I am a little behind, and maybe someone has already pointed this out.
If you say: "the stock market is not included in M3 numbers.In fact, to the extent it attracts money from money funds and checking accounts, it decreases those numbers"
You have to remember that this does not create or destroy money, which just moves from one account to another. Margin accounts create buying power within the stock market, but the margin debt evcentually has to be liquidated. I guess in some sense one can spend against a margin account and this has the effect of expanding the money supply, but I think this is all tied to controls on bank extension of credit.
Whatever is going on, M3 is expanding at a terrific 13%, and some people figure it even higher.
Also, did you see the piece about how the Fed is literally going to print $50 billion in cash money to cushion banks in case there is a Y2K panic? That was in the WSJ this morning. Why not just let FDIC insurance take care of that. If people empty out teller machines in December next year, so what? The banks won't fail.
What a great opportunity for muggers!
If in February of year 2000, the Fed decides to contract the money supply and raise interest rates to forestall inflation, the effect could be catastrophic on a wobbly or declining market.
I am horrified at the way the Fed keeps taking preventive measures without a clear idea of what is being prevented, other than the collapse of speculative ventures like Long Term Capital. Galbraith thinks it's close to a replay of you know what. |
