When we lower interest rates

[Borodog]

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i mean the fed LITERALLY has football field sized vaults located around the country with trillions of dollars in US currency

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I would also like a citation for this.

[DcifrThs]

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i mean the fed LITERALLY has football field sized vaults located around the country with trillions of dollars in US currency

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I would also like a citation for this.

[/ QUOTE ]

don't have one. gotta take my word for it.

my source is a former employee of the NY federal reserve (markets group for 10 years). he was hired as a strategist at my old employer (top 3 hedge fund) and we had weekly sessions for investment associates run by strategists.

one of those sessions was run by him. typically the sessions would be that the IAs delve deeply into the market heppenings or ask questions about the fund's strategy and direction or whatever was on their mind.

since the fed guy was new, he wasn't up to speed on a lot of the firm specific stuff so we asked him about his old job. eventually we got onto the topic of open market operations and one IA asked "where does the fed get the money?"

he responded that "he really shouldn't tell us" (jokingly) but that there are football field size storage units around the country (closest one in NJ) w/ nothing but $$$$ inside. we asked how tall they were and got down to the mental arithmetic of estimating total storage space etc. to which we arrived at around $2trillion in a vault. fed guy said "not that far off". of course, we all then half jokingly started devising schemes to retrieve said money to which he laughed "yea good luck. the security there makes fort knox look like a nursury school"...also he said it was only in case of emergency settlements or whatever and that the actual operations were done electronically.

we then asked "well where is the nearest one exactly" to which he replied "classified"

so that is all the info i have on this but you have me on my word it is true and straight from the horses mouth.

Barron

[DcifrThs]

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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.


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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.

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dude. the point is that the OP regurgitated something he read here without understanding the distinction.

the sound bites and snippets are what i refer to as "drivel"...the situation exactly as the austrians describe it (i.e. what the OP said) is not how it actually works in reality despite the fact that the result is the same.

also, M3 gives no additional useful information relative to its cost of collection. M2 is just as "damning" from your point of view so what possible reason cuold the fed have for lying about not collecting/publishing M3 anymore other than the official line taken? M3 includes eurodollars and repurchase agreements notional value!!! do u really think that is worthwhile to collect? do you even understand what that means and how much that detracts frmo the cost benefit analysis of the measure itself as financial markets continue to innovate?

[img]/images/graemlins/smile.gif[/img] [img]/images/graemlins/wink.gif[/img] [img]/images/graemlins/confused.gif[/img]

Barron

[wtfsvi]

Ok so they don't print it. But I don't see how it makes any difference at all if they print it as they need it or if they already have as much as they'll ever need?

I understand that there is risk involved with taking out a mortgage in a different currency than kroner. I'm not retarded, I think [img]/images/graemlins/crazy.gif[/img] But just because it's not a good idea to take out a mortgage in yen doesn't mean the "expert" should pull anything out of his ass to stop me from doing it.

edit: While I'm taking my idiot's course in economics. I've wondered about the "points" of stock market. If they dow jones is at 12k points and the Norwegian stock exchange is at 500 points, does that mean the value of all the companies registerred with the dow jones index fund is 24 times of those at the Oslo exchange? Or does it not compare like that?

[Borodog]

[ QUOTE ]
[ QUOTE ]
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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.


[/ QUOTE ]

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.

[/ QUOTE ]

dude. the point is that the OP regurgitated something he read here without understanding the distinction.

the sound bites and snippets are what i refer to as "drivel"...the situation exactly as the austrians describe it (i.e. what the OP said) is not how it actually works in reality despite the fact that the result is the same.



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NO. The situation as the Austrians describe is EXACTLY how YOU yourself described it. In other words, you ascribed "drivel" to the Austrians and then went on to explain EXACTLY the situation as the Austrians decsribe it.

If you BELIEVE the Austrians say anything otherwise then it is YOUR MISTAKE. Which you could CORRECT if you BOTHERED TO LEARN ANYTHING ABOUT THE STUFF THAT YOU HEAP SCORN ON. YOU have apparently conflated the intent, to lower interest rates, with the mistaken belief that the Austrians believe in a mistaken belief in the direction of cause and effect (lower interest rate inflates money supply), when nothing could be furhter from the truth (the Fed wants to lower interest rates, and hence inflates the money supply to achieve this).

It boggles my mind that I have to explain the same exact thing to you TWICE because even after you are corrected the first time about it you still claim otherwise. This is like me telling you my favorite color is purple and you saying, "No it isn't, your favorite color is blue!" [img]/images/graemlins/tongue.gif[/img]

I don't know which is more infuriating, your insults or your arrogant confidence in your mistakes.

[Borodog]

Oh noes! Austrians explaining how the Fed lowers interest rates by expanding the money supply:

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[V]ery briefly: the Fed can control the quantity of reserves held by banks, and thus indirectly can control the price the banks charge each other for lending out reserves. If the Fed thinks banks are charging each other too much for reserves — in other words, if the actual fed funds rate is higher than the target — then the Fed will engage in an "open market operation," buying assets such as US Treasury bonds from banks. The Fed pays for these purchases by adding numbers to the accounts the selling banks have with the Fed.
<font color="white"> . </font>
This is the precise point of entry for the new money that the Fed creates out of thin air. To repeat: When the Fed buys (say) $1 million in bonds from Bank XYZ, Bank XYZ surrenders ownership of the bonds but sees that its deposits of reserves at the Fed go up by $1 million. But the Fed didn't transfer this money from some other account. No, it simply increased the electronic entry representing Bank XYZ's total reserves on deposit. There is no offsetting debit anywhere in the banking system. Bank XYZ now has $1 million more in reserves, while no other bank has less. Bank XYZ is now free to go out and loan more reserves to other banks, or to make loans to its own customers. (In fact, due to the fractional-reserve system, the bank could make up to $10 million in new loans to customers.) The money supply has increased, putting upward pressure on prices measured in dollars.
<font color="white"> . </font>
But back to our original theme, the injection of reserves obviously increases their supply and thus (other things equal) pushes down the rate Bank XYZ will charge other banks who might want to borrow reserves from it. The open market operation has thus achieved the Fed's goal of pushing the actual fed funds rate down to the desired target. Of course, going the opposite way, if the actual fed funds rate were too low, the Fed would sell assets to the banks, thereby destroying some of the total reserves in the system.

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There are many other examples where the Austrians make it perfectly clear that the Fed manipulates the money supply to hit the Federal funds rate target.

This of course is all different from the discount rate, which is the rate the Fed itself charges institutions, which it can set to be anything it likes, but since 2003 had been set at 1% point above the fed funds target. But this was slashed to just 0.5% above the fed funds target in September. Plus, since the Fed can now take basically anything as collateral, the interest rate is essentially maxed at the discount rate, since if the actual fed funds rate rises above the discount rate, banks would switch to borrowing from the Fed itself rather than each other.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
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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.


[/ QUOTE ]

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.

[/ QUOTE ]

dude. the point is that the OP regurgitated something he read here without understanding the distinction.

the sound bites and snippets are what i refer to as "drivel"...the situation exactly as the austrians describe it (i.e. what the OP said) is not how it actually works in reality despite the fact that the result is the same.



[/ QUOTE ]

NO. The situation as the Austrians describe is EXACTLY how YOU yourself described it. In other words, you ascribed "drivel" to the Austrians and then went on to explain EXACTLY the situation as the Austrians decsribe it.

If you BELIEVE the Austrians say anything otherwise then it is YOUR MISTAKE. Which you could CORRECT if you BOTHERED TO LEARN ANYTHING ABOUT THE STUFF THAT YOU HEAP SCORN ON. YOU have apparently conflated the intent, to lower interest rates, with the mistaken belief that the Austrians believe in a mistaken belief in the direction of cause and effect (lower interest rate inflates money supply), when nothing could be furhter from the truth (the Fed wants to lower interest rates, and hence inflates the money supply to achieve this).

It boggles my mind that I have to explain the same exact thing to you TWICE because even after you are corrected the first time about it you still claim otherwise. This is like me telling you my favorite color is purple and you saying, "No it isn't, your favorite color is blue!" [img]/images/graemlins/tongue.gif[/img]

I don't know which is more infuriating, your insults or your arrogant confidence in your mistakes.

[/ QUOTE ]

don't you get it. my beef isn't content, it's presentation.

man you're dense. it boggles my mind that i have to tell you again the content isn't what i'm bothered about.

the fact that you tell people who aren't as smart/knowledgeable as you that the fed prints money and that printing money devalues the dollar is what i'm talking about. the intent regarding interest rates is clearly the driver, we all know that (we= those who have studied this)...but the literal action isn't the intent and those that get that confused end up like the OP.

look at the OP's post. THAT is what i'm TALKING about.
the op regurgitated that without having a clue what it actually meant...i.e. DRIVEL:

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to utter childishly

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dictionary definition FTW! those utterances is what i'm heaping scorn upon. i've said in many posts recently that i agree to a large degree with what the austrian school is talking about.

on another note, i think it is hilarious that you state "the austrians describe it" like their the only ones who know what is going on under the hood. it is common knowledge and on wikipedia (i checked). glad the austrians could clear up what an open market operation is.

back to above: it is very clear you know i understand the difference between intent and action and i've described it clearly.

you are a professor so maybe you have a pent up need to:

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...explain the same exact thing to you TWICE because even after you are corrected the first time about it you still claim otherwise.

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yea. thanks for your explanation. i clearly needed it otherwise i wouldn't have understood the complex workings of the federal reserve lol.

those who can't do...

Barron

[DcifrThs]

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Ok so they don't print it. But I don't see how it makes any difference at all if they print it as they need it or if they already have as much as they'll ever need?

[/ QUOTE ]

there is no effective difference, but the sound bites w/o understanding is always a mistake. so i wanted to take time to make it very clear which way the arrow points.

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I understand that there is risk involved with taking out a mortgage in a different currency than kroner. I'm not retarded, I think [img]/images/graemlins/crazy.gif[/img] But just because it's not a good idea to take out a mortgage in yen doesn't mean the "expert" should pull anything out of his ass to stop me from doing it.

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well the expert isn't stopping you right? i mean he just said it isn't a good idea...or did i miss something?

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edit: While I'm taking my idiot's course in economics. I've wondered about the "points" of stock market. If they dow jones is at 12k points and the Norwegian stock exchange is at 500 points, does that mean the value of all the companies registerred with the dow jones index fund is 24 times of those at the Oslo exchange? Or does it not compare like that?

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i don't think it compares like that. it is an index. it is like saying that from 1980 i'll peg the price of gold at 100 units. if the value of gold icnreases by 10% in 1 year the value of the index will be 110.

so the daily, hourly, minutely, secondly returns to the dow index is computed based on the returns to the composite stocks (index is market cap weighted so no re-weighting is needed) and that return (weighted by market cap obviously) is then applied to the index level.

the level has no real value like that.

at least that is my understanding of how the US dow works. i'm not so sure how the norwegian stock index is weighted or calculated or whatever but i do know the only way it is comparable to the dow is in terms of returns and risk metrics, not actual index levels.

if somebody out there reading this works for the NYSE or norwegian exchange and can elaborate on my brief (possibly lacking) reply, please do.

thans,,
Barron

[DcifrThs]

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The important number is not the total of physical cash, but the total of fiduciary instruments, M3:



Before the Fed stopped reporting M3 (supposedly because it "cost too much" to measure; this from the people who can create money), M3 was expanding at about 15% per year.



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i'd like to take a second here and reiterate that you have absolutely no clue what M3 relates and you use the end of the publicatino of it as amo against the powers that be in a well thought out snide way.

seriously boro, do you know what the notional value of repurchase agreements does to that figure? look at the divergence between M3 and M2. the divergence between M2 and M1 has actual economic significance since the latter is a much narrower definition, but the wider definition (M2) still retains actual usefulness as it relates to economic activity.

M3 on the other hand includes far too much noise that actually diminishes the usefulness of it as a measure of anything substantial. eurodollar deposits and repos are by far i'm sure the biggest contributors to the M3 surge there towards the end of its publication. but many institutions and hedge funds engage in those activities far beyond what is useful to look at.

increases in M3 don't actually correlate to anything relating to prices in the actual economy and the fed hasn't used it for a long time.

here is the actual statement from the fed as to why M3 was stopped:

[ QUOTE ]
On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.
.
Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks).
.
M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.


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for somebody who speaks as authoritatively as you do it might help to know what you're talking about. (yes, pot-kettle but at least i readily acknowledge where my knowledge is lacking).

Barron

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
The important number is not the total of physical cash, but the total of fiduciary instruments, M3:



Before the Fed stopped reporting M3 (supposedly because it "cost too much" to measure; this from the people who can create money), M3 was expanding at about 15% per year.



[/ QUOTE ]

i'd like to take a second here and reiterate that you have absolutely no clue what M3 relates and you use the end of the publicatino of it as amo against the powers that be in a well thought out snide way.

seriously boro, do you know what the notional value of repurchase agreements does to that figure? look at the divergence between M3 and M2. the divergence between M2 and M1 has actual economic significance since the latter is a much narrower definition, but the wider definition (M2) still retains actual usefulness as it relates to economic activity.

M3 on the other hand includes far too much noise that actually diminishes the usefulness of it as a measure of anything substantial. eurodollar deposits and repos are by far i'm sure the biggest contributors to the M3 surge there towards the end of its publication. but many institutions and hedge funds engage in those activities far beyond what is useful to look at.

increases in M3 don't actually correlate to anything relating to prices in the actual economy and the fed hasn't used it for a long time.

here is the actual statement from the fed as to why M3 was stopped:

[ QUOTE ]
On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.
.
Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks).
.
M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.


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for somebody who speaks as authoritatively as you do it might help to know what you're talking about. (yes, pot-kettle but at least i readily acknowledge where my knowledge is lacking).

Barron

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bump for more pot-kettle regarding borodog:

he said:

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I don't know which is more infuriating, your insults or your arrogant confidence in your mistakes.


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amazing how sure you were/are, boro about M3 and the fed's conspiracy to stop publication of it lol.

Barron