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PostPosted: Sat Aug 11, 2007 9:45 am    Post subject: Additional Info Reply with quote

See prior two sections in this category for more info.

If Third World countries want to overproduce by buying dollars and selling their currencies, then it's appropriate for the U.S. to increase its money supply to at least partially offset U.S. underproduction (i.e. close the output gap), which has caused those Third World countries to overproduce even more. It's not a U.S. economic problem.

Posted by: Arthur Eckart | Saturday, August 04, 2007 at 09:38 PM

Mutual funds, pension funds, insurance firms, etc. have been propping-up U.S. financial markets (following New York institutions) to raise GDP, which was successful. While the U.S. stock market rose from mid-2006 to mid-2007, U.S. real GDP rose from less than 1% in Q1 2007 to about 3 1/2% in Q2 2007 (the stock market correction began right after second quarter GDP was announced, although inflation was much lower than expected, the U.S. trade deficit remained near the all-time high, and the U.S. budget deficit was estimated at only $150 billion in 2007). The New York Fed has mitigated some of the hedge fund losses by exchanging dollars for mortgage-backed securites, which increased demand deposits (through high-powered money or the money multiplier, since the effective Fed Funds Rate rose from 5 1/4% to 6%). So, it seems, Goldman Sachs, Bear Stearns, etc. were somewhat rewarded, e.g. through Citigroup and Chase (i.e. money center banks). Obviously, the Fed and New York financial institutions are working together for the benefit of the country (similar to JP Morgan before the Fed) to maintain sustainable economic growth.

Posted by: Arthur Eckart | Saturday, August 11, 2007 at 02:32 PM
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