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Strategies & Market Trends : MDA - Market Direction Analysis

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Nov 12 4:00 PM EST

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To: Doug who wrote (68663)	2/6/2001 8:06:08 PM
From: KyrosL	Read Replies (1) of 99985

<how this [new money] gets distributed in a conventional buisness cycle> The Fed increases the money supply by buying T-bills in the open market. This money shows up in banks' vaults. Banks are required to keep a money reserve in their vaults equal to a small percentage of their outstanding loans (this percentage is set by the Fed.) Since now banks have more money in their vaults they can increase their loans. So, Fed open market operations that add money (e.g. purchases of T-bills by the Fed) eventually translate to more banks loans.

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