Harvey, The Fed, And A Little Perspective

I was talking with a colleague over the past week about the current devastation, and what can only be described as an upcoming, monumental task for resources to begin the rebuilding of not only Houston, but those in and around all its surrounding areas. The effects of which are sure to ripple throughout the entire U.S. in ways not yet realized for years to come.

During the discussion there were two distinct questions raised.

  • First: How much will it cost?
  • Second: How can we (e.g., as a nation) afford it?

These were two reasonable questions with the term “affording it” meant as a how-to question, not a question of: will we?

It was during that questioning as we began contemplating into what resources not only from a physical stand point (think steel and more) will be needed, but also, what type of monetary resources would be available such as small business loans, big business credit, insurance liability payouts ( again, etc., etc.) is where things began turning from frustrating to infuriating. Why?

The current questioning across the mainstream media with their premises of “affording it” were beyond idiotic, especially when buttressed with where the “markets” now stand and the reasoning for it. Not to mention the arguments being poised by many of the so-called “smart crowd” which have been both intellectually insulting, as well as infuriating when it came to “markets” benefiting or not. Let me explain…

As of today, the only thing that has benefited over these past 8 years via $4.5 TRILLION dollars of monetary stimulus provided to the “Friends of the Fed” club has been an overvalued “market” and credit expansion that allowed CEO’s to gorge and buy their own shares.

Nothing has been built (just look to all the macro data) as to warrant where this “market” now stands. Nothing has been upgraded i.e., think the electric grid, roads and bridges, levees, dams. Nothing, absolutely nothing. Well, maybe “nothing” is incorrect, as in: nothing except for differing factions of usury in one form or another. The anthesis of what these markets were created for to begin with.

Markets were created to be the vehicle where capital formation, which was once “the envy of the world” was made possible for just such times. Now? It’s where parasites play (i.e., High frequency Trading bots) and create nothing except $Billions upon $Billions of siphoned off, front-run Fed. largesse to deposit into their own coffers. And please spare me the “liquidity” argument. I don’t have a Ph.D, so I understand common sense. That fool’s argument is better kept (and believed) for the academic crowd.

So now, just when it will be needed most? The “markets” are nothing more than a bloated, bed-ridden, junked-up, video-gamed, casino, nearly incapable to function on its own should one “dinner plate” of front-running largesse not arrive on-time via their special delivery “take out” carriers.

And today? The Fed. is stating it can just put this pathetic excuse called “markets” on a lean diet and exercise and things will all go along just swimmingly. Fat chance.

If you detect a little annoyance in my tone you’re correct. Because the more one delves into what is now staring down not only Houston, but the nation as a whole for resources in both the cleanup and rebuilding process? It doesn’t take much to realize it’s all been absolutely squandered beforehand by an unelected cohort of academics playing “economic gods” over the entire United States.

They’ve been clueless from the start – and they may be even more so today. So insinuations that the “markets” will/may be benefiting from this disaster just as the Fed. pulls back, will be anything but in my opinion. For they can’t. It would be like asking that bed-ridden, doped-up, gargantuan to: get up, run a marathon, not just today, but now.

See my point?

Just to shine a little more light onto what I mean (i.e., don’t take my word for any of it, go see and judge for yourselves) all one needs to do is go over to Bloomberg™, or their media of choice, and view any of the interviews given by members of the Federal Reserve at the latest Jackson Hole Symposium. It’s an adventure in sheer-utter-lunacy, drivel, and incoherent delusions of efficacy via monetary policy. I’ll only add: Where boots, because it gets deep, and fast.

Now with the storm damage and devastation of what Harvey left being still being calculated. What we might also be on the verge of is what can only be described as another “storm” overhanging the nation as a whole. And it’s not off shore, but rather, it’s currently contained in what is known as the “safe harbor” of monetary policy – The Eccles Building.

This storm so-too has a name, and it bears the moniker of “Janet” now sitting and brooding, gathering momentum within its confines, building in intensity, just off-sight of the “markets” view. But it is on the radar, and being tracked, scheduled to make contact as of September 19th. But what devastation it may bring is uncertain and won’t be known until the 20th as the eye-of-the-storm passes and the remaining back-half known as the “presser” reveals what further portends.

The potential for outright disaster is there. And it’s all going to hinge on perspective. For now with the devastation of Harvey yet to be fully tallied or realized. The Fed. choosing anything other than “staying the course” as they have so many times prior using the ever-changing “international developments” excuse they’ve employed so many times prior? It just might not be seen in the light of doing the “monetary gods work” they like to express themselves as when amongst those receiving their patronage.

Again, the reason why all of this so infuriates me, is there just seems to be so little understanding and perspective (and that goes double for academia) as to exactly what the Federal Reserve has done these 8 years via all their iterations of QE, and what we as a nation got for all of it in return.

Listening to academia spin their take has been, from my perspective, nothing more than abject lessons in annoyance I could do without. All they’ve done (e.g., The Fed) is inflate their balance sheet via programs that did nothing more than inflate the balance sheets of the “Friends of the Fed” club. Main Street, U.S.A. not only got zilch for it , but rather, has been expected to be “thankful” for it. They’ve done nothing but put the entire “market” complex at risk, with greater instability, every passing day. Why?

Because now just when we need it. (“It” being the once hallmark of capitalism and capital creation) They want to be able to take away the only thing holding it up. (i.e., their balance sheet and rollover, reinvestment programs.) And expect everyone to believe they’ll be little to no consequences for doing so other than a possible “hiccup.” Again: Fat. Chance.

To give one a little more perspective, let me put a few things this way, because as I’ve stated before in previous articles; sometimes to explain large numbers – you need large examples as to grasp the size. So in that light let me pose this example and let’s see how you feel when you answer for yourself, rather than taking my hypothesis alone. Ready?

Hurricane Harvey is currently having estimates of $150 Billion dollars of pending damage, with that figure rising steadily to maybe $180 Billion. But that’s a figure proposed once everything is all settled and done with, and the final cost years away. The initial costs as to get Houston back up and running was at first estimated at about $30 Billion. Large figures no matter how one tries to evaluate them.

If you’ve watched, listened, or read any of the “news” media reports with their gaggle of Ivory Towered academics pontificating on how “this amount of money is nearly unfathomable” and blah, blah, blah. Let me remind you as to gain a little “perspective” that if you take the high side figures between $150 – $180 Billion as to completely rebuild and fix the entire infrastructure, along with making families, and businesses whole again. (for that’s how you get to those large figures)

With the above for context, here’s the insult to intelligence. Ready?

The Federal Reserve via their QE program could cover it – in its entirety – with just 2 months worth of payments to their “Friends of the Fed” club. For they were making available via QE the tune of $80 – $85 BILLION per month. For years!

A few years back I wrote in “Putting The Fallacy Of QE Into Perspective” And in it I made the following points. To wit:

“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.”

Again – for perspective – forgetting the above, the Fed. via its QE injected into the “markets” via their “Friends of the Fed” primary dealers and others the equivalent of being able to cover the costs of not only Harvey, but Katrina, and alike storms if it had hit every two months for over 3 years.

Take a moment and truly contemplate that. Not for the hypothetical disaster itself, but rather, for the infrastructure, building, goods, labor, and more that would be needed, sourced, employed and more.

The Fed. has spent (for they printed it ex nihilo) and made it available via the “markets” to squander to fill its own coffers to the tune of having a 18 Harvey equivalent disasters in 3 years costs 100% covered. But what did Main Street get? Not even a lousy “T-shirt.”

This is what so infuriates me when trying to listen to today’s main stream business/financial media. When the Fed. was pumping into the markets the monetary equivalent to pay for a once in a thousand-year storm every two months for years? _________ (insert crickets here.) Now? How are we going to pay for all of this? It’s beyond pathetic.

Let me be clear, I’m not advocating that the Fed. should now foot the bill for Harvey or any other such disaster. Far from it. What I am arguing is the total lack of intellectual decency as to try – and not see – just how the Fed. itself, with its monetary Frankenstein, has left the “markets” in a position of weakness – not strength – when it may be needed most.

And now they may just “tinker” even more with the monetary “weather.” All, when in reality, it should cause for at least an all-out pause to re-evaluate precisely what unforeseen effects may be forthcoming, never-mind should they dare do anything like propose raising, or begin balance sheet reduction in the face, and in conjunction with such a “domestic development.”

As I stated in my prior articles: All the money the Fed. pumped into these “markets” and we have nothing to show for it but an over-bloated, ever-sickly “casino.”

Now with not only Harvey being a financial nightmare we also have N. Korea setting off Hydrogen bombs. The kind that could send the entire U.S. into the stone-ages in less than a week.

Imagine if that money was used to build up the electric grid, build and repair the infrastructure, and amass the weaponry I detailed earlier rather than just used as “play money” in the “markets.” Do you think we would be in a stronger position to work through these current storms? Think about it. But hey – the banks are safe, right?

If the Fed. at their September meeting does anything less than the making of cooing sounds that would make real doves jealous? With Harvey reconstruction efforts still being evaluated, along with the debt ceiling, and more?

Harvey may appear to be just a warmup for the real storm on the horizon now known as “Political Janet.”

© 2017 Mark St.Cyr