Econ 101

[Forstater, Mathew]

most of the textbook presentation of the Fed is wrong. for an interesting
institutional analysis of Fed-Treasury relations and fiscal-monetary policy
relations, see Stephanie Bell, Journal of Economic Issues "Can Taxes and Bonds
Finance Government Spending?", 2001 (might be 2000); a previous version is
available at the Levy web site as a working paper. A good primer on monetary
theory and policy is L. R. Wray Money and Credit in Capitalist Economies, 1990,
Elgar. Endogenous money, exogenous interest rates, institutional mechanisms
banks use to lend beyond limits of reserve requirements. Also M. Lavoie,
Foundations of Post Keynesian Economics, Elgar, on the myth of the money
multiplier, etc.

-----Original Message-----
From: Bob Morris [mailto:bobmorris at mediaone.net]
Sent: Wednesday, March 28, 2001 5:43 PM
To: lbo-talk at lists.panix.com
Subject: Econ 101

Ok, I'll admit it, I don't really know exactly how the
Fed guides the economy.

The want to stimulate the economy, so they drop rates.
This means loans cost less so people are more likely to
take a loan and build a factory or whatever.  This I
understand.  However, doesn't the Fed also control how
much money is in circulation by buying or selling
bonds?  How does this work?   They bid high on t-bills,
thus drawing money from banks?  Why do the banks have
to sell?  And wouldn't they have to pull huge amounts
in to make any difference?