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To: Hightechhooper who wrote (124287)	1/5/2001 1:18:52 PM
From: Robert Douglas	Read Replies (1) \| Respond to of 186894

Hightech, Sorry if my original post sounded too harsh. There's an economic point that I think should be made here. It's a common misperception about the role of a central bank. Take your comment: The fed blew it big time IMO with all the liquidity they added to the system to avert a non-existent Y2K problem. All that money had to go somewhere, The perception is that the Federal Reserve can CREATE money. This is a word you often hear, even in economic textbooks. But it ain't true! What the Fed can do is supply reserves to the banking system. That enables banks to make loans. If there isn't a party on the other end of the loan there is no "money" created. There will be no borrower if there isn't a perception that this money can be taken and invested at a higher rate than that which it was borrowed. This is where my blame on the speculators comes in. They were willing to step in, create the money and spend it on some high risk security. Without them there isn't anything the Fed can do. You may have heard the expression "pushing on a string." This is a good description of what happens when a central bank supplies reserves to the banking system and nobody takes them up on the offer. So that money didn't have to go somewhere, as you put it. That money wouldn't have existed if not for some starry-eyed speculators who got carried away by their greed.