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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: NOW who wrote (24271)	1/9/2005 1:02:11 AM
From: Elroy Jetson	Respond to of 110194

This analysis applies to the "Discount Rate", or the "Overnight Rate", or the "Interbank Rate", or the "Prime Rate" or any rate at all. In the magician's smoke and mirrors world of Monetarism, words are designed to mislead and misdirect rather then enlighten or inform. Examine one of the various Monetarist "rates". What is the "Discount Rate"? It's the rate at which banks pay to borrow from the Fed. How much is actually borrowed at the Fed's Discount Window? Answer, hardly anything at all. Ask yourself how could the Fed possibly affect the interest rates in the entire economy simply by changing the Discount Rate, which applies to a very small number of banks in trouble and virtually no one else. The Federal Reserve System doesn't work the way you were taught in school. The Fed also discovers new methods of manipulating the money supply every year, lately involving swaps with foreign central banks. Making a rate announcement without affecting the money supply is just meaningless talk. Additionally, Russ Winter has been correctly drawing attention to the fact that MZM, M1, M2, and M3 do not completely reveal the incredible growth money creation by central banks as even M3 is too narrow a definition to capture all new methods of money creation. Charles Rist addressed this problem of confusion between money and credit (credit is money until it isn't) in his 1938 book "History of Monetary and Credit Theory from John Law to the Present Day". Although the problem is current, the recognition of the flaws in Monetarism are as old as John Law. .