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Strategies & Market Trends : Galapagos Islands
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To: MulhollandDrive who wrote (6027)10/9/2002 5:10:41 PM
From: Jorj X Mckie  Read Replies (2) of 57110
 
The fed can do three basic things (using different tools):

Add liquidity
Drain liquidity
Nothing

Adding liquidity basically means that they are adding more money to the system.

Draining means that they are taking it away.

Some of the tools that they can use are repos, coupon passes and of course interest rates.

An example of draining liquidity would be if the fed sells securities. Since they are paid money for those securities, that removes money from the system. If they buy securities, that will add money to the system.

I'll elaborate in another post if you would like.
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