The Bubblemeister panicking?

Enrique Diaz-Alvarez enrique at anise.ee.cornell.edu
Mon May 17 15:37:57 PDT 1999


Doug Henwood wrote:
>
> Enrique Diaz-Alvarez wrote:
>
> >How often does the Fed normally conduct coupon passes, and for what
> >amount?
>
> Sorry, ain't got those numbers right at hand, but the according to table
> 1.17 in the April 1999 Federal Reserve Bulletin, the system bought $20
> billion U.S. government securities in 1996, $41 billion in 1997, and $28
> billion in 1998. As of Jan 31, 1999, the Fed had $525 billion in assets,
> mostly U.S. Treasury paper. Their major liability is U.S. currency, $480
> billion.

If that's the case, then ten coupon passes, anywhere from 1/2 to nearly 2 billion $ apiece, in the span of less tan a month, with no sales of T-bills that I am aware of, _seems_ pretty significant, does it not?


>
> >In theory, money supply should grow roughly in line with the
> >economy, and every dollar of printed money adds 14 in reserved, right?
>
> The relation between bank reserves and the various Ms is extremely complex
> and unstable, and the relation between the various Ms and the economy is
> also extremely complex and unstable. So when you say "roughly in line,"
> it's true, but emphasis on the "roughly."
>
> >OK, there are no legal limits. But say there was a panic. Could the Fed
> >keep interest rates from rising indefinitely, simply buying more and
> >more T-bills? Could it buy 10, 100, 1000, 10,000 billion dollars worth?
> >What would be the immediate
> >physical limits to the money printing?
>
> There's no physical limit really - they don't print anything when they're
> pumping, they're just adjusting computer entries. They could buy bonds as
> fast as their computers would let them. The financial market and real
> economic consequences of that are pretty unpredictable though - we've never
> been there before.

Sorry, I misspoke. I meant 'physical' in the sense of 'fundamental'. So, you are saying that such limits have never been tested before? That the Fed has never been forced before to stop printing money against its will by more-or-less immediate and unavoidable events brought on by the printing itself? Interesting.

Could a better Fed have prevented the 1929-32 collapse?
> Mitigated? Probably, but who knows?
>
> Doug

-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique



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