The Sham Boom

A trifecta of disappointment last week...

First, the inflation number came down the track faster than expected. Then GDP lumbered across the finish line, lower than expected. And finally, at the end of last week, the poor consumer practically broke a leg in the home stretch.

As you know, dear reader, the idea behind the Fed’s ZIRP and QE policies is to stimulate demand. More demand – meaning more consumers spending more money they don’t have on more things they don’t need – is supposed to be a good thing.

Fed economists have bet trillions of dollars on it. Not their money, of course. Each year, since 2008, they’ve put money on the consumer nag. And each year, he’s failed to win, place or even show up. Then the following year, they’ve doubled down… with the chant “the consumer is back.”

Ersatz Money

The US economy is 70% consumer spending, reason the geniuses at the Fed. So anything they can do to boost consumer spending will also boost the economy. This sort of simpleminded logic is either breathtakingly naïve or mind-bogglingly stupid. Consumers need to have money to spend before they can spend it. If the economy is working properly, they earn it from honest bussing and schlepping.

But suppose the economy is in a funk? Then what are they supposed to do? No problem, say the economists. We’ll just create it. This ersatz money is supposed to stimulate the consumer to spend… whereupon, businesses will spring to life. They’ll offer him a job, boost his wages… and then he’ll have real money to spend!

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