The Fed’s Ice Bucket Challenge

Unless you have been living under a rock for the past month, you have more than likely heard of the ALS Ice bucket challenge.  But, just in case you have been living under that rock–the challenge dares nominated participants to be filmed having a bucket of ice water poured on their heads and challenging others to do the same. The stipulation is that the nominated people have 24 hours to comply, or forfeit by way of a charitable donation to ALS.  It is an ingenious marketing campaign that has thankfully raised awareness and millions of dollars for ALS. 

However, we all know that while many made a monetary contribution, others just dumped a bucket of water on their head under the guise of helping the cause, simply because everyone else was doing it.  In social media circles, this is known a slactivism.  A pejorative term that describes “feel-good” measures, in support of an issue or social cause, that have little or no practical effect other than to make the person doing it take satisfaction from the feeling they have made things better.

And in a similar, but far more dangerous fashion, the Fed is engaging in its own form of “slactonomics”. It forces new dollars into the economy in order to stoke inflation, with the hope that rising asset prices will give the illusion of a booming economy.  Therefore, the Fed’s specific Ice bucket challenge is: Put your cash in stocks, bonds and real estate assets; or watch your money earn no interest while it loses its purchasing power against those same assets.  And, just like the herd mentality of humans causes us to dump ice water on our heads, the lemmings in the market are loading up on stocks despite the fact that equity valuations have become far removed from the underlying anemic fundamentals of the economy. 

But here is the catch–the Fed thinks it can escape its huge marketing campaign that involved years of market manipulation with impunity.  But, it has made an egregious miscalculation.