Is Plinko The Best The Fed Can Do?

Unlike the Price is Right, the Fed’s version of Plinko has an additional “benefit.” As we wrote in The Fed is Juicing Stocks, QE boosts equity prices.

 

Trickle Down Policy- Banks

Despite the Fed’s claims that trickle-down policy works, there is ample evidence monetary stimulus does not help the broader economy or its citizens. One need only look at the rising level of debt as a percentage of GDP or pathetic productivity growth. These problems occur in part because the Fed cannot mandate the banks use funds to lend in ways that strengthen long-term economic growth.

Not surprisingly, what we find is the banks use QE reserves to do what is best for their bottom lines.

Plinko, Is Plinko The Best The Fed Can Do?

Plinko, Is Plinko The Best The Fed Can Do?

Trickle Down Policy- Equity Prices

Who benefits from rising stock prices? To put context to the question, consider this quote from Forbes (8/31/2020):

 “The latest available government data, via the Federal Reserve from 2016, shows a relatively small share of American families (14%) are directly invested in individual stocks but a majority (52%) have some market investment mostly from owning retirement accounts such as 401(k)s.”

A mere 14% of the population owns stocks that directly affect their liquid wealth. 52%, including the 14%, own stocks via 401k plans. Any benefits of rising stock prices in retirement plans are not accessible until retirement. 48%, or about half of the population, receive no direct benefit from rising stock prices.

Don’t believe us? On February 25, 2021, Fed President Williams said:

“There is some evidence that low-interest rates can move up asset prices disproportionately held by wealthy households.”

When the Fed’s coin trickles down, there are a few select winners and many losers.

 

Summary

Monetary policy is a game of chance. The winners are the wealthy who benefit immensely from rising equity prices and can borrow to buy even more assets at historic low rates. The rest of the population waits and watches and hopes that something trickles down. The Fed stands idly by falsely assuming their actions have direct and quantifiable benefits.

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