http://www.wired.com/news/reuters/0,1349,33025,00.html

Fed Stockpiles Cash for Y2K

Reuters 12:55 p.m. 10.Dec.1999 PST

The stock market just keeps on climbing and Federal Reserve boss Alan Greenspan is making a massive amount money available for the economy. Is it irrational exuberance or Y2K paranoia? Or Both?

Greenspan has engineered the biggest expansion of money supply in the Fed's history in the weeks leading up to the end of the year, when the so-called Y2K computer bug could disrupt financial systems.

The Fed's move has been explosive on Wall Street because a free flowing money faucet at the Fed is the stuff that makes bull markets get fatter.

M3, the Fed's broad definition of money, which includes currency, travelers' checks, bank deposits, and money market mutual funds, has climbed an incredible US$194 billion over the past 13 weeks -- the biggest increase ever. The money supply increased at an annualized rate of 15 percent, which is well above the Fed's target growth rate of only 5 percent.

Just a week ago, M3 went up a whopping $36 billion, which would seem to indicate that the central bank is buying insurance against some possible disruptions as the calendar changes from 1999 to 2000, analysts said.

"All the signs suggest Greenspan is scared to death about Y2K and he thinks that this is a cataclysmic thing that could bring the world economy down," said Don Hays, president of The Hays Market Focus Advisory Group, an investment consulting firm.

"But again, it may reflect Greenspan's thinking that the stock market is on a very unstable foundation because of valuations and Y2K might be the trigger that could keep it from coming down softly," he said.

Greenspan's goal over the last four years of extraordinary gains in stocks has been to "talk" the market down or to set the mood for the market to come down from its lofty levels in a gradual way and to avoid a panic on the Street, which would demoralize business confidence. But the market's soft landing has still not happened.

And the Fed fears that Y2K could be the thing that could punch a big hole in the market bubble.

For Greenspan, it may be a "do as I say and not as I do," sort of thing.

Three years ago, in December 1996, Greenspan sent the global stock market reeling with a comment about investors' "irrational exuberance," and Wall Streeters now say the Fed head is not practicing what he preaches.

"The money supply has gone through the roof and the increase, adjusted for inflation, is the biggest in the nation's history," Hays said.

"The Fed may be flooding the nation with cash because of jitters among central bankers that the Y2K computer bug could do more damage to the financial system than most people expect," he said.

"I just don't have another excuse other than Y2K to imagine why the Fed would flood the system, unless there is something that's happening behind the scenes that we don't know about," Hays said.

[snip]

Copyright 1999 Reuters Limited.

-- Jack (mercer@usa.net), December 13, 1999

Answers

Super post!

There's that word cataclysmic. It doen't inspire confidence in financial markets.

How could this market come down softly in 18 days given the insane valuations and Internet stock gambling?

-- PJC (paulchri@msn.com), December 13, 1999.

Heeheeheeheeheeheeheeheheehheehheh, well, we know what Greedspin *really* thinks ;^)

-- Ashton & Leska in Cascadia (allaha@earthlink.net), December 13, 1999.

I don't know about you, but I love buying stocks from companies that have never made a cent. There's no way that I can lose money, is there? Especially with the Dow well on its way to 36,000. Throw caution to the wind!

-- Dr. PollyDork (DrPollyDork@moron.com), December 13, 1999.

The BIG Bull Page:
http://members.h ome.net/goldandsilver/joke.htm

-- Tim (pixmo@pixelquest.com), December 13, 1999.

To say nothing of IRIDIUM phones for all Senators in their states bunkers - Contingency Planning? Probably, but for what contingency?

IRS Crash - need new taxation system to pay govt debt on T-Bills

Cash Liquidity - need new monetary system. Options: cashless society or new paper (I like orange, maybe we will have orangbacks)in any case may need Congress to declare that greenbacks are no longer legal tender because we are out of supply and can no longer transact business based due to cash demands.

-- Bill P (porterwn@one.net), December 13, 1999.

Check out the post 4 down from here.....

(Atlanta Fed chief says no inflationary effects...)

Sounds like the Fed needs to get their act together.

-- Tommy Rogers (Been there@Just a Thought.com), December 13, 1999.

Easy way to guarantee inflation...expand the money supply rapidly. And Greenspan knows that! So why is he doing this? Obviously, because he is far more worried about the effects of Y2K! (Whether real or panic...)

-- Mad Monk (madmonk@hawaiian.net), December 13, 1999.

Greenspin is doing what he can, with what he has to work with.... which ain't much !!! He has an over blown market, and a possible bank run on his hands..... and Y2k...... what else can he do? Damned if he does, damned if he doesn't....

-- CT (ct@no.yr), December 14, 1999.

Yes, Greenspan's actions clearly indicate he is responding to Y2K potentials. No other reason would call for an injection this size.

I think the question to ask Greenspan is: "When they tried to prove to you what they know about the upcoming y2k disaster, what did they show you that swayed your opinion?

-- snooze button (alarmclock_2000@yahoo.com), December 14, 1999.

"The Fed's move has been explosive on Wall Street because a free flowing money faucet at the Fed is the stuff that makes bull markets get fatter."

That explains why the market bubble hasn't burst yet

-- Dick Moody (dickmoody@yahoo.com), December 14, 1999.

Oh

get with it

. The market isn't going down until money comes out. Money isn't coming out until the market goes down. Will you please try and understand that. There is no direct connection between the real world and share prices. Yes, it's utterly irrational, but it's not actually a difficult concept.

-- Servant (public_service@yahoo.com), December 14, 1999.

So it's perpetual motion then, eh Servant?

-- number six (something's_got_to_give@Wall_St.com), December 14, 1999.

Lets see. If you add the Fed cash injection (against a bug, Pasteur would be proud) to the 3/4 TTTTTrillion US dollars worth of T-Bills sold over the last two months, why,,,, it comes to almost a full TTTTTrillion dollars!!!!

The cash gave us annualized rate of 15%, and the T-Bills give an annualized rate of 24%.

Is it any wonder that the markets keep climbing?

Can you say jackpot?

-- Mitchell Barnes (spanda@inreach.com), December 14, 1999.

"The market isn't going down until money comes out. Money isn't coming out until the market goes down. Will you please try and understand that. There is no direct connection between the real world and share prices. Yes, it's utterly irrational, but it's not actually a difficult concept." ----------------------------------------------------------------------

Close, but no cigar.

There is no connection between the real world and share prices, true. However, there is a direct connection between share prices and confidence. This is why it's called "speculation".

There are two kinds of people in the market now. 1) Those who are too young or ignorant to realize that they are standing on the top rung of a very tall and shakey ladder. (you know, the one that says "do not use as a step") and 2) Those who do realize this, but think they can bail out quickly enough to keep most of their gains. Over- confidence will protect it from small threats, but it will enhance the effects of a major one. Y2K may very well be that threat. If ANYTHING happens to scare the herd, they WILL start to bail. They are all watching each other, and will follow suite. It's like a huge game of musical chairs, noone wants to be the last one standing.

Share prices equal what you just sold the them for, NOTHING else. If there are no buyers, then it is worth $0.00. Calculate your retirement with that.

-- MegaMe (CWHale67@aol.com), December 14, 1999.

A couple'a dozen multi million dollar bunkers here...a couple'a hundred iridium phones there...

What do they think the sleeping populace is going to do, any hoo? Eat them for breakfast?

If it's gonna be only a THREE like Lady Logic keeps telling us, you gotta ask what all the friggin' fuss is about.

You can't panic a 280 million herd of people with a bloody pop gun.

Logic, get you some.

-- OR (orwelliator@biosys.net), December 14, 1999.

Server,

There is no money in the market. There is no money in *any* market. You go to a market with goods, leave it with money. Someone else goes to market with money, leaves it with your goods. Same amount of money before and after, just that it's in different pockets.

A share is worth what the buyer thinks it is at the time that it's sold. No more, no less.

-- Nigel Arnot (nra@maxwell.ph.kcl.ac.uk), December 14, 1999.