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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: The Duke of URL© who wrote (5605)	9/26/2002 12:07:13 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

There's no change in M1 or monetary aggregates from that example transaction I gave, its debt for debt. But there's a cash flow increase to the borrower and lower cash flow to the credit card company.

To: The Duke of URL© who wrote (5605)	9/26/2002 1:07:46 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

Actually the more I think about it, you are correct in that it raises M1 even while it doesn't raise debt levels one cent to replace debt with debt. The reason is that the refi loan pays cash to the original lenders to satisfy the liens. It does this by making a loan from its reserves on a fractional basis (money comes from a bank or mortgage company even if Fannie winds up holding the note). The cash to the banks you owed money to (or Fannie) now have higher cash reserves from which to make loans and they can make a loans at a multiple of those reserves. Which explains why M1 is still rising even while the Fed has cut permanent creation in half in the last three months. Banks can't send their cash out faster than its coming back to them because there's so much prepayment going on.