Deflating the Fed

The ultimate winners of the 2008 investment bank debacle were the investment banks. The Fed can’t give money to people directly, it can only give money to banks in the hope doing that will help people. The banks have instead, of course, been helping themselves.

Through the Treasury, Congress can give money to people directly, which it has been doing during the pandemic. This action has been a factor in triggering short-term inflation. It has apparently even helped some people delay returning to work.

I don’t see inflation becoming a chronic problem unless income inequality is addressed. Perhaps we’re getting a taste of that, with more people demanding a higher minimum wage. If the Fed decides it must raise interest rates Wall Street will freak out, but they have to know that their free lunch can’t last forever.

Here’s some more on this favorite topic.