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To: freeper12; afz400; GOPJ; Leisler; rohry; imawit; philman_36; arete
First place, I think everyone needs to understand that we don't have 1-2% inflation any more--we haven't had any inflation for almost two years. The CPI measures the market trading price of a specified group of commodities which show a net increase in this range--but that is not inflation. Inflation is where you have too much money in too many transactions chaseing a limited supply of goods--we don't have that.

The basket of goods we trace prices on includes goods that are in markets with structural market factors forcing prices up (food grains--weather; oil and gas--supply; steel--tarrifs etc.). Nothing to do with inflation, we have deflation right now and have had it for around two years and the rate of deflation is accelerating.

" Besides lowering interest rates, how does the fed actually increase the money supply? If they are giving away "freea" money...who do they give it too???"

That is of course the real question. And Richard has given you the fed's best answer--they print money and buy government bonds, usually from bank reserves, on the assumption that the bank with an implicit cost of the cash in its reserves with no revenue from the cash will then lend it out; or the marketplace, on the assumption that the recipient of the proceeds of bond purchases will be under similiar pressure to invest or spend. That is not however what investors are doing with excess cash so that is not going to happen either.

I don't know who coined the term "helicopter money" but it's a wonderful term because it forces people to think about the problem the fed has in giving away money. The real way they do it is credit every checking account in America with $10,000--but if they did that, no one would ever again use the dollar for money; it would defeat their purpose.

Bottom line? Deflation is here and there is nothing the fed can do about it. What do we do? Conserve cash; be sure it is located in a secure place: Few banks are worthy; few money funds are safe; some T-Bill only funds are ok; best is Treasury Direct investments in T-Bills.

24 posted on 12/10/2002 8:01:49 AM PST by David
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To: David
Milton Friedman coined the term "helicopter" money.
26 posted on 12/10/2002 8:08:43 AM PST by austrianecon
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To: David
Bottom line? Deflation is here and there is nothing the fed can do about it. What do we do? Conserve cash; be sure it is located in a secure place: Few banks are worthy; few money funds are safe; some T-Bill only funds are ok; best is Treasury Direct investments in T-Bills.

I just signed up for this. Not a bad deal considering that many banks are now paying ~.50-.75% on Savings Accounts. You can do better than that with a 4-week T-bill.

35 posted on 12/10/2002 9:24:42 AM PST by Fury
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To: David; arete
Okay. I agree that what the Fed is doing is not making it happen, inflation. But where is all of this additional money going ?

We do see it in the housing bubble but I would caution to quess that this one market is not going to suck up all of the newly available money.

So what is ?

New cars, new or better computers are not. It's not TV's or DVD's. It's not more vacations. And in fact all of this is the sign that the Fed's inflation plan is grossly not working.
49 posted on 12/10/2002 10:46:45 AM PST by imawit
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