Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.2 9/18/84; site ucla-cs.ARPA Path: utzoo!watmath!clyde!bonnie!akgua!whuxlm!harpo!decvax!ittvax!dcdwest!sdcsvax!sdcrdcf!trwrb!trwrba!cepu!ucla-cs!brett From: brett@ucla-cs.UUCP Newsgroups: net.invest,net.misc Subject: Re: Re: Re: "World Banking Crisis" -- what is it? Message-ID: <6113@ucla-cs.ARPA> Date: Mon, 24-Jun-85 01:38:41 EDT Article-I.D.: ucla-cs.6113 Posted: Mon Jun 24 01:38:41 1985 Date-Received: Thu, 27-Jun-85 05:50:20 EDT References: <11154@brl-tgr.ARPA> <2287@sun.uucp> <161@idsvax.UUCP> <6022@ucla-cs.ARPA> <173@idsvax.UUCP> Distribution: net Organization: UCLA Computer Science Department Lines: 48 Xref: watmath net.invest:693 net.misc:8163 > > The model is called "Keynesian Economics" and its dirivitives. > It is named after John Maynard Keynes, a British economist who > influenced Roosevelt to institute the policy of deficit spending > by the government to break up economic stagnation. Except for > the more recently mediaized "Laffer Curve," I know of no other > model that is as widely known and influential. Richard Nixon > said "I am a Keynesian," the one thing he had in common > with Roosevelt :-). Hmmmm. It's funny how quickly I forgot all the stuff I took freshman year in college! > > If you read the business section of your local paper > you will see an occasional report on the money supply, M1. > This is the money in checking accounts and cash. Just this > morning the San Francisco Chronicle reported that M1 was growing > beyond the Federal Reserve's target. Supposedly, when M1 gets > very large, inflation happens. It is the old "printing money > to pay debts" thing. To prevent M1 from getting too large, > the Federal Reserve *increases interest rates*. For that reason, * when the business section reports a giant increase in M1, it usually * causes a stock drop because that means that there will be * an increase in interest rates. * Hmmm, I suppose you are right. Of course, the Fed manages the "discount rate", which is the rate member banks are allowed to borrow money from the Fed at. Of course this effects interest rates, as you said. However, banks have been slow in dropping the prime. So, I would argue it is correct to say the government exercises policy which effects interest rates. The statement indicated with the '*'s does not always hold true, as you must well know though. When an increase in M1 is expected (and is on target with the Fed's growth rate) it in many cases does not trigger a DJIA drop. -- Brett Fleisch University of California Los Angeles 3804 Boelter Hall Los Angeles, CA 90024 Phone: (213) 825-2756, (213) 474-5317 brett@ucla-cs.ARPA or ...!{cepu, ihnp4, trwspp, ucbvax}!ucla-cs!brett -------------------------------------------------------------------------