When we lower interest rates

[adios]

Did you read Milton Friedman's piece in the WSJ several years ago? Showed exactly how the velocity of money fluctuated wildly in the late ninties and how Greenie anticipated the change in velocity. I've got the article but not the graphs. Here's a linky to most of the article:

Fed's Thermostat Article by Milton Friedman

[DcifrThs]

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Did you read Milton Friedman's piece in the WSJ several years ago? Showed exactly how the velocity of money fluctuated wildly in the late ninties and how Greenie anticipated the change in velocity. I've got the article but not the graphs. Here's a linky to most of the article:

Fed's Thermostat Article by Milton Friedman

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i have the actual article saved somewhere from my training. i did read it and it is excellent. i don't remember everything from it though but do remember its high quality.

Barron

[AlexM]

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When we lower interest rates, the value of the currency goes down, because more money is printed. Right?

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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.

if the BoE keeps rates on hold and US lowers them, more people will want to hold pounds to earn UK rates vs. US rates. therefore people will sell dollars and buy pounds. the "printing of money" has no direct effect aside from the causal relationship it has with interest rate reductions.

it is a nitpicky but important distinction to understand.


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It seems to me that you just repeated what you quoted in more detail and then claimed you were disagreeing. [img]/images/graemlins/confused.gif[/img]

[DcifrThs]

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[ QUOTE ]
When we lower interest rates, the value of the currency goes down, because more money is printed. Right?

[/ 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.

if the BoE keeps rates on hold and US lowers them, more people will want to hold pounds to earn UK rates vs. US rates. therefore people will sell dollars and buy pounds. the "printing of money" has no direct effect aside from the causal relationship it has with interest rate reductions.

it is a nitpicky but important distinction to understand.


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It seems to me that you just repeated what you quoted in more detail and then claimed you were disagreeing. [img]/images/graemlins/confused.gif[/img]

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yup. but the thing i was correcting was the order of operations.

the OP was spouting something without understanding it. i was clarifying the actual order of operations in reality.

Barron