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Friday, December 6, 2013

Frosty The Snowman Exemplifies Exogenous Money

Frosty the Snowman was on TV tonight.  So of course I watched it.   One of my favorite lines in this Christmas classic is in the following clip:

Frosty's logic is as follows:
1. I see the thermometer rising and getting red
2. That causes me to get all hot and sweaty
3  The thermometer is my demise

Similarly, neoclassical misconception of how money works goes something like this:
1. I see the Fed adding reserves to the banking system
2. That causes the economy to lend and borrow
3. The Fed is the economy's demise (or savior)