Like it or not, the Fed controls the money supply and the IRS collects taxes.
The Fed controls the money supply and it is foolish to go against its actions.
Then, the Fed could continue its acceleration of the money supply and interest rates would remain low for a while longer, the very thing government desires.
At the moment tax rates are low, and Fed Chief Benjamin Bernanke is not debauching the money supply as fast as his predecessors did in the 1970s.
If not sterilized, thus neutralizing the impact of the purchases on the money supply, the Fed would be monetizing the debt and a pickup in inflation would be the likely outcome.
What would have been the impact on commodity prices and the foreign exchange value of the dollar if the Fed had increased the money supply by a factor of eight (rather than a factor of three) in a bit more than four years?
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But then the Fed thought it had done enough, and it slowed the growth of the money supply.
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The bottom line is that the massive loans and investments made by the Fed did not translated into overly rapid growth in the money supply a fact not understood or appreciated by those trumpeting the inflation theme.
Milton Friedman and other monetarists criticised the Fed during the Martin era for what were said to be whimsical adjustments of interest rates and the money supply.
In reality, all it boils down to is Fed purchases of securities to expand bank lending and investing and get the money supply growing faster.
When prices for these commodities rose, that would signal that money supply was exceeding money demand, and the Fed would tighten.
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When prices for these commodities fell, that would signal that money supply was falling behind demand, and the Fed would ease.
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This time around Grant predicts a hard landing in housing, accompanied by a collapse in flaky mortgages and a desperate move by the Fed to prevent a recession by gunning the money supply.
In any case, a massive net sale of securities that would be necessary to shrink total Fed assets to pre-crisis levels would sharply contract the money supply and likely produce panic in the banking and financial system.
Fed bankers quite literally determine the value of our money by controlling the supply of dollars and establishing interest rates.
Contrary to conventional wisdom, net Fed assets have not increased for about 18 months and money-supply growth has not been excessive for the circumstances.
If the Fed buys back issued securities (such as Treasury bills) from large banks and securities dealers, it increases the money supply in the hands of the public.
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