Federal Reserve Stimulus to Daily GDP…WTF?!
Posted by Jason Apollo Voss on Dec 4, 2019 in Blog | 3 commentsI wanted to share with you shocking data that, for whatever reason, is not getting more widespread coverage. Namely, the total amount of economic stimulus (money printing) that the Federal Reserve is engaged in at the moment. I then compare the total amount of that stimulus to daily Gross Domestic Product (GDP) is the U.S. to reveal the insane amount of stimulus taking place.
Below is the stimulus that has taken place since 14 November 2019. Note: the source for all is the Wall Street Journal. However, due to how they report stories, the links quickly disappear:
- 14 November 2019: $104.293 billion
- 19 November 2019: $102.440 billion
- 20 November 2019: $74.350 billion
- 22 November 2019: $80.600 billion
- 22 November 2019: $7.500 billion
- 25 November 2019: $93.500 billion
- 02 December 2019: $97.900 billion
- 03 December 2019: $95.560 billion
In total, that is $656.143 billion over the course of just 19 days. On a daily basis that is $34.53 billion. But this number is so abstract as to defy a quick understanding. But what happens when we compare this amount to the daily run rate of U.S. GDP?
Total U.S. GDP for the previous four quarters (4Q 2018 thru 3Q 2019) was $21.54 trillion, according to the Bureau of Economic Analysis, or $21,540 billion, or divided by 365 days the figure is $59.01 billion.
In other words, the amount of stimulus is equivalent to $34.53 billion $59.01 billion = 58.5%. OMG.
What the heck is going on here? Why isn’t this getting wider attention? Yes, there are occasional stories about the amount of stimulus that is hitting the repo market, but the magnitude is gigantic.
I am in my 27th year in finance and investing and I am not sure what to make of this story. But I do know one thing it isn’t good. Is this the unwinding of the global Ponzi-scheme that is Federal Reserve Stimulus. Is there a major bank failure being kept hush-hush? Is this politically motivated? Is this the end of fiat currency? Is this End Times? I have no idea. I would love to hear your theories.
Thanks for sharing this data, if we link this with raising debt level US Gov has taken (22 trillion) which has crossed GDP (18 trillion ) can have disastrous effects on the world economy. I would like to know what part of daily printing of currency goes to serving this enormous amount of debt. If you can get your thoughts on this and let me know it would be great.
Hello Akash,
Thank you for your comment and for taking the time to author it 🙂
The amount of stimulus that I highlighted is taking place in the repurchase market (also known as the “repo” market). In the US and most other countries, banks have regulatory requirements about the % of customers’ deposits that must be held onsite in the form of cash. Each day some banks have a shortage of cash to meet their reserve requirements. While some banks have an excess of reserves. Banks with excess reserves lend money to those with a shortage on an overnight basis in order to earn a little bit more interest on those excess reserves. Because these loans are overnight and between large financial institutions, these debts are considered some of the safest in the world. Yet, the Federal Reserve is lending money to this market. Why?
A report from the Bank for International Settlements just published a report last week about a similar situation in September. Bear with me while I explain their conclusions. I have to bring up another market in order to explain what is going on in the repo market; namely, the market for newly issued US Treasury bonds. In the US the Treasury auctions bonds almost every week to a group of just 4 gigantic banks. These banks are required to buy what the US Treasury sells if they also want to operate as dealers of US Treasuries, which is a very lucrative business. Due to the size of US Treasury auctions the gigantic banks do not have enough excess cash to lend monies in the repo market. So, in other words, the recent activities are strong evidence that the US has nearly reached a maximum budget deficit number. Essentially, the Federal Reserve is printing money to purchase US Treasury debt, but in an indirect fashion. Yikes!
As for your question, Akash, according to a website, the balance, the amount of interest on the debt is $479 billion. These data come from a report published by the Congressional Budget Office. I have seen projections that say that the interest on the debt is likely to be over $1 trillion each year by 2028. That amount would be over 3.5% of the US economy. Double yikes.
With smiles,
Jason
Hi all,
An update on this piece…I write this in the midst of the 2020 COVID-19 crisis. And, you guessed it, the REPO market remains under duress, such that now the US Treasury is asking if it can step in to assist the Federal Reserve in propping up this market. Yikes! Here is a link to a WSJ piece that discusses this request:
https://www.wsj.com/articles/treasury-department-asking-congress-for-permission-to-backstop-money-markets-11584546598?mod=djemalertNEWS
Let’s be conscious out there!
Jason