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

To: nihil who wrote (26157)	7/28/2000 8:20:57 AM
From: Neocon	Read Replies (1) \| Respond to of 769667

I did not discuss the mechanism, but thanks for your comments. All I asked was what happened if the money supply were increased. Borrowing is one way that it gets into circulation........

To: nihil who wrote (26157)	7/28/2000 8:57:38 AM
From: Zoltan!	Read Replies (2) \| Respond to of 769667

>>Wrongo! A "rapid increase in money supply" is caused by increased selling of securities rather than borrowing. Wrongo is right. You have it exactly backwards. In Open Market Operations, Fed purchases of gov securities increase bank reserves, which boosts money supply. Fed sales decrease reserves and the money supply. Of course when the Fed buys or sells government securities, it has no assurance that a commercial bank will be the other party in a transaction. But it doesn't really matter much whether the securities the Fed buys are being sold by a commercial bank or by someone else. In either case, when the Fed sells bank reserves go down and when it buys bank reserves go up. - Principles of Money, Banking and the Financial Markets by Lawrence S. Ritter & William L. Silber