I am not an anti-Federal Reserve guy. Not by any means. But the central bank has been disastrous in recent years.
It was obvious that inflation would be raging following trillions of dollars of unprecedented stimulus that bankers kept pushing into the system. They should have immediately started removing excess liquidity the moment that Covid-19 vaccines were approved and distributed.
Instead, investors praise the Fed’s handling of the post-Covid-19 era. They “saved the system” by causing inflation and now the stock market is back to “all-time highs.” This is the greatest lie. Everyone is being fooled by money illusion.
Money illusion is the cognitive bias that causes individuals to misinterpret nominal dollar values without accounting for inflation’s erosive impact on purchasing power. This fallacy can lead investors astray, as they might perceive an investment as profitable simply because its nominal value has increased. They overlook that the real value, adjusted for inflation, may have stagnated, or even declined.
Such a misconception distorts investment decisions, encouraging choices that feel safe or successful in nominal terms but are less beneficial or even detrimental in terms of real wealth preservation or growth.
This isn’t my opinion. This isn’t me trying to spin the bear narrative. This is pure fact. Stocks, after accounting for inflation, are not at new highs.
It feels like we are getting ahead by working harder and seemingly growing the economy, but the cumulative effects of inflation have made EVERYONE worse off. Inflation stole returns. The Fed stole our money — either willfully or incompetently through their policies.
People will argue that “we don’t trade nominal prices.” “What else are we supposed to do?” All this is valid. There is no other alternative. All I want is for investors to recognize that the Fed is responsible for any suffering now. Don’t buy into the illusion that they pulled off a “soft landing.” Nothing could be further from the truth.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
