Thanks Don. Meanwhile, my idol, Uncle Green$pan continues to confirm my theories: Message 16729683
Re those comments you made, wouldn't the Fed cut money supply if demand was dropping, causing inflation, by not lending US$? That would reduce the number of dollars circulating, [or, as you say, in cash balances], which would mean each dollar would be worth more, which would maintain the currency's value.
My understanding is the Fed can simply decide, "Hey!" [which is what they say in the USA when suggesting something], "Why don't we write out a Fed check for $1billion and lend it to Citibank [which has a good capital base] and we can earn [currently] 2% or so out of thin air?"
If the US$ is deflating, they might as well do that in the interests of avoiding deflation and making some profit for themselves. If money is going out of fashion and few people want US$ cash balances, preferring to own shares, then shares and other assets and investments will go up in price and hot potato dollars will be unwanted, so inflation will take off. Then, to maintain the constant value of the US$ the Fed seeks, they can, when the Citibank loan falls due, simply cancel the credit to Citibank, which immediately reduces the amount of money out there looking for a cash balance to sit in or something to buy. Which will reduce inflation, maintaining the value of money at a constant level.
Or, they could raise interest rates again and thereby make people think it would be better to hold those $$ after all.
It's a fun roller coaster.
Mqurice |
