So Farewell then, Quantitative Easing. The six most tiresome syllables in the English language have left the building. For the first time since the early days of the financial crisis, there is no major central bank around the world actively engaged in this experimental policy of creating money and buying bonds. And things may well stay that way — unless the European Central Bank presses the button on its own printing presses.
So what have we learnt? Unfortunately, this being economics, there are no straightforward answers. Some argue that QE has enriched bankers and done little for the less well-off. Some argue that it helped avert a deeper depression than happened in recent years. Others say it had very little effect at all.
What we can say for sure is that a lot of money has been spent. Over the course of the past five years the Federal Reserve has expanded its balance sheet to a total size of almost $4.5 trillion* and used that money to buy a whole load of assets, mostly government and corporate bonds. Spending that kind of money is no easy feat: just consider how hard it was for Richard Pryor to burn through a mere $30m in Brewster’s Millions.
In order to grasp the magnitude of such a sum, we’ve worked out what the Fed could have bought had it decided to spend its balance sheet not on bonds, but on other assets.
So, without further ado, here’s what $4.5 trillion could gets you these days:
- The Big Apple. And the City of Angels
According to data from Zillow, the value of the entire housing stock in New York City is $1.9 trillion, while the value of all properties in Los Angeles is $2.2 trillion. So had it chosen to, the Fed could have used its balance sheet to set up quite a nifty property portfolio, owning every home in two of the biggest and greatest cities in the world. If she wanted an international property portfolio, Janet Yellen could alternatively have swapped one of these cities for London, where the combined cost of every property is, at today’s exchange rates, a mere $2 trillion, according to data from Savills. Though, as I wrote yesterday, I wouldn’t hope for all that much price accumulation in the coming years.
2. A trip to Mars
Estimates of the cost of a manned trip to Mars have ranged all the way from $6 billion to $500 billion for various. In other words, eminently affordable for the Federal Reserve!
That said, as we saw from today’s news, launching a rocket these days is a perilous business. So may I suggest a rather more straightforward alternative. The Fed could mint its way to Mars. If the Fed minted $4.5 trillion worth of dimes (ten cents to non-American readers) and piled them on top of each other, they would be just about 60m kilometres high. That’s enough to bridge the distance between Earth and Mars, on one of its closer orbits. If the Fed was feeling a wee bit more extravagant, it could always mint $4.5 trillion worth of cent coins, which would take it all the way to the sun and back. or it could just, you know, spend it buying bonds off Wall Street investors.
3. A big rug
If the Fed decided to print that money as dollar bills, rather than minting it as coins (after all, it’s not clear there would be enough copper and zinc to put into those dimes), that $4.5 trillion would cover a fair distance. 45,136 square km, to be precise. That’s enough to carpet the entire surface area of Denmark with dollar bills, which would certainly add a new level of economic intrigue to the next season of Borgen.
4. A lot of iPods
With $4.5 trillion, the Federal Reserve could comfortably buy a bunch of the biggest companies in the United States. Apple? A drop in the ocean at $628bn. Exxon? A snip at $405bn. Microsoft? A mere $383.2bn. In fact, the Fed could now own the top 20 companies in the Dow Jones Industrial Average, according to the latest market capitalisations from Bloomberg, turning it, overnight, into the world’s biggest long-only hedge fund.
5. A little giveaway
If the Fed was feeling particularly generous (and had the US Treasury’s permission) it could have done a so-called “helicopter drop” using this printed money to finance a big cash giveaway for American families. $4.5 trillion is equivalent to around $14,000 for every man, woman and child in the United States. One wonders whether that would have boosted consumer spending any more than the policy as it was actually carried out.
PS Loyal readers may recognise this thought exercise, which I also carried out when the Bank of England ended its Quantitative Easing programme.
* A note of caution: $4.5 trillion is the total size of the Fed’s balance sheet,as opposed to the total size of QE. In fact, the Fed’s balance sheet was about $800bn before the crisis. The figures above are intended as illustrations rather than anything more serious. In case that wasn’t already obvious.