The re-channeling of the Fed’s inflationary money-pumping from main street to Wall Street gave rise to Twin Big Lies. Namely, that the Friedman formula about too much money chasing too few goods was obsolete, and that the soaring paper wealth being generated in asset markets was real, sustainable and a sign of resurgent capitalist prosperity.
Neither of these propositions is remotely true, of course, but they were the basis upon which the small camarilla of unelected economists, bankers and apparatchiks who operate the nation’s central bank were enthroned as virtual financial demi-gods. In fact, in completely and insouciantly abrogating the laws of sound money, these suddenly all-powerful central bankers made it the profound self-interest of Washington politicians and Wall Street operators alike to give them a wide berth. That’s because the initial impact of cheap debt and soaring financial asset prices was previously unknown ease in financing government deficits and unspeakable financial windfalls for traders and speculators.