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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
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> 
> 	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
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