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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (36062)	11/12/1998 7:39:00 PM
From: Thomas M.	Read Replies (1) \| Respond to of 132070

FWIW, Earlie was speculating earlier this year that the Japanese sellers of T-Bonds were not dumping on the open market, but that the Fed was monetizing their debt. Tom

To: Tommaso who wrote (36062)	11/13/1998 11:25:00 AM
From: HB	Read Replies (1) \| Respond to of 132070

Tommaso, the 0.6% Sept to Oct. M1 growth annualizes to 7.44%, confirming that the Fed was goosing things over the last month. But the longer-term numbers present an interesting picture-- M1 growth 1.6% since last Oct., hardly represents a printing (well, treasury-buying; they've got plenty of it printed, I'm sure) binge. This is currency (including currency held outside the US), checking accounts, and such (details are in your link). The interesting thing is the much faster M2 growth, 8.5% over the same period... this includes savings accounts and, crucially I would guess, retail money market accounts. The divergence in M1 vs. M2 growth rates suggest to me changes in in the operation of the financial system, possibly related to Fed policy and certainly AG is watching them and thinking about them (or should be!), but not necessarily a direct result of "printing money" (i.e. Fed open market operations, rate tweaking and such)). Basically, we are looking at some kind of expansion of the M2 multiplier (ratio of M2 to base money). I don't know the nature of retail money market funds very well, but I believe many are offered by stock brokers, and run by the brokerages themselves. I don't know what their reserve requirements are, etc... but it seems like probably, when assets flow into brokerage money market funds, as they have probably done during this market boom, this probably changes the M2 multiplier.... I imagine these places have interesting ways of raising cash to meet reserve requirements for their money funds. I think we need Paul Krugman here to explain what's going on, and set Mike straight on Austrian voodoo -SEG-. Seriously, I'd like to hear more comments from those well informed about the workings of the financial/banking system. MB? Seems like you're saying a credit crunch is the only way to shock the credit market, probably inducing a recession, to keep the larger monetary aggregates in line? Any academic economists lurking? Cheers, HB