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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: pater tenebrarum who wrote (5324)7/24/2000 11:58:04 AM
From: XBrit  Read Replies (1) of 436258
 
Heinz, can I beg a few moments of your time to educate me?

I'm confused about this liquidity thing (which I follow via M3 growth).

1) How is the Fed able to change liquidity in the financial system without changing interest rates? What mechanism do they use?

2) How is it possible for the Fed to reduce liquidity and at the same time have an ongoing program of repurchasing Treasury debt (thereby freeing up a bunch of cash in the market)? Doesn't the repo process cancel out any attempts to tighten?

Thanks for any help.
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