Re: Fed open market operations, reply-comment on Mossler

[Warren Mosler <mosler@xxxxxxxx>]

"ÁÎ×Ó¹â HenryC.K.Liu ¹ù¤l¥ú" wrote:

>

(snip)

My last  post is my story and I'm sticking to it.

(snip)

> Discount-window lending, open market operations to effect changes in reserves to set
> Fed funds rates, and reserve requirements are the three main monetary policy tools
> of the Federal Reserve System. Together, they influence the cost and availability of
> money and credit.
> However, this influence has been steadily eroded by the repo market, as Greenspan
> has discovered.
>

The influence lost is on 'money supply' however defined.  The 'influence'
on the fed funds rate has not been 'eroded.'

>

(snip)


> I said
> arbs regularly exploit the target fed funds rate and the market rate for profit.
>
> For example, fed funds target rate was set at 5.75% effective 2/2/00.  On February
> 24, ff rates were 5.78% high, 5.5% low, 5&3/8 near closing bid, 5&1/2 offered.
>
> Overnight repo rate was 5.64% (Feb. 24)
>
> These relationships change daily.  Some traders profit while others lose when they
> bet on the movements.
>

Fine, but is an example of speculation rather than arbitrage.  The latter
implies 'locking in' a profit.

w

>
> Henry