The Fed is Stuck with the Punchbowl

Edited and Curated by ZYTrade

It’s probably true in all areas of thought, but in economics it’s most certainly true that bad ideas never really die. To economists and those who write about economics, the notion of an all-powerful Fed controlling credit availability is one of those laughable myths that has many more than nine lives….

If economists are to be believed, the Fed rolling out the punch bowl and providing so-called ‘money supply’ for Johnstown would bring on an economic boom for the struggling town.

To economists, money equals wealth. It all seems so simple. Except that if it were, a Fed focused on ‘equality’ would have long ago solved poverty in America’s poorest locales via bond buying. Basically, the central back would have long ago put out the proverbial ‘punch bowl’ wherever economic struggle revealed itself.

So why hasn’t it? The answer is kind of obvious.

Any attempt by the Fed to rewrite on-the-ground economic realities would (in addition to rendering the central bank insolvent) be corrected more quickly than you can read this sentence. Put another way, if the Fed boosted so-called ‘money supply’ in Johnstown, the dollars would flow out of the town as quickly as they arrived….

Which is why the Fed presuming to take away the ‘punch bowl’ is similarly of no consequence. In the real economy, myriad sources of finance compete daily with one another to finance today’s and tomorrow’s businesses, along with the movement of wealth to ever-higher uses….Sorry, markets don’t work that way….

Basically there’s no ‘there’ to the popular notion that the Fed can turn on or turn off economic vitality and happiness. Yes, there’s no such thing as a ‘punch bowl.’ Serious people should stop pretending that there is one.

Original post on Forbes

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