hattip to zerohedge.com
In an article on the "so-called" Wealth Effect, Chris Casey of the Mises Institute lays bare the lack of logic behind one of the greatest fallicies in modern Economics.
As Casey quotes, the wealth effect is where:
"Higher equity prices will boost consumer wealth and help increase
confidence, which can spur spending. — Ben Bernanke, 2010
In other words, higher equity market prices lead to greater shorter term economic growth - and hopefully greater longer term economic growth. Casey persuasively argues that monetary and fiscal policies that induce more spending in the short run (and less savings) do not help but rather harm the economy - especially past the initial boom in equity prices.
Personally, I think the Federal Reserve can't be seen to do nothing during an economic downturn. If they did nothing and the economy recovered on its own their game would be up - which I think is basically that of the Wizard of Oz - all sound, fury, and action - but no actual magic and which makes the situation worse in the long run.