The money tap was turned on to stop contagion of the Asian and Russian crises. ...If you have any evidence that it went on further in expectation of Y2K, I would like to know about it as I am writing a book on the subject ("Hoax of the Millenium"). From the Economist jan6,00 "Some pundits point an accusing finger at the Federal Reserve’s millennium-bug precautions. The money supply grew rapidly as the Fed printed bucket-loads of extra dollars, just in case. In the fourth quarter of last year, for example, banks took $80 billion of extra cash, compared with $23 billion in the same period in 1998. This liquidity began to be withdrawn on January 3rd."
I think we are talking about different degrees of money creation here - of course they would turn on the tap in any recession, they have done it repeatedly. But to start printing money to the levels required to devalue the currency or cause inflation in the US is so far beyond the average economist's idea of propriety as to be not worth considering. Many Economists are advocating such a policy for Japan. Extraordinary circumstances can justify extraordinary measures.
