Pouring Keynesian Waste Into Davy Jones’ Locker: Yesterday’s $18 Billion “Upside Surprise”

The algos were raging yesterday morning because April durable goods orders were up by an unexpected 0.8%. Well, yes they were: The US Navy inked a gigantic $18 billion order for 10 new nuclear-powered attack submarines during the month. Consequently, the actual 0.8% decline in industrial orders was transformed into a swell “upside” surprise.

U.S. Navy

U.S. Navy placed a record order in April for killer subs.

But folks, the US Warfare State doesn’t need no more stinking nuclear attack submarines. It already has more than 70 in service, and several more beyond yesterday’s huge order were already in the pipeline.

The reason we don’t need them— beyond the vast redundancy in firepower already extant— is that attack submarines have one primary mission. Namely, to kill nuclear-powered submarines carrying the ICBMs of hostile powers who may have them aimed at US cities.

Here’s the deal. China has just three ICBM capable submarines which have a range under 5,000 miles and which have never been deployed in the blue water; and Russia’s rusting legacy fleet of 10 subs left over from the cold war (that would be the one which ended a quarter century ago) is basically mothballed in port.

During the most recent year, the Russian Navy’s operating tempo was so anemic as to amount to one SSBN submarine on the water at any given time. So even though they theoretically have 160 submarine launched ballistic missiles on their 10 ships compared to 656 for the US, 90% of Russia’s SLBMs could never be launched.

Stated differently, during the peak of the cold-war in 1983, the Soviet Navy conducted 105 patrols compared to 5 in 2012.  Yet back then we have far fewer attack subs on the water and what we had were far less lethal than today’s US fleet. Stated differently, the 70 attack subs we already have are advanced technology killers purchased at the peak of the Reagan build-up— and at a time after the current Russian fleet of aging SSBNs were already on the water!

Since the strategic nuclear stand-off ended decades ago, the attack submarine fleet has been given an additional mission to serve as a deterrent against surface ships and especially aircraft carrier battle groups of hostile industrial powers. Needless to say, China has one re-conditioned nuclear aircraft carrier it bought second-hand from the Ukraine!  And Russia has one, and yes, it too patrols the languid waters of its homeport.

So the 10 new attack submarine order announced yesterday is just mindless waste. The order amounts to a preposterous exercise in military Keynesianism that adds nothing to the security and safety of the American people, but will result in the drastic waste of fiscal resources in a nation that is already drifting rapidly toward insolvency.

This modern day exercises in sub-sea pyramid building, however, does smoke out the abysmal economic ignorance of the so-called financial press. The writer of the story below, one Jeffry Bartash, had no trouble with the idea that pouring steel and electronics into Davy Jones’ locker was a sign that the American economy is coming back to life.

By Jeffry Bartash at Market Watch

U.S. nuclear subs surfaced in a big way in the April durable-goods report. A record Navy construction contract powered a 0.8% gain in durable-goods orders last month when Wall Street was actually expecting a 0.8% drop.

In April, the Navy inked a $17.6 billion contract for 10 nuclear-powered attack submarines. Contractors General Dynamics Electric Boat   and Huntington Ingalls Newport News Shipbuilding  will handle construction. The deal could reach as high as $17.8 billion under certain conditions.

The huge contract led to a 39% increase in defense orders in April, using seasonally adjusted numbers. Orders for defense capital goods rose to $12.89 billion from $9.3 billion in March and $7.8 billion in February.

Of course, the subs won’t all be built right away, so the benefits to the economy will be spread out over the next five years.

The boom in demand for military equipment spruced up an otherwise drab durable-goods report. Booking for big-ticket U.S. goods actually fell in April if defense is excluded. Orders often fall in the first month of a new quarter….

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– Jeffry Bartash