Reprinted from Counterpunch
Here's your economics quiz for the day:
Question 1 -- What do you think would happen if you put $3 trillion into the financial system?
a--Stock prices would rise
b--Stock prices would fall
c--Stock prices would stay the same
Question 2 -- What do you think would happen if you put $3 trillion into the economy? (Via fiscal stimulus for infrastructure projects, extended unemployment benefits, food stamps, etc)
a--Activity would increase and the economy would grow
b--Activity would slow and the economy would shrink
c--Activity would stay the same, so growth would remain unchanged
If you picked "a" for both questions, then pat yourself on the back because you got the right answers.
Now try to answer this one, last "bonus" question:
Question 3 -- If adding money to the financial system boosts asset prices, and adding money to the economy boosts growth, then why did the Fed add $3 trillion to the financial system expecting the economy to grow?
Is the Fed confused about how the economy works? Is the Fed confused about how the financial system works?
Probably not. There's probably some other explanation altogether, after all, why would someone put gas in their radiator when the gas-tank is empty. That's not going to provide fuel for the engine, is it? The same rule applies to stimulus. The only way stimulus can work is if its put where it's needed. And we can now say with 100 percent certainty, that the Fed's stimulus wasn't put where it was needed which is why it hasn't worked.
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