>>In simple terms: if Fed wanted to, could they (or He-Who- Is;-) put out the M3 brushfire? Given the resulting side effects of course.<<
No.
Despite what many will tell you, the Fed was created by Congress, which takes a more or less hands off approach because they realize that they don't understand what the heck the Fed does or how it does it.
Congress decided what components of the money supply were subject to the reserve requirements. The Fed has no authority to extend reserve requirements to other components of the money supply.
Back in the 1970's, when Bretton Woods broke down and OPEC got greedy and the economy got crazy, a couple of senators decided that they would try to micromanage the Fed more, and passed a law that required, among other things, that the Chairman of the Board of Governors of the Federal Reserve, the job that Greenspan holds, should come to Congress every so often and explain what the Fed was doing.
That law expired in 1999, but Greenspan still comes to Congress to tell them what he's doing.
One of the things he's told them, in his mandarin like way, for several years is that the laws on reserve requirements hamper the Fed's ability to control the money supply. However, he's also told them that he doesn't think it matters much.
I should point out that banks make money by lending money, and reserve requirements hamper their ability to loan money, so there's a lobby in favor of not expanding the components of the money supply subject to reserve requirements.
If people would actually read what Greenspan says, he's very much pro free market. Still. I've said this before but maybe not on this thread - I think Greenspan gets a kick out of how free market the money supply really is. They do tinker with thngs, like increasing currency right before holidays where people have a tendency to give cash presents, like Christmas and Easter, and increasing the money supply right before April 15, when income taxes are due, and stuff like that. The impression I get is that it's sort of like oiling a huge machine. The machine will come to a halt without oil, but otherwise the oil doesn't make much of a difference in what the machine does.
To state the obvious, the machine is the economy, and money is the lubricating oil.
You might enjoy playing with the data about money supply at this site:
economagic.com
For example, this chart on M1 shows that for a long time during the 1990's, M1 actually declined slightly.
economagic.com |
