>Conventionally, the Fed is said to be responsible for
>"regulating the money supply". Seems to me, though,
>that they can only have an marginal effect
>-"fine-tuning" on a day to day basis, but helpless
>before larger fiscal currents.
Credit money is created by private actors - e.g., a bank making a loan. Central banks can provide the money to validate such private credit creation (which they do in normal times), or they can refuse (as they do when they're tightening). If they refuse, the system runs short of liquidity & seizes up.
>3.) One thing I'm unsure about: when the bubble bursts
>is the money just gone? Is there some kind of
>"conservation of money" law, or is it possible for
>trillions to just vanish?
Yes, if the "trillions" are fictitious values, as were Nasdaq valuations. The "wealth' they represented was purely notional (which is why it's nonsense to count capital gains as a form of saving).
Doug