AHHAHA
Money supply. I am not schooled in economics, and thus many of its concepts and jargon is a mystery, but nothing is less understood than money, its supply and the ability of the FED to control it. I confess naked ignorance. Thus, I appreciate the explanation on repos. and have a few questions for you on related matters.
I understand fractionalization. That is easy enough. But how does the FED get the money to buy the Bills to start the process (which I take to mean printing or pumping money) and on whose authority.
Since much of the money leaves the country, unless returned on capital account, there should be seemingly a constant drain as in effect "monetary demand is created elsewhere". Therefore, does not more money have to be continually created to service the US economy under a given set of economic parameters. And in a related question, how can the FED monitor money supply on a global basis. Almost everybody in the industrial world probably has access to dollar if not in his pocket. And with foreign banks having substantial sums and the ability to control circulation, by selling dollar reserves, does this not this significantly affect the ability of the FED itself to control supply. And does an excess global US money supply have any relationship to global inflation. For example, did not excess dollars contribute to the trade-deficit and excess debt in Indonesia and environs and resultant currency devaluation and inflation - just as foreign money is contributing to inflation of US financial assets. What will happen if this money is abruptly returned to the US and not invested in debt instruments. Where would the FED get the T-bills to sop it up - and would not selling a large amount of such bills significantly raise interest rates and national debt.
If the dollar is deemed an irredeemable promise to pay, is this then not in effect a debt instrument. And if so, how is that additional currency can be printed w/o increasing the national debt to the same extent as T-Bonds. And if bonds are deemed money, which the Federal government can print, how does that interface with "money supply" and the FED's ability and dictate to control it.
Some economists contend it is impossible for the FED to effectively control the money supply and in any event, it's price rises that cause an increase in the supply of money, not the other way around. The FED merely accommodates demand. Ie, if a business needs a loan because of good conditions, it will seek money and the FED accommodates this by increasing banking reserves - and conversely. And the FED merely regulates loan demand, and thus the economy, by short term rates. Do you agree?
I understand money supply is no longer being monitored as it once was by the FED, presumably in part for the above considerations. A present consensus is that large money supply, unless hyper, does not necessarily contribute to inflation in the short term and there is debate with the "Friedmans" on the long term as well. Since "inflation" is often expressed in terms of "money supply" and deemed a natural consequence thereof, how does this square?. Also, if the FED cannot control the money supply because of global consequences or otherwise, and if inflation is measured in terms of money supply, and if the dollar is not locked to gold or other stable monetary base, and if other currencies are locked to the dollar through a reserve base or otherwise, how then is inflation controlled? Solely by control of the US economy through short term rates as now apparently the case? It seems to be a very sticky wicket with Greenspan imbued with papal economic power - and it appears too large of a load to manage for any mortal even with the heavenly help.
Vieserre |
