The 85 billion a month QE in perspective

[Texashiker]

We all know that the federal reserve has been buying $85 billion every month is what it calls quantitative easing (QE).

Lets put that $85 billion in perspective.

Aircraft carriers

85 billion would buy 6.5 super aircraft carriers. The USS Gerald R. Ford (CVN-78) currently under construction cost $13.5 billion.

The United States has 10 aircraft carriers in active duty. Three more are in the planning phase or under construction.

With just 2 months of this quantitative easing we could double the number of aircraft carriers. Which would provide thousands of jobs for close to 3 decades.

Three gorges dam

Three gorges dam, the largest construction project in the world only cost $26 billion in US dollars, and took 9 years to complete.

With just one month of QE spending we could build 3 three gorges dams.

A documentary on netflix about the three gorges dam said 40,000 people were employed to build the dam.

One month of QE could employee 120,000 people for 9 years, have some spare change left over, and build 3 super dams at the same time.

 

[JTsyo]

You do realize that buying bonds gets you your money back when the bonds mature right? Dams and aircraft carriers don't. Care to try again?

 

[Spungo]

That certainly is an interesting way of looking at it. Right now the budget is doing things like paying roughly 90 million people to not work. Some of them are students who are going to school because they can't find jobs, some of them are old people who can work but choose to retire and live on the dole until they die. Roughly 1 trillion dollars of student loans will likely never be repaid because government backed loans were used for things like gender studies or psychology degrees. It's as big a disaster as the Fannie Mae problem of government insured loans being used to buy houses at inflated prices. Government spending mostly goes out in the form of welfare instead of infrastructure building. Anthony Bourdain said you can get excellent cell phone reception nearly anywhere in China. Back in America, we use just as much money on dumb shit like EBT cards and paying $15,000 per student for education in Detroit and Washington DC. In China, the government pays people to build things. In America, the government pays people to not build things.

You do realize that buying bonds gets you your money back when the bonds mature right? Damns and aircraft carriers don't. Care to try again?

Are you suggesting the US government is LENDING money instead of BORROWING money? Wow. Just wow.

 

[Texashiker]

You do realize that buying bonds gets you your money back when the bonds mature right? Damns and aircraft carriers don't.

Who benefits from bonds?

Who benefits from working class construction jobs?

If one month of QE spending were put into infrastructure projects this recession would end.

The three gorges dam will provide 1/10th of chinas power. With one month of QE spending were put into dam projects, that could provide 30% of china power. I wonder how much of the United States power could be supplied by 3 super dams?

Are you suggesting the US government is LENDING money instead of BORROWING money? Wow. Just wow.

The federal reserve is not a government agency.

 

[glenn1]

We all know that the federal reserve has been buying $85 billion every month is what it calls quantitative easing (QE).

Lets put that $85 billion in perspective.

Aircraft carriers

85 billion would buy 6.5 super aircraft carriers. The USS Gerald R. Ford (CVN-78) currently under construction cost $13.5 billion.

The United States has 10 aircraft carriers in active duty. Three more are in the planning phase or under construction.

With just 2 months of this quantitative easing we could double the number of aircraft carriers. Which would provide thousands of jobs for close to 3 decades.

Three gorges dam

Three gorges dam, the largest construction project in the world only cost $26 billion in US dollars, and took 9 years to complete.

With just one month of QE spending we could build 3 three gorges dams.

A documentary on netflix about the three gorges dam said 40,000 people were employed to build the dam.

One month of QE could employee 120,000 people for 9 years, have some spare change left over, and build 3 super dams at the same time.

Too late, Paul Krugman already had basically the same idea to just build whatever ridiculous shit you can think of, who cares it all adds to GDP.

You should have expanded on his idea. Maybe you should have asked if we can require the dams to be built without any earth moving equipment? You could probably employ millions if you used teaspoons to dig instead of bulldozers.

And here's another idea - how about if instead of putting money indirectly into the economy via welfare, we just cut out the middleman and bought beer and lottery tickets for recipients directly? That would save even more money to devote to "stimulus".

 

[Texashiker]

You should have expanded on his idea. Maybe you should have asked if we can require the dams to be built without any earth moving equipment? You could probably employ millions if you used teaspoons to dig instead of bulldozers.

And here's another idea - how about if instead of putting money indirectly into the economy via welfare, we just cut out the middleman and bought beer and lottery tickets for recipients directly? That would save even more money to devote to "stimulus".

Not sure I understand your post.

 

[JTsyo]

Are you suggesting the US government is LENDING money instead of BORROWING money? Wow. Just wow.

Not an econ expert so bear with me. The Fed is not the same as the US government. When the Fed buys bonds it is LENDING money to the US government. The Fed can't fund aircraft carriers or dams. For the US to buy more aircraft carriers it would have to borrow even more money. So you see how comparing Fed bond buying to US government spending is not applicable?

 

[Darwin333]

Not an econ expert so bear with me. The Fed is not the same as the US government. When the Fed buys bonds it is LENDING money to the US government. The Fed can't fund aircraft carriers or dams. For the US to buy more aircraft carriers it would have to borrow even more money. So you see how comparing Fed bond buying to US government spending is not applicable?

Where exactly did the Fed get this money they are loaning to the US?

 

[Texashiker]

Where exactly did the Fed get this money they are loaning to the US?

The federal reserve makes money.

They just print money out of thin air with nothing to backup its value.

 

[Attic]

You do realize that buying bonds gets you your money back when the bonds mature right? Dams and aircraft carriers don't. Care to try again?

Let's be clear that in this case the buying of bonds is done with printed money. Further, the interest the treasury pays on the bonds to the Fed is then handed back to the US Treasury from the Fed. Those payments, called remittances, totaled 90 billion last year. It's printing money to pay the debt, or monetization of the debt as it's often referred to. That printed money in effect does go to build ships and other.

There is strong indication the Fed will not wind down its balance sheet, ie not get its money back. Since QE1 what has happened to the Feds balance sheet despite what was said would happen to it? Everything needs to get rolled over, there is no going from the current 3.8trillion of printed money (800billion before QE started) back down to 800billion.

QE is clearly unfair and likely used for exactly what Bernanke believes in, Wall Street is all that matters even if its corrupt and evil. QE also has the effect of making deficits seem like the don't matter, through the remittance clause the treasury can effectively borrow at zero interest and when principle comes due, simply roll the zero interest debt over.

In short, QE can't end now and it will be ok until it abruptly is not. Having the main buyer of US debt (45B worth a month) be an entity that has infinite dollars, the Fed, is a large problem. Given the fed is the main buyer, how can it change to net seller (it can't), how can it even simply let the debt mature when USGov needs to roll over the zero interest loans from the a Fed?

 

[Spungo]

The federal reserve makes money.

They just print money out of thin air with nothing to backup its value.

The system is so fucked up that people don't believe it when it is explained.
-US paper money is created by the Federal Reserve, a private bank, not the government
-US coins are made by the US Treasury, a part of the government
-the Federal Reserve's counterfeit money is lent to the government
-the government is required to pay interest to the Federal Reserve on this counterfeit money
-the Federal Reserve also lends this fake money to commercial banks
-commercial banks are allowed to lend out 10x more fake money than they actually have, essentially creating their own counterfeit money and being able to charge interest on it

The result of this weirdly broken system is that the supply of money in circulation is constantly changing. Money can be created from nothing when banks issue loans, but money is also destroyed when those loans go into default. I actually like Krugman's idea of minting a 1 trillion dollar coin. Making 1 trillion is a hell a lot better than borrowing 1 trillion from the fed.

Too late, Paul Krugman already had basically the same idea to just build whatever ridiculous shit you can think of, who cares it all adds to GDP.

It's really a shame that politicians are not required to have high school diplomas. In America, dumb fucks like Nancy Pelosi think that paying unemployment benefits is more productive than public works projects like the Hoover Dam. Over in China, their politicians build entire ghost cities instead of doing obvious things like fixing the fucking pollution problem that plagues their country. Is government in any country capable of doing anything right?

 

[EagleKeeper]

Who exactly is getting the money for the carriers?

 

[HumblePie]

Uhh, the federal reserve is not a "private" bank. It's basically a government entity unto itself. Every other government entity has to take it's direct mission from either Congress or the President in some form or fashion. The exception is the Federal Reserve Bank. While it's actions can be questioned and steered a bit by either Congress or the Pres, it's far more autonomous than any other government agency by law.

Now as to the debate if making the FRB that autonomous of a government entity is a completely different debate.

 

[Texashiker]

Who exactly is getting the money for the carriers?

Not sure I understand your question.

The workers get paid, supplies are bought, steel mills, computer systems,,,,.

 

[EagleKeeper]

Who exactly is getting the money for the carriers?

Not sure I understand your question.

The workers get paid, supplies are bought, steel mills, computer systems,,,,.

So most all the money for the cost of a carrier gets recycled back into the economy; shipyards and suppliers

 

[Texashiker]

So most all the money for the cost of a carrier gets recycled back into the economy; shipyards and suppliers

Yes.

Not sure where you are going with this?

 

[nextJin]

Yes.

Not sure where you are going with this?

It's the same thing as Stimulus spending.

 

[Texashiker]

It's the same thing as Stimulus spending.

Except the money is going to wall street and the banks, and we are getting almost nothing from it.

 

[EagleKeeper]

Yes.

Not sure where you are going with this?

I got the impression that you were stating that if a carrier or two was cut; there would be no problem then with the budget.

My POV was that the money spent on building the carrier gets recycled multiple times back within the local(s) economy.

 

[Kntx]

Hey OP. QE purchases of treasuries are used to fund government operations. Thus QE money directly funds the construction of things like aircraft carriers and civil infrastructure.

I think you are confusing monetary stimulus with fiscal stimulus. To implement fiscal stimulus congress would have to pass a budget full of projects and other procurement. Of course congress is not very good at passing budgets. Especially not budgets full of "pork".

The burden is then on the Fed who must to go wild with monetary stimulus. The poor guys running that place have pretty much saved the country while being vilified. Good job Fed! Don't mind all the rattling cans.

 

[Texashiker]

I got the impression that you were stating that if a carrier or two was cut; there would be no problem then with the budget.

My POV was that the money spent on building the carrier gets recycled multiple times back within the local(s) economy.

Hey OP. QE purchases of treasuries are used to fund government operations. Thus QE money directly funds the construction of things like aircraft carriers and civil infrastructure.

I think you are confusing monetary stimulus with fiscal stimulus.

As per the examples in the opening post, where is the money going?

As with the three gorges dam example, one month of QE spending is enough to create 140,000 jobs for something like 9 years. And this has been going on for well over a year?

 

[Kntx]

As per the examples in the opening post, where is the money going?

As with the three gorges dam example, one month of QE spending is enough to create 140,000 jobs for something like 9 years. And this has been going on for well over a year?

Look at the government budget. That is where the money is going. Mostly medicare, medicaid, social security and defense.

 

[Texashiker]

Look at the government budget. That is where the money is going. Mostly medicare, medicaid, social security and defense.

This are bank / wall street securities the fed is buying.

http://www.forbes.com/sites/markmcsherry/2013/09/19/sp-hits-new-high-as-fed-continues-buying-bonds/

‘Accordingly, the committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.’

What is the fed buying with 40 billion a month in mortgage-backed securities? Sounds like they are buying an entire nation.

 

[Kntx]

This are bank / wall street securities the fed is buying.

http://www.forbes.com/sites/markmcsherry/2013/09/19/sp-hits-new-high-as-fed-continues-buying-bonds/


What is the fed buying with 40 billion a month in mortgage-backed securities? Sounds like they are buying an entire nation.

OK, I thought we were just talking about the treasuries. Yes the MBS purchases help keep rates low and stimulate home values. Your "buying an entire nation" comment is hyperbole and calls into question how interested you are in having a discussion.

 

[Texashiker]

Your "buying an entire nation" comment is hyperbole and calls into question how interested you are in having a discussion.

Seriously, what are they buying for 40 billion a month?