Tommaso, I understand the basics of money creation which you
summarized so well in your post, but perhaps don't always think
them through clearly. As far as the stock market
boom stimulating an increase in the money supply, that was
pretty speculative. But if you include money market funds in
money, what are the effective reserve requirements for them?
That's really what I'm asking, I guess. And if these are not
reserve requirements set by law, but, perhaps within broad
guidelines, as a matter of discretion in the contracts creating
the short-term
obligations which are held as assets by a money market fund,
then I would imagine a shift towards brokerage money market funds
could change the multiplier for that type of money, depending
whose assets the brokerage holds (is it primarily their *own*
short term obligations, for instance?!!).
So, the nub of the question is the nature of "reserve-like"
requirements, if any, for money market mutual funds. I.e.,
just what, asks this financial semi-ignoramus, are the assets
I hold in my so-called brokerage money market account? Wait,
it's FDIC-insured, so there are reserve requirements for that
at least... phew...-g-
Another, more dangerous, way in which the stock market boom might
lead to increases in the money supply is through money demand.
This is sort of a version of the "great enabler" thesis, perhaps...
The stock market boom has greatly increased the volume of financial
transactions, in which some money is involved, perhaps shifting
the demand curve for money and requiring the Fed to accomodate this
shift with an increase in the money stock to keep target interest
rates stable. This increase in the money stock
is "Greenspan enabling financial asset inflation". Note that the
cost of *not* enabling financial inflation by a market that wants
to inflate, though, is to tolerate higher interest rates, possibly
bringing on a recession. I'm sure Greenspan wants to be saddled
with *that* -g-.
And thanks much for the .pdf link, also!
Cheers,
HB |
