[Borodog]

[ QUOTE ]
this sounds like some typical drivel regurgitated from ACists or something (or austrians or whatever group is always commenting on the demise of the dollar).

first off, the statement is totally backwards.

correctly it should read: when more money is released via open market operations, interest rates fall and then currency falls.

in other words, when the decision to lower rates occurs, more money is injected into the system by open market operations in the NY Fed. this excess money lowers interest rates (lower interest rates doesn't result in more money printed. more money released results in lower interest rates). the value of the currency (all else equal) then goes down, not because more money is "printed" but because the relative demand to hold that currency drops when compared with the other available options.


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I like how you claim that the Austrians "reguritate drivel", and then proceed to describe exactly the situation as Austrians describe it. [img]/images/graemlins/tongue.gif[/img] Yet more evidence that you have no idea what the people you scorn are actually saying.

And you are being slightly disingenuous when you say that "lowering the interest rate increases the money supply" is totally backwards. What is the intent when the Fed increases the money supply? To lower the interest rate, of course. They have an interest rate target, and if the market gets too far away from their target they will inject (or drain) reserves into (or from) the system to try to hit that target.

The interest rate is the cart. The money supply is just the horse. It might come first, but what it's hauling is what's important from the Fed's point of view.