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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Taikun who wrote (26441)2/14/2005 8:43:00 PM
From: rz  Read Replies (1) of 110194
 
Taikun,
Sorry I did not have time to elaborate during the day. I will try now.
Some of the money the Fed creates travels abroad, outside of the Fed’s jurisdiction. This money is known as Eurodollars. The Fed still keeps the money on their balance sheet because to them it represents liability (they owe you a T-bill for the paper) and an asset (they got T-bill for the paper). The Eurodollars however are not included in the monetary aggregates (M1, M2, etc) which track various forms of money inside the country.
So the Fed tightened (as the Fed Liquid Assets report shows) so you would expect a similar drop in monetary aggregates. But if the Eurodollars came back to our shores in sufficient quantity you might see a rise in monetary aggregates (because the Eurodollars will become US dollars by being deposited for example in a checking account of a member bank of the Federal Reserve system and therefore will be included in M1).
Hope this helps.
rz
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