US money supply

Discussion in 'Economics' started by Lippy, Aug 19, 2007.

  1. Lippy


    sorry if this is a stupid question, i've never been to great in economics but... With all this borrowed money disappearing from default mortgages and such, shouldn't this cause a tightening of the money supply? If house prices are crashing and people are losing all there equity in their home and cant meet payments, and since this is happening to a very significant amount of people, shouldn't this evaporation of money in turn tighten the money supply and cause the US $ to go up?
    Or am i missing something obvious? (wouldn't be the first time)
  2. The dollar was going up before they lowered rates and pumped more money into the system.
  3. Seen in isolation u are right.

    Also seen in isolation lower rates -> lower $

    In economics there are laws and context. Or at least that is what I think.
  4. balda


    Wouldn't same logic apply to stock market.
    Market goes down - $ goes up.
  5. we have a wonderful institution to prevent a shrinking dollar base called the Fed.

    here's their report card,,,,print mo money
    • m3b.png
      File size:
      11.3 KB
  6. ?.......think of it as a contraction or deflation, not a tightening, of the money supply. The disappearing equity is money that is "gone". The remaining, smaller supply of money becomes more "valuable". That gives strength to the dollar. It remains to be seen if borrowing accelerates or diminishes at these levels. That will determine where interest rates go. It also highlights the concept of credit-quality. Treasuries should remain firm while corporates and munis weaken..........I think that's how it goes.