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

To: Tradelite who wrote (16938)	2/8/2004 7:34:46 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

Don't make the mistake of thinking that the Fed doesn't control short-term interest rates. If they chose to they could also control long-term interest rates. When banks can borrow money from the Fed at the Discount Rate of 3/4% per annum, why would they raise the rates they offer to savers? For only one reason, the Fed has closed the Discount Window to them for those purposes. This is why you see M-3 shrinking rather than expanding. The Fed is forcing banks to borrow from the public which pushes up rates. When rates rise sufficiently, they will also raise their Discount Rate and claim they are dutifully following the will of the market. But they're in a bind. This is a liquidity driven "recovery". When the economy deteriorates too quickly, they will open up the Discount Window again without the need to change rates and without announcement. You will watch the rates offered by banks to savers mysteriously decline for no apparent reason. At the same time you will see M-3 rising again. Read any textbook on reserve banking, it's all laid out. Try some of the books by the late Nobel winning economist Sir Richard Stone. You will learn one thing the Fed cannot do is keep interest rates low and money freely available - while at the same time keeping the dollar stable. The dollar has to decline in value this situation.