Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Asterisk who wrote (13150)	7/30/1998 7:14:00 PM
From: Jon Koplik	Respond to of 152472

Michael - I really do not want to get started on this money supply stuff, other than to say -- it is more or less commonly agreed that if the various monetary aggregates start having negative growth rates (i.e., literally shrinking) for a meaningful period of time (a few years), then we should have the 1930's again. Also, my understanding of these things includes the following : when a bank says "Okay, we'll never get our money back on that stupid loan we made; let's write it down to zero," then ... money supply has just shrunk a little bit. I strongly recommend against making any bet on "liquidity-driven" stock market levels, foreign exchange values, or interest rate levels based solely on money supply numbers, partly because they can be hugely revised by the Fed at some point in the future. I better stop soon, or everyone will fall asleep. (Does anyone reading this remember the Mad magazine spoof of Midnight Cowboy (about 30 years ago) and their joke on how boring economics can be?) Jon.

To: Asterisk who wrote (13150)	7/30/1998 7:53:00 PM
From: John Cuthbertson	Read Replies (1) \| Respond to of 152472

OT: Michael and Jon, About that money supply chart that Jon posted (nice link by the way): there is no "M11" or "M33;" those should be read as M1(1), where the (1) refers to footnote number 1 further down the page, which gives you the definition of the M1 money supply measure. M1 - M3 are various measures of the money supply going from narrower to broader. Jon, in an earlier post (to Ramsey, I think) you asked about how the Fed controls the money supply, other than through the discount rate. There are two other important tools that the Fed has. One is "open market operations," which consists of buying or selling Treasury bonds: if the Fed sells a T-bond for cash, the money supply is reduced by that amount. The other tool the Fed has is control of the required reserve ratio for banks, i.e. what percentage of their assets they have to keep on deposit with the Fed. The smaller the required reserve percentage, the more money banks can loan out, and bank lending is basically what generates the money supply in the economy. I hope this was somewhat helpful. I just had to study all this stuff for the CFA exam, so am just regurgitating. ;-) ==John