--- Seth Ackerman <SAckerman at FAIR.org> wrote:
> That idea that finance isn't neutral is what makes
> Dean's mechanistic
> scenario sound unlikely, but it's hard to put into
> words. All you can say is
> something like, a sudden outflow of capital would
> cause big financial
> problems; but that's kind of vague.
This might be a bit less vague; as discussed last year, a fairly high proportion of the US' money supply is part of an unregulated and uninsured secondary banking system (the money market mutual funds) which, to my untrained eye, looks very vulnerable indeed to bank runs (or something similar enough to bank runs that I'm not going to quibble).
When we discussed the question of whether MMMFs were money, I think we concluded that the Fed could control this part of the money supply _under_normal_conditions_, because it controls the interest rate. But I'm not sure how one would go about bailing it out, or how one would prevent this part of the money supply from more or less evaporating in crunch conditions.
dd
===== "Imagine the Duchess's feelings You could have pierced her with swords To find her youngest son liked Lenin And sold the Daily Worker near the House of Lords" -- Noel Coward
____________________________________________________________ Do You Yahoo!? Get your free @yahoo.co.uk address at http://mail.yahoo.co.uk or your free @yahoo.ie address at http://mail.yahoo.ie