Zeev's Turnips Patch-No Politics (ZEEV)

[SantaCruz]

A blast from the past.

An article about the fed's y2k pumping. Just a refresher. ;)


Saturday, December 04, 1999 9:21 AM
_________________________________________________________________
>
> http://nypostonline.com/business/18993.htm
>
> THE FED IS PARANOID ABOUT Y2K
>
> By JOHN CRUDELE
>
> THE Federal Reserve is being driven to distraction by Y2K.
>
> Even as the Central Bank has been publicly tightening monetary
> conditions through three interest rate hikes this year, it has been
> quietly pumping money galore just in case the Millennium madness
> being predicted actually does happen.
>
> Michael Belkin, a Fed expert who writes the Belkin Report, says
> Alan Greenspan has allowed $70 billion in cash to flood the U.S.
> monetary system in recent weeks and has created something called a
> "repo option." These options could leave the monetary system awash
> in another $426 billion in additional emergency cash in the next
> few weeks.
>
> "This all adds up to the biggest Fed credit expansion ever. This
> monetary boost is wildly stimulative for the U.S. equity market in
> the short term," Belkin says, "but will leave equities painfully
> vulnerable to a crash once the Y2K-related credit expansion is
> withdrawn in the new year."
>
> In recent weeks the Fed has allowed the nation's money supply to
> soar and has liberalized collateral requirements for government
> securities dealers doing business with the Fed.
>
> Last week alone, the government's M-3 money supply figure rose at
> an annual growth rate of 12 percent. That's more than double the
> normal growth and far above what the Fed would generally allow.
>
> But the repo options, which were first sold on Oct. 20, are the
> thing that could pump more money into the nation's monetary system
> the quickest.
>
> Financial insitutions that buy these options can convert them
> quickly to cash in a pinch.
>
> Ironically, this liquidity burst comes at a time when the Fed is
> pretending to be very stingy. The third rate hike of the year that
> came a couple of weeks ago was billed as the Central Bank's "get-
> tough policy."
>
> By the Y2K actions really means that the Fed isn't the Scrooge Wall
> Street fears but really a very generous Santa. And a Santa who's
> petrified about the New Year consequences.
>
> What the Fed has been doing could help stocks rise nicely over the
> short term. As I've already said, there are only a few hurdles that
> could get in the way of bigger bubbles by year end.
>
> But the Fed's generosity in itself could be a big long-term problem
> for the financial markets.
>
> The bond market would normally rally if it thought the Fed was
> being diligent in fighting inflation. And that's precisely the
> message that the three rate hikes should have conveyed.
>
> But bonds have, instead, been very weak despite the Fed's supposed
> nastiness and rates have risen beyond where the Fed intended.
>
> And that is leading many to believe that investors worldwide are
> wise to the Fed's Santa Claus ruse.
>
> That's also why the U.S. dollar has been so weak. And why, traders
> say, the Fed was forced to rig the bond market last week with
> massive purchases of all maturities of government securities.
>
> The prognosis? The stock market should have a very easy time
> between now and year's end -- even easier than I first thought.
>
> But there could be trouble later when word gets around about the
> Fed's dirty little secret -- so don't go spreading this around.