The Fed's demand destruction: what it means for you and me
If you listen to financial pundits talking about the Federal Reserve and the current state of the markets you might hear this term mentioned:We'll first discuss the mainstream understanding of the concept and then unpack why it's more nefarious than you think.The mainstream idea goes something like this: The Federal Reserve stimulated economic activity when the markets were frozen from Covid, but now the economy is overstimulated. It's too hot, like an overheating car engine.
The word"economy" is just a term of convenience to describe the trillions of market transactions that involve individuals, you and me. Demand destruction is immoral. Full stop. Individuals should not be sacrificed at the altar of Fed monetary policy. To understand this, we must pay homage to one of the giants of Economics, Jean-Baptiste Say, and Say's Law.Say's Law explains that each person's demand of the market comes from what he supplies to the market. In other words, if you produce and sell 10 loaves of bread, then you can buy the equivalent value in meat. Rate hikes cannot reduce prices because supply is demand. The Fed is trying to cut demand, by ruining suppliers.
Store closures reduce the supply of goods to market. And this reduction in supply will cause, wait for it…that's right, higher prices.
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