Comment: If I started a company...

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If I started a company...

And tried to raise money from VC's with my business plan that called offering no services that were valued by the market?, clearly, I would not raise much money if at all.

When something is not bought by the market it is because the market does not find it valuable at that price.

When the Fed forces tax payers at the point of a gun to buy Mortgage Backed Securities (MBS) it is because the creator of the securities has created a product that no one wants and has no voluntary customers.

They have effectively started a business that offers nothing valuable to its potential customer base. As a side note this is with good reason. If the issuer of the mortgage does not intend to be around for the repayment of their loan, the lending standards will become lax and default rates would likely skyrocket (2008 GFC)

The argument equally applies to treasury purchases. The market is looking at the business of being the US government and noticing fiscal irresponsibility. IT has lowered the value of US treasuries as a result. The Fed then forces tax payers to buy this product at a price higher than anyone thinks it is worth. Again sucking resources into a "non-optimal" niche; government.

So every time the Fed prints money and buys X, it is by definition purchasing something at a price above what people value it at. This sends resources to niches that are not the best use of those resources by definition.

The more the Fed acts, the more it wastes resources. And by extension harms the economies ability to grown.

The trip up your professor will have with all of this is as a Keynesian he sees little distinction in types of spending. All spending is equal to a Keynesian. To an Austrian the quality of the spending is all important.

If he tries this angle, I like to hit them with this....

"Why don't we just turn off all the traffic lights and hire all the unemployed to direct traffic. We both solve unemployment and create massive spending to help the economy?"

At this point most Keynesian's are trapped and should have to confess that quality of spending is important, but sadly they just call you names and run from the argument.

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