Is Plinko The Best The Fed Can Do?

Is Plinko The Best The Fed Can Do?

Plinko was made famous on the TV show The Price is Right. To play the game, a contestant drops a coin into one of the many slots at the top of the Plinko board. Then they watch the coin fall, bouncing off pegs until it reaches the bottom. The contestant hopes the coin ends in a generous reward slot at the bottom.

The picture below will jog your memory.

Plinko, Is Plinko The Best The Fed Can Do?

Unfortunately, a silly game of chance like Plinko is a great analog to explain current monetary policy and its flaws.

COVID QE

When COVID shut down the economy, the Fed immediately doled out massive amounts of monetary stimulus. In the first two months of the crisis, the Fed bought nearly $3 trillion of assets via QE. That is more than twice what they purchased during the worst moments of the Great Financial Crisis. A year later and the Fed is still buying $120 billion of assets monthly.

Plinko, Is Plinko The Best The Fed Can Do?

At no time since last March, or even today, has the Fed or Congress assessed whether the amount of monetary policy or distribution method is effective or even appropriate.

Monetary policy is like a game of chance in regards to who it benefits. The Fed has minimal ability to direct where and how stimulus funds are employed. Given that, one would think our “leaders” would ask the hard questions.

 

K-Shape Recovery

The economic recovery has not been even. The rich have gotten disproportionately wealthier, further widening already disturbing wealth inequality trends. The poor scrap to make ends meet, relying heavily on a smorgasbord of fiscal stimulus.

A year ago, when economic forecasters were using the letters L, U, and V to describe the shape of economic recovery, Peter Atwater introduced the letter K. The basis of Peter’s prediction was lockdowns unfairly hurt some while helping others. As a simple example, consider how well takeout pizza restaurants are doing versus high-end restaurants. The drastic changes in personal and corporate consumption habits benefit some to the detriment of others.

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