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Strategies & Market Trends : ahhaha's ahs
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To: ild who wrote (3720)11/30/2001 4:01:45 PM
From: ahhahaRead Replies (1) of 24758
 
Check your publication. The FED buys securities and that shows up in the monetary base. Federal reserve credit generated by open market operations is what makes the base change. The base is growing at a solid 11%.

That's source base. How about use base? Where do those reserves go? They could go into supporting C&I loans at a leverage of about 10 to 1. Given in the last six months FED has created $40 billion, that could be used to generate $400 billion in C&I loans. Banks don't want to use it that way. So the money sits.

Also, there's the economy. It throws off income which the FED must recognize by creating enough forms of money to recognize the value added every day by all of us. This accrued money isn't being factored back into economic expansion. Check your publication for C&I loans. Ugly. Dropping steadily. It should have turned up by now, but it isn't.

Instead the money is being saved. Check your MMF or small or large savings deposits. They're screaming upward commensurate to monetary base growth. (Don't believe those who say Americans aren't saving, because they are doing so at the greatest rate in history). That's where the money is going. Nowhere.

Thus the money FED is creating to stimulate economy is going into the mattress. Keynes said this can't occur, or if it does, you just gotta pump some more. The problem is that FED never stops practicing such counter-cyclical policy. But now they're pushing on a string and they risk monetary inflation. That's monetary inflation, not wage cost push inflation, too much money available to bid up the price of whatever quantity of goods still available!
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