There is no limit to the Fed’s ability to create money, so there is no limit to its ability to create demand.from "Why 'Stimulus' will not Work" by Louis R. Woodhill 01-16-09
Neither government nor the Fed create real demand. This is the fallacy that all those in favor of government intervention into the economy of any type do not get.
Monetary demand is not real demand. That is the meaning of Say's Law of Markets. Real demand is not pieces of paper. Real demand is the actual wealth which pieces of paper may or may not represent. And government does not create wealth: it only seizes and redistributes it.
The government can print fiat-paper money, or the Fed can conjure up in multiple ways its electronic equivalent, but NONE of it is real wealth and therefore NONE of it is true demand. To "stimulate" real, sustainable, efficient growth in the economy, what is required is real demand, which means production. Since monetary demand is not real demand, it can only create the appearance of real, sustainable, efficient growth, which must eventually come crashing down, just as it did in the dot.com bust and the housing bubble bust, and multiple prior recessions. The larger the amount of artificial demand used to "jump start" the economy, the larger and more destructive the adjustment back to real demand will be. Artificial demand destroys savings, wastes resources, encourages excessive debt and risk-taking, and perhaps worst of all, undermines confidence in free-markets and freedom itself.
I try to keep in mind that most of the people who are advocating government bailouts, public work projects, stimulus packages and the like, honestly think they are doing the right thing. But when I think about the destruction these policies will cause, I can't help but get angry.