You may not be more wealthy, but you think you are!

 

The Federal Reserve strategy is to make Americans think they are more wealthy than they are. This, they think, will spur us to buy more and help the economy.

 

This bit of ridiculous reasoning was put forth after Ben Bernanke announced that the Fed would be buying $40 billion a month in bonds for as long as he feels like it. Buying the bonds will drive down the interest rates and cause stock prices and home prices to rise. The "wealth effect" will boost the economy. This will make people more willing to "go out and spend."

 

So if I'm following his logic correctly, if my home, currently valued at $100,000, should rise in value to $110,000, then I have $10,000 I can go blow on something. But wait a minute! Do I actually have $10,000 more in my pocket? What if my home value decreases again before I sell it? Doesn't that mean I've spent $10,000 I don't have to spend? Isn't that kind of spending what sends people into bankruptcy?

 

Not to worry -- if Bernanke and Obama say it's good for the economy, then the last four years bears out that they know what they're talking about. NOT.

 

"Fed hopes 'wealth effect' spurs Americans to spend." The Dallas Morning News; September 15, 2012; p. 1A.