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To: Ilaine who wrote (90)	3/28/2001 3:06:32 PM
From: JF Quinnelly	Read Replies (1) \| Respond to of 443

Bankers issue credit against assets. I don't know about them "monetizing assets". Credit acts like money, but there's a distinction between credit and money (which is the reason for titles like Mises' The Theory of Money and Credit). Credit expands during boom times and contracts in recessions. This is the expansion and contraction of the money supply. The monetary base against which these loans are made is another matter. This is "high-powered money", and it's controlled by the Fed. If the Fed buys bonds in the secondary market, money is being injected into the banking system. If the Fed sells bonds into the secondary market, money is being withdrawn from the banking system. The Fed works within the confines of the total National Debt. Theoretically they could "buy" the entire debt, converting all 6 or 7 billion dollars of it into high-powered money. This would be inflationary, to say the least. (And since we are now hearing of plans to "pay off the debt" with the budget surplus, it's something to think about.) What the Fed tries to do is to supply sufficient high-powered money to the economy without igniting inflation. In the '70s the Fed was doing something else, which is no longer allowed. They weren't just buying bonds in the secondary market, they were buying them directly from the Treasury. This is called "monetizing the debt", and it was and is highly inflationary.