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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (2221)	5/5/2001 2:49:10 PM
From: Carolyn	Respond to of 24758

grub

To: GraceZ who wrote (2221)	5/5/2001 5:30:42 PM
From: ahhaha	Read Replies (1) \| Respond to of 24758

His view is a mistaken exaggeration which is clear in this chart: stls.frb.org The base will start growing rapidly very soon because FED has engaged in almost daily coupon and TIP passes. There is another factor which isn't seen in the base. It's the RP free float. The RP free float multiplies by a relatively small but significant factor, the effect of added permanent reserves, so the monetary base is leveraged by temporary reserves. A little change change in the base causes a larger change in M2 than it would have in the past. The RPs take away any instantaneous tightness so the permanent reserves are not encumbered and can go directly to loan creation. In the past some of the direct injection had to go to ease interbank overextension. While the FED has been engaged coupon passes they also have been saturating the market with the entire spectrum of RP transactions. Brother, do they have it covered. In economic matters I rarely disagree with Kudlow. He's infinitely preferable to most of the clowns, but he tends to be loose about money. If we had the free market determine the cost of money exclusively, then it wouldn't matter, but as long as we have this ridiculous nonsense of FED intervention, the FED can't get too easy. Too easy means to provide a cost of funds below what the market would price. When the T-note rate passes up through the fed funds rate, that's exactly what is developing. The market knows where the cost of money, the rate of interest, should be to achieve equilibrium between the demand and supply of funds. It knows this because none of its participants knows. This means the market is fully randomized at the margin so that it is free to discover by investigating very quickly every wrong price. The mean of every wrong price is the equilibrium price. When FED provides too much money the rate of interest is distorted. The market has a hard time discovering the equilibrium rate because the avalanche of FED generated synthetic money makes the determination of the price of true money, the money created by actions of private entities in the economy, very difficult. Shades of Gresham's Law. If the FED persists in easy money, the result is inflationary. Kudlow would be the first to tell the FED to tighten up, but the problem is that by the time that all gets in gear, there is a situation where raising rates could really slam the economy. The FED is always doing this tight rope walk between ease and restraint and AG, as good as he is, has fallen mightily a bunch of times slamming mostly the stock market. The FED knows that the stock market is a big part of the economy so this slamming the stock market is achieving the opposite of interventionism's intent.