Global Macro Monitor

Summary

• The Pentagon is the largest office building in the world
• The ground was broken on the 6 million-plus square foot building on September 11, 1941, exactly 60 years to the day before it was attacked by Al-Qaeda on 9/11
• The Department of Defense (DoD) is the world’s largest employer
• The DoD budget will be close to $750 billion in FY 2020, ranking it as the 19th largest economy if it were a stand-alone GDP,  2x the size of Ireland’s GDP and 3.5 the size of New Zealand’s economy
• Veterans make up around 10 percent of the U.S. homeless population about the same size as the population of Monaco, which is a disgrace and can be and should be addressed, ASAP.  We suggest some solutions. 

Large.  In all respects.

Influence

My fellow Americans:

Three days from now, after half a century in the service of our country, I shall lay down the responsibilities of office as, in traditional and solemn ceremony, the authority of the Presidency is vested in my successor.

…Our military organization today bears little relation to that known by any of my predecessors in peacetime, or indeed by the fighting men of World War II or Korea.

Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions.

…This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every State house, every office of the Federal government. 

…In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. – President Dwight David Eisenhower, January 1961

Physical Size – World’s Largest Office Building

The Pentagon is home to the Department of Defense, located in Arlington, Virginia and serves as military headquarters for the United States. The 6.24-million-square-foot concrete structure is the largest office building in the world, covering thirty-four acres.  Built to house the growing War Department during World War ll, new ground was broken on the building on……..wait for……….September 11, 1941., exactly 60 years to the day before the hijacked American Airlines Flight #77, led by Khalid Al Mihdhar,  a senior Al-Qaeda, crashed into its side killing 125 people in the building and all 64 people on board Flight #77.

Employment – The World’s Largest Employer

Budget – New 2020 Budget $750 bn est. = 19th Largest GDP > 174 Countries

Though the House has just passed a $733 bn DoD 2020 budget, Congress and the White House are still haggling over a final deal.  We suspect it will come in at around $750 bn., which in perspective is larger than 174 Country GDPs or bigger than 92 percent of the 194 economies tracked by the International Monetary Fund.

If the Pentagon budget were its own stand-alone economy,  its GDP would rank 19th largest in the world:  2x Ireland’s GDP and more than 3 1/2 times New Zealand.  As we said, large.

Yes, we get it.  The problems of comparing total expenditures versus value-added data.  We are trying to convey a sense of size and scale not get published in an economics journal.  Spare us the emails.

The Number Of Homeless Vets Is A Disgrace And Tragedy

Of all things that anger us most, how we treat our vets, especially those struggling to return to civilian life, is one of them.   My father died, partly due either a mix-up at or just the incompetence of the Veteran Administration (VA).  He served his country in Korea as part of the Marine Air Corps.

More tragic are the vets that end up on the streets.  We have seen estimates that 10 percent of the homeless population in the nation our veterans, larger than the population of Monaco.  That is unacceptable.

Here are some facts and data from the Department of Housing and Urban Development:

On A Single Night In January 2018

• 37,878 veterans were experiencing homelessness in the U.S., accounting for just under nine percent of all homeless adults.
• A majority of veterans were staying in sheltered locations (62% or 23,312 veterans), and 38 percent (or 14,566 veterans) were staying in places not suitable for human habitation. However, veterans accounted for a higher percent of adults in sheltered locations (9.1%) than adults in unsheltered locations (7.9%).
• Nearly all veterans were experiencing homelessness in households without children (98%). Veterans in families were more likely to be sheltered (74%) than veterans in households without children (62%).
• Approximately 18 out of every 10,000 veterans in the United States experienced homelessness on a single night in 2018. – HUD

This is a disgrace and such a stain, which can easily and should be immediately addressed.

Most veterans have returned to civilian life and are doing well.  We have a friend, who was born in West Virginia, served her country  proudly in the U.S. Marine Corps, and is now a very successful real estate mogul and stock jockey.  A true role model for my three daughters.  Way to go, CK!

Let’s not forget those vets who are not so fortunate,  however.

We have no doubt the country can fix this tragedy but it will come at a cost, albeit a relatively small one.   All the homeless vets could be taken care of simply by finding inefficiencies, which total 1-2 percent of the Pentagon budget.   In fact, some now question whether spending on entire weapon systems are still viable and are not even supported by the generals who deploy them.

The support comes more from the defense contractors and members of Congress, who benefit financially and politically from the spending,

Tanks are a classic case. For years, the army has tried to convince Congress to stop buying new ones. They are expensive to build, maintain, exercise, and train troops to use. The army already has more than six thousand of them—far more than it needs for any conceivable future combat. More controversially, the navy remains wedded to new aircraft carriers, but at $13 billion each they are arguably more an outdated symbol of twentieth-century power than an effective weapon system for a future in which they will be increasingly vulnerable to attack by high-speed, maneuverable missiles that can be bought for a minuscule fraction of what a carrier costs.  — NY Review of Books  (Hat Tip:  KD)

The swamp, what we used to call the Iron Triangle and what President Eisenhower warned about in his farewell speech to the nation cited above, is now divided on some on some the spending.

Finding 1-2 percent of savings in a $750 billion budget to support our homeless vets is really a small feat, don’t you think?

A “Thank You Fund” For The Homeless Vets  

If that can’t happen, how about a 0.05 percent “veterans thank you-fee” on the $30.4 trillion of the wealth of the top one percent, which is now 26x the wealth of the bottom 50 percent, to fund a recovery fund for our homeless vets?  We don’t have the data but our priors are, and we highly suspect, the children of the one percent disproportionately do not serve in the military or fight the wars that protect their wealth.

We do have some friends among the one percent that have children serving in the military.  They can choose, if it is their preference,  to be exempt from paying the thank you fee.

We spend close to $40k annually on approximately 221k inmates incarcerated in Federal prisons,

Based on FY 2016 and FY 2017 data, the fee to cover the average cost of incarceration for Federal inmates was $34,704.12 ($94.82 per day) in FY 2016 and $36,299.25 ($99.45 per day) in FY 2017. The average annual cost to confine an inmate in a Residential Re-entry Center was $29,166.54 ($79.69 per day) for FY 2016 and $32,309.80 ($88.52 per day) for FY 2017. (Note: There were 366 days in FY 2016 and 365 days in FY 2017.)  – Federal Register

Yet we let our homeless vets suffer on the streets.

We are better than this America.

Let’s get it done.       

Appendix

U.S. Defense Spending Almost 3x China

U.S. Spending On Defense Secular Trends Lower

Defense Spending Close To 60 Percent Of Discretionary Spending 

Defense Budget Rationed Fairly Even Between Branches of Military

Spending On Personnel Second Only To Operations & Maintenance

Eagle: Houston, Tranquility Base

The Eagle has landed.

Houston: Roger, Tranquility, we copy you on the ground. You’ve got a bunch of guys about to turn blue. We’re breathing again. Thanks a lot.

Tranquility base: Thank you.

Houston: You’re looking good here.

Tranquility base: A very smooth touchdown. – July 20, 1969,  Mare Tranquillitatis,  The Moon 

So cool.

Codependency is characterized by a person belonging to a dysfunctional, one-sided relationship where one person relies on the other for meeting nearly all of their emotional and self-esteem needs. It also describes a relationship that enables another person to maintain their irresponsible, addictive, or underachieving behavior. — Pysch Central

Preface

Let us preface this post by first stating, thank goodness the central banks, especially the Fed, for their bold and decisive actions during the Great Financial Crisis (GFC).  Their behavior prior to, and after the GFC is more suspect but we know how close the global markets came to a total collapse, not just once but many times during the crisis.  This comes from our sources at the highest levels of policymaking. 

Collapse, not as in the S&P500 falling another 20 percent, but a complete meltdown of the global payments system, rendering trade in goods and services in the marketplace almost impossible.   The hijacking of Safeway trucks and martial law probably only a few days later.   

Maybe the Fed could have done things different, more effective, more efficient, and more sustainable but act they did and kept most of us from living under a freeway and eating bark for the rest of our lives.    

Stay with us if you disagree for the rest of the post. We are willing to listen to your arguments if you have better information. We are very confident in ours. 

One of our twitter mates, who resides in the home country (led by a man named Justin) of the team that stole the NBA championship from our Warriors, tweeted out the WSJ article with the above headline.

We immediately replied with something close to the following but with much fewer characters,

When will the central bankers learn?  That they can’t solve structural economic problems with their limited cyclical toolbox — no matter how large, no matter how expanded.   

Trying to do so only exasperates the unintended consequences, such as political stress and the blowback caused by the increasing wealth inequality.  Not to mention the growing blackhole of negative yielding debt in the global bond market.  We suspect the consequences of negative yields will not, let’s just say, be optimal in the long run.    

Can the Fed and ECB arrest the decline in the international liberal economic order, which may plunging the global economy into a deep recession, with more quantitative easing?  

We believe it would behoove central bankers to stop enabling the politicians and go on something similar to  a “sex strike,” forcing governments to implement the painful but necessary structural reforms to put their economies on more stable and sustainable trajectories. 

Govenments don’t like to make the tough choices, especially given the current state of the western democracies, and this would take some major stones by central bankers as bullying from political leaders would become intense.    

Do you think Chairman Powell would/has passed that test?   

The codendency of the monetary authorities, coupled with the addictive behavior of most governments to debt and deficits is a very toxic brew.   We don’t think it ends well. 

Here are some data on the unintended consequences of quantitative easing.

Wealth Ratio of Top One Percenters To Bottom Fiddy Skyrockets

(Note not all of the wealth inequality is due to asset inflation but a large portion is.)

Negative Yielding Debt Spikes

EM Corporates Now With Negative Yields – Are You Kidding Me?

It’s time for the global central bankers to kick that Bear Off The Balcony At Bretton Woods and meet in New Hampshire to construct a plan to force their governments to act on structural reform.

By the way,  the Raptors are a class act. Sorry to see their star leave for the Clips.  Wonder if Microsoft stock was affected?