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Strategies & Market Trends : John Pitera's Market Laboratory
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To: Hawkmoon who wrote (10919)12/14/2008 3:38:24 PM
From: rich evans  Read Replies (2) of 33421
 
> personally believe that the velocity factor of money supply is possibly even lower than many of us suspect. And without velocity of monetary transactions, traditional treasury repo transactions wouldn't have much effect, because everyone is heading for he safety of T-bills and that just makes the Fed a rival to the commercial banks.

So if the Fed is selling T-bills, it isn't to sop up liquidity. It's likely to finance the purchase of commercial bonds and other distressed assets.

Am I screwed up in this line of reasoning?>

Fed can do its buying or loaning by simply crediting the seller with a credit in its account at the bank thus creating money. Selling treasuries to its dealers subtracts from their account. I don't think the Fed needs to raise cash like we do as it can simply create or increase the bank account like your own bank which is limited however by it reserve requirements. The FED has no reserve requirements. But I think you are spot on on the velocity problem .
Rich
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