chand4059@aol.com (GChand4059): On 3/1/99 Hummel posted the original topic. He listed (7) Tennants, or primers. I love primers, especially on money. Consider the notion that his "primer" is valuable only to someone with a fairly high knowledge of money. For example, the following terms or jargon must be understood to read the (7) primers: Money supply. The Treasury money balance. The banking system. Definitive money. Money in circulation. Capital ratio requirement. (This one takes aimed-at- level past first college econ.) FED Funds rate. Rolling over (a TBond). .....But hey, I love primers, hope to see more. Also how about a basics "glossary"? Include, fiat money, real money, good/bad money, money supply, money stock, credit-money, reserves, components of the money supply, gross debt, net debt, non-interest bearing debt, servicing (the debt). William F. Hummel: Money supply. One of the monetary aggregates defined by the Fed, e.g. M1 = demand deposits at depository institutions plus currency held by the public. M2 and M3 are broader definitions of money which include saving deposits, money market funds, etc. The Treasury money balance. The Treasury maintains accounts (money balances) at commercial banks and at the Federal Reserve Bank. All Treasury payments to the public are made against its FRB account which is normally kept very close to $5 billion by transferring funds as needed from its commercial accounts. Tax revenues are collected in commercial accounts where the balances typically fluctuate between about $20b and $40b. The fluctuation is due to the fact that income from taxes and bond sales cannot be timed with payments to the public. Banking system: The institutions comprising the monetary system: the depository institutions -- commercial banks and thrifts -- together with the Federal Reserve and other banking regulators -- FDIC and Office of Controller of the Currency. Definitive money. Money that cannot be converted into any other form of money. It used to be gold. Today it is Fed dollars -- Federal Reserve notes, coins, and the deposits at the Fed created for the seller when it purchases something. Definitive money: Money issued by the Fed -- currency, coins, and deposits at the Fed created as loans or as a result of purchasing assets. Most Fed money is in the form of currency, more than half of which is owned by foreigners living outside the U.S. Money in circulation. A general term, usually referring to the M1 money supply as defined above. Capital ratio requirement. Depository institutions like banks are limited in the total amount of assets they can own or create by the amount of their own equity capital (assets minus liabilities). The Fed imposes the capital ratio (assets/equity) requirement which is a complex formula but amounts to about 12 to 16, depending on the type of assets. FED Funds rate. The inter-bank (annualized) interest rate on funds that banks have on deposits at the Fed. Banks borrow or lend these deposits among themselves in order to meet the requirement the Fed imposes on bank reserves relative to demand deposits. Fed funds rate: The interest rate banks charge on overnight loans of reserves they hold at the Fed. Since the Fed does not pay interest on reserves, banks with excess reserves seek to lend them to banks needing reserves. Rolling over T-bonds: For the Treasury, selling new T-bonds to cover the principal due on the maturing T-bonds. For bond holders, using the proceeds from a maturing bond to buy a new bond. Fiat money refers to money that exists by government order or "fiat." It is to be distinguished from commodity money that has intrinsic value, like gold coins. Real money and good/bad money are ambiguous terms unless there is a context. Money stock = money supply. Credit money usually refers to deposits created by a bank on making a loan. Actually all money is a form of credit, but that gets into more complex issues that won't help here. Reserves (of a bank) are funds the bank holds to satisfy the reserve ratio requirement. They can be kept on deposit at the Fed or held as cash in the vault. In neither case do they draw interest. Therefore banks try to minimize their reserves, consistent with the need to cover checks written by their depositors. Components of the money supply include demand deposits at banks, currency in circulation, traveler's checks. Gross debt, net debt, non-interest bearing debt should be obvious. Servicing the debt refers to keeping up the interest payments on the debt. A company that borrows too much may go under because it cannot service its debt. Monetary system: The system of money and banking under the control of the central bank, the Federal Reserve. Each nation has its own system, some quite different than the U.S. monetary system. Credit money: Money issued by a bank when it creates a deposit to fund a new loan. When the loan is repaid, the amount of credit money decreases. The total amount of credit money is several times the amount of Fed money. Commercial banks: Financial institutions with a license to accept deposits and to create credit money . Not to be confused with investment banks and finance companies, which can only lend their own money or borrowed money, not newly created credit money. Equity capital: Difference between what an institution owns and what it owes. Total assets minus total liabilities. Negative equity implies insolvency. Capital ratio: Ratio of assets-to-equity. Lending increases a bank's assets but not its equity since its liabilities increase by the deposit it creates. Interest earned on lending and other bank income increases its equity as well as its assets. Reserve ratio: Ratio of a bank's reserves to the amount of its demand deposits. The Fed sets the required minimum ratio, currently 10%. Open market operations: The Open Market Desk of the New York Federal Reserve Bank has the task of controlling the reserves in the banking system as required to hold the Fed funds rate on target. Banking system reserves: Total reserves held by all depository institutions. A bank must hold its reserves on deposit at the Fed or as vault cash. Only the Fed can create new reserves. Check writing against bank deposits merely transfers reserves between banks. Target rate: The Fed Board of Governors sets a target rate for Fed funds, its primary monetary policy tool. This is its only effective means of controlling the demand for credit, and thus the rate of growth of the money supply. Treasury securities: Treasury bills, notes, and bonds sold to the public to cover deficit spending, i.e. spending not covered by tax revenues. Monetizing the debt: The Fed purchases assets owned by the public, like T-bonds, when it wants to increase banking system reserves, which in turn allows banks to create additional deposits for borrowers, i.e. credit money. Printing money: When the Treasury sells its securities directly to the Fed rather than to the public, it creates new money rather than recycles existing money. This is sometimes referred to as "printing money." Money balances: The Treasury maintains accounts, i.e. money balances, with the Fed and with commercial banks. Incoming funds are deposited in banks and transferred as needed to the Fed account from which all of its payments are made. National debt owed to the public: Treasury debt on which interest payments are due to the public, as distinct from the total debt which includes borrowing from government trust funds. The latter involves intra-government interest payments, in essence only a bookkeeping exercise. William F. Hummel