The Federal Reserve, like all central banks, has the unique superpower of being able to print more money as and when they require. Up until now, this has always meant equities leapt at the news. An increase in money supply meant an increase in liquidity. Often this was used to buy bonds in the form of transformative economic policy otherwise known as Quantitative Easing – this has kept interest rates down since 2008.
Anyone else think it’s ironic that the financial stimulus is referred to as a “bill”? Anyway, the $1.9 Trillion Financial Stimulus Bill is once again in the House of Representatives and is waiting imminent approval.
I thought it might be worth putting $1.9 Trillion Dollars into perspective as these numbers are bandied around willy-nilly nowadays and its easy to overlook their extreme size.
Often, the best way of putting 1 Million, 1 Billion and 1 Trillion into perspective is to use time. So, let’s think about this in the form of seconds. 1 Million seconds is 11 and a half days, 1 Billion seconds is 31.71 years and 1 Trillion seconds is 31,709.79 years. So, 1 Trillion seconds ago earth was in its Ice Age – much like the film – when Neanderthals roamed alongside Woolly Mammoths (voiced by Ray Ramano) and Sabretooth tigers.
This $1.9 trillion dollar stimulus is therefore an unfathomable quantity of cash which has effectively been created out of thin air.
The difficulty this presents is the emerging inflation problem that we have kicked down the road and we will be talking to clients about the resurgence for inflation in our regular reviews. Beating the battle of inflation will once again be the big challenge and we anticipate that the acronym TINA (There Is No Alternative… ie. to equities) will be cropping up in our meetings.