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To: Les H who wrote (164824)	11/16/2008 4:42:33 PM
From: Giordano Bruno	Respond to of 306849

>(3) By expanding its balance sheet and replacing public holdings of interest-bearing government debt with non-interest bearing (or very low interest) money and reserves, the central bank may attempt to hold down yields on a range of government securities, making borrowing cheaper, and cutting the costs of an expansionary fiscal policy.< That is a very interesting arrangement.

To: Les H who wrote (164824)	11/16/2008 5:10:42 PM
From: ChanceIs	Respond to of 306849

>>>The massive surge in bank reserves in the past fortnight suggests the helicopters have now been scrambled and the strategy is being put to the test.<<< Interesting. Several scholars have noted that indeed the FED is printing the $$$$, but.....the money supply isn't growing. Why??? Because the banks' multipliers are shrinking. Why??? Deleveraging. A noted expert said that 'when the FED guarantees inflation, then the banks will start lending again.' From my little retail desk I can't discern where we are WRT money supply growth. I look at the Oct 10 bottom holding on Thursday and think the worst has come and gone. Then I look at the Baltic Dry Index, housing, earnings, unemployment, etc and groan. J6P is still in his cave wondering what hit him. He won't be coming out until way past Ground Hog's Day.

To: Les H who wrote (164824)	11/16/2008 5:22:32 PM
From: ChanceIs	Read Replies (1) \| Respond to of 306849

>>> the Fed is now lending to the banks, which are now lending the funds back to the central bank. ......The volume of reserve balances with the Fed, which had jumped from US$8 billion at end August to US$280 billion by mid Oct, has now surged again to a staggering US$592 billion in the week ending November 12...... By paying a low but positive interest rate on these reserve balances, <<< Call me simple (stupid if you like) but I hear all of the experts saying that interest rates can't go negative. Somebody explain to me please why the FED placing $$$ in a bank which then redeposits the money with the FED and earns interest on the deposit isn't in a negative interest rate configuration. The FED is paying a member bank to borrow from it. What am I missing???

To: Les H who wrote (164824)	11/17/2008 6:20:25 PM
From: Les H	Respond to of 306849

Quantitative easing, a strategy of aggressively expanding the size of the Fed's balance sheet to boost the level of reserves in the banking system and induce banks to make more loans, was started in September, he said. Rudebusch said the FOMC, which traditionally has deliberated about monetary policy mostly in terms of interest rates, needs to rethink that strategy. "It may be appropriate to shift to a reserves quantity target in addition to or in place of the interest rate target, both in the policy discussion and in the operational directive" made to the New York Fed's trading desk, he said. The jury is out on whether another tactic adopted by the Fed, altering the composition of its balance sheet by selling Treasuries and buying private debt such as commercial paper, is helping to boost the economy, Rudebusch said. The Fed economist said a third key strategy at a time short-term rates are pinned near zero would be for the Fed to project "a credible public commitment to keep the funds rate low for a sustained period of time." Rudebusch noted that the 10-year U.S. Treasury note yield is still relatively high, near 3.67 percent. "When the Bank of Japan promised in 2001 to keep its policy rate near zero as long as consumer prices fell, it was able to help push the rate on 10-year government securities down below 1 percent," he said. reuters.com