The Fed-Trap

Hey, do you remember that game mouse trap? You built this ridiculous Rube Goldberg machine whose only function was catching mice (other players). Here’s the description from wikipedia.org:

The player turns the crank [A] which rotates the gears [B]) causing the lever [C] to move and push the stop sign against the shoe ([D], which tips the bucket holding the metal ball [E] which rolls down the stairs [F]

and into the pipe [G] which leads it to hit the rod held by the hands (the hitting of the rod is probably the most difficult and frustrating area of the mousetrap's design, leading often to the mousetrap not succeeding) [H], causing the bowling ball [I] to fall from the top of the rod, roll down the groove [J], fall into and then out of the bottom of the bathtub [K], landing on the diving board [L]. The weight of the bowling ball catapults the diver [M] through the air and right into the bucket [N], causing the cage [O] to fall from the top of the post [P] and trap the unsuspecting mouse (i.e. the player who occupies the spot on the board at that time).

I don’t recall ever actually playing the game. We’d just set up the trap and watch it work. It was a hoot. I’m a sucker for a cause and effect chain reaction. But, after a while you realize how limited its functions really are. In the end, the only thing that it can do is rattle the cage down the pole. It gets old.

It reminds me of “all the tools” of the Fed. Something that seems so complicated really has only one function, devaluing the dollar. The Federal Reserve can no more strengthen the dollar than the mouse trap can make the cage shimmy up the pole. It isn’t set up to work that way. Yet, here we are again, setting it up, hoping it will keep the party going. At some point, no one will be amused anymore, but for now, there’s still a lot of folks that don’t understand it yet.

Obviously, Greenspan loved this toy. Couldn’t keep his hands off it. Now it has been passed to Ben Bernanke and it remains to be seen how fond he is of the toy. Sometimes I wonder if what “all the tools” of the Fed means includes “resist the urge to play with the dollar collapsing toy, and stay away from the printing press.” Which would bring the Fed tool count to two.

Considering that 65% of the world’s currency reserves are held in US dollars, I am afraid of what will happen when the Fed’s trick gets old. There’s a saying: Build a better mouse trap……….