Search This Blog

Friday, January 25, 2013

"Oh sure,we can picture '3'. We just get lost at 'Trillion'...

Today's post is a little bit intricate meaning we take some time to explain complicated concepts as layperson as possible.. Readers will come out knowing more than skimmers but at least skimmers will understand more than the skippers... So do your best to follow along.

We start with a quote:

“To save an economy from a failing financial system, you have to do things that are going to be fundamentally impossible to explain to people.  You’re going to look like you’re giving money to people who were responsible for burning down the economy.”

-- Treasury Secretary Tim Geithner

Or after today, its 'former' Treasury Sec since this is Geithner's last day.

Now to understand the truth of Geithner's quote, which really should be apparent to everyone, you have to understand and embrace the following theory:  'If it looks like a duck and quacks like a duck...'
Thus, its going to appear that money is being given to those responsible for destroying the US economy because that was and is exactly what's being done.

$3 Trillion--  over $2 Trillion since 2009 alone.

People are funny creatures:  Try to steal someone's watch, wedding ring, the loose change in their purse or the keys to their car and with very few exceptions that victim will fight and scratch and claw to retrieve back the items being stolen...

$3 Trillion?  Can't relate.. its so impersonal a figure.. The victimization isn't felt thus there's no passion..  its just this large number

But to be fair, its not your fault-- our brains, even those most advanced, are not That advanced to comprehend large numbers in terms of individual units or groupings.

Simple experiment:  Close your eyes and picture a very large room with 3 people.  Each person undoubtedly has a different look from the next... body shape, skin color, etc..   Now try to picture 300 specific, unique individuals at once...

Some may be able to achieve this task... most will not.  And we know with certainty that the human mind could not picture exactly 3,000 of a particular thing...  So how can it be expected to picture 3 Trillion?

What does 3 trillion snowflakes look like?  Or pieces of rice?  Or cookies?
And even if one tries to explain with gimmicky examples such as "If you had $100/day, then for the next  10,000 years... etc" people's minds draw blanks and get turned off..

So we understand some people have difficulty also comprehending charts and graphs so we'll do our best to explain a chart we found on this topic...

Its the Federal Reserve's Balance Sheet-- its Total Assets, which if you remember we constantly have written about, this is not money in a vacuum but rather newly created public debt that will require ultimately public repayment:

The chart maps out the balance sheet over the last 13 years, from January 2000 (Clinton's last year in office) until presently.

You can see between 2000 and late 2008, the Fed's balance sheer grew very minimally, never topping the $1 Trillion mark.

The major spike you see afterwards is QE1 which was the beginning of the artificial stock market manipulations and the death of interest from savings & money market accounts.  Within a span of a year, the balance sheet rose from around $900b to just at the $2T mark.

And because of 3 more QEs (QE2 took place over a 9 month span in 2011, and the beginnings of QE3 & 4 in succession are to add $85b/mo. to the balance sheet), its now currently at $3.013 Trillion

And let's not forget that $85 billion x 12mths = $1.02 Trillion..
And since QE3 & 4 are both open-ended mechanisms, by January 2014, if nothing else was spent to manipulate the economy, that's $4Trillion..  and 2015 would be $5 Trillion. (The Fed said they expect to keep doing this indefinitely until unemployment is under 6.5%)

OK, now what is the purpose of all this Fed trickery besides the fact the US government has Zero desire, motivation nor ability to create jobs by conventional means to kick start the economy?

Well one purpose as analyzed previously is to steer everyone into the stock market to invest.  People aren't doing so in great numbers compared with pre-recession due to rightful fear or needing that money to live on..  But don't worry-- your government is patient... like a sniper.

Think of the stock market as an aquarium, Investors and corporations as fish that do nothing but take in oxygen from fresh water and spew out carbon dioxide poison, and liquidity as the fresh water.  So the Fed pumps and pumps fresh clean water into a dirty tank to keep the parasite fish alive.  The goal is to get you and we and mom n' pop to be the water-providers so it doesn't have to, yet the scavenger fish will flourish...
Because everyday people are hesitant or unable to invest in pre-recession levels, as mentioned previously and there's no other sources of consistent clean water, the Fed must keep doing the pumping for to do otherwise is to admit the death of fish who had deserved to die years ago and is kept alive artificially.

Another reason the Fed is doing what it does it to enrich the balance sheets of banks and corporations, especially since the Federal Reserve is nothing more than a private bank that was created by the banks 100 yrs ago to work for them.

Here's what happens.. Corporation A's shares were worth  $10 in early 2009 whereas say the stock was worth $30 before the 2008 crash.  So in order to stop the hemorrhaging and create a bottom point,  they basically gave corporations like 'A' billions of dollars via the market which allowed companies to have the cash to buy their own shares.

So Corporation 'A' would have then used the liquidity to buy a few million or so of their own shares which gave the impression of profitability and thus appeased shareholders and attracted new investors as the value of its stock was manipulated up to say $35 by the end of QE1 in 2010.
So let's fast forward to the present.  Usually a company will seek to expand their profits by expansion-- new locations, larger work force i.e. new hiring and seek to establish footholds in competing marketplaces, etc.

But that's expensive... and time consuming..

Why do all that when you can make equal or greater profits selling one's shares.   So if Corporation A's shares are worth $50 today whereas worth $10 when QE1 allowed the $$ to buy back into one's company, it means a $40 profit for each share... sell a million shares, take in $40 million profit... Instantly...

And you don't have to hire a single person!

And unlike hiring where you have to match social security and 401k pensions and pay out health insurances, and deal with annoying state and local officials who all want their palms greased, most major corporations pay little to no taxes so that dividend sale is practically all profit!

This is one of the biggest reasons the Fed is actually Destroying the US economy under the guise of fixing it and it adds its expenses to the National Debt, dissuades rather than encourages job creation.
And we didn't even get into how the Fed's actions devalue the dollar causing everything to become more expensive and potentially triggering hyperinflation.

See, no one in a position of power who could fix the economy for real wishes to do so?  Why divert money from the stock market into job creation?  Why deprive banks the funding needed to reimburse the trillions lost from bad mortgages just so a crumbling infrastructure is dealt with?

And how many people with newly created $10-$15/hr jobs are going to donate to campaign re-election funds anyways?

People just can't comprehend the enormity of it all... and there's no true leadership in any position of power to fight the good fight..  And those who make the attempt are few and far between..
We end with this observation:

Today while driving in traffic, yours truly turned on the radio and finding nothing good musically worth listening to, flipped to sports.  The host was quite knowledgeable.. he was talking about Super Bowls of the past remembering specific plays and strategies from games past, even minutia as trivial as defensive alignments of the various teams..

All this knowledge in his head.. and ultimately utterly useless

And if you asked him or those similarly, what QE is, he's probably tell you naively it was a cruise ship, then proudly laugh when discovering he was wrong..  And then he'd go back to talking football.

Because analyzing 50+ Super Bowls is less intimidating to the mind than understanding where $3 Trillion of our money has gone, or accepting the unpleasant reality into the consciousness that what is borrowed, is expected to be ultimately repaid.