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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Neocon who wrote (26106)	7/27/2000 10:41:34 PM
From: nihil	Read Replies (2) \| Respond to of 769667

Wrongo! A "rapid increase in money supply" is caused by increased selling of securities rather than borrowing. You see, as long as all the Fed does is to buy federal securities from the market, this merely transfers deposits from the banks to the securities sellers. It looks as if the sellers have decreased their lending to the government (less securities are outstanding) and increased their cash (bank deposit) holdings. The money supply has increased, but so far, no borrowing has occurred. Why should the cash holders borrow? The theory is that cutting interest rates necessary to execute open market policy permits more borrowing (especially by the government, which has just monetized part of its debt). But the government cannot spend without appropriations, and this takes years. If lower interest rates induce business to invest in plants and inventories, demand can be increased (not to mention foreign investment.) If demand for G&S is sufficient to squeeze capacity, then competition may raise the price of capital goods (hence inflation). Some economists, including me, believe that easy monetary conditions and easy borrowing over a term of years (such as we have had) can result in smooth hitchless expansion of capacity. Capacity expansion and new technology means that prices fall (especially of high tech goods). Part of the enormous inflation-free expansion is attributable to the Fed 's reckless expansion of the money supply (retirement of publicly held debt) and the government's reduction of outstanding public debt. Interest rates are only of monetary significant. Few growing, profitable businesses rely on banks for business or investment credit anymore, and few consumers even know what interest rates they pay (except for houses.) The characteristics of expanding tech business is that they are loaded with cash and have no debt. They finance expansion out of pocket and no one stops Intel.