It doesn’t take a rocket scientist to understand why the likes of today’s socialist/communist inspired politicians, academics, students et al. aren’t going to relent on their arguments for something similar in-kind “for the people!”
This is why the perversion of monetary theory known as MMT is gaining a more sympathetic ear among the populace. Just look at the above for clues. Because you know – they are!
If you think the above is a testament to the latest folly of central bankers? It gets worse, far worse, when you remember that’s what they are doing now, as in, right now.
Here’s what it looks like in hindsight when viewed through the prism of what they’ve already spent. If you’re not already sitting down, I suggest maybe this may be a good time. To wit:
Using the Fed’s balance sheet from the start of QE that figure would be about
$3.5 Trillion $8TRILLION for example purposes, (i.e., they had a balance of about $1 Trillion ~$4Trillion prior.) So using that amount here’s that total represented by the examples I used above. [Only now let’s use the cumulative because it’s all gone, and still going, into Wall Street] Ready? 405640 – B2’s (current inventory: 20 approx.) 162256 – Ford Class Aircraft Carriers (current inventory of all new and old commissioned: 20) 243384– Ohio Class Submarines (current inventory: 18) 16202,680– F22 Raptor aircraft (current inventory: 186) 16202,680 – F35 Lightening aircraft (current inventory: 171) 12,15019,200– M1 Abrams Battle tanks (current inventory: 5000 approx) $405 Billion$1.02TRILLION left over to purchase the fuel and ammunition needed to outfit.
Now let me make this clear, I am not proposing that any of the above should be done or argued for. That’s not the purpose why I’m making this case. What I am trying to do is bring real life examples that everyone understands for their complexity, size and more to help put the perspective of just what the Fed (and all central bankers) have done.
[Or said differently: That’s what $8TRILLION would have purchased rather than given to Wall Street. And don’t forget – another $120BILLION is added every month till concurrently till that $8Trillion becomes _________? Fill in your guess here,because, it’s as good as anyone’s.]
Imagine the amount of GDP and more. The trade workers, factories, suppliers and more needed to produce them. The list goes on, and on, and on and on.
But, as I stated prior: you would never be allowed to do it. Nor should. Period.
No country would stand back and allow it. They would match and build to meet every one produced. Because if the idea was adopted that “money” was no longer a hindrance? Think about it.
Another issue is no U.S. congress would ever approve such a thing, again, and they shouldn’t. (See my original B-2 example for clues)
And yet, this is precisely the equivalent that has been lauded over going into banks and Wall Street. Is it any wonder why people are getting rightly ticked off? After all:
Wall Street is getting wealthier by the minute via central bank largess, and the populace are still being told by the Fed et al. their lousy T-shirt won’t be coming anytime soon, because…
They make those in China, and that’s out of their hands.
© 2021 Mark St.Cyr