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Pastimes : The Naked Truth - Big Kahuna a Myth
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To: TRINDY who wrote (57456)8/19/1999 10:39:00 PM
From: Ken98  Read Replies (1) of 86076
 
Trindy, another way to state why coupon passes are important are that this is the actual "creation" of "money." The Fed "creates" this money by purchasing Treasuries in the open market. With the push of a button the seller of that Treasury security has a "credit" at the Federal Reserve Bank. The "debit" side of the transaction at the Fed is nothing more than the Fed's desire to "create" additional money (also known as liquidity).

Conventional economics dictate that the "new money" has a multiplier of 10 times in the economy at large. This is the result of the seller of the Treasury security taking their "credit" and loaning it to 2 friends and so on and so on.... who in turn spend it and loan it and on and on....

Thus, when the Fed does one of its little $2 billion coupon passes it has the macro-economic effect of injecting $20 billion worth of liquidity into the economy at large.

I was shocked to hear the total figure that Heinz quoted earlier of something like $30 billion in passes this year. That is quite the kick in the as* for the ole US economy and goes a long way in explaining the feats of levitation our market has performed and the poor state Mythsters are in today. And, that is why we call him "Easy Al".
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