Oct 29, 08
Bank cash reserves increased and they are still not lending, Why?
I think the cause of the extreme credit contraction can be tracked to a main cause.
Money markets illiquidity.
The money markets are the worlds safe reserve, resting place for cash.
Money markets were always safe, $1 a share, and liquid on seconds notice.
When some of the money markets assets were marked to the market they came up short of the $1 per share. And this scared bankers to the bone, and kept them awake nights with night mares of their cash reserves becoming illiquid. Imagine a bank that can't get the cash out at the same price the cash went in.
Track the problems with the money market funds not measuring up to a $1 a share
and you have the culprit. I expect they will find some derivatives mixed into the money markets based on sub-prime mortgages.
Some investment vehicle that has made its way into the money markets, and made them illiquid. Now I have they are forcing banks to mark money markets to $1 regardless of what they mark to market, and bankers know the risk this involves.
It is an artificial conveyance, fraught with problems and high risks.
The solution is to remove these assets that are not performing marked to the market.
This will restore confidence, in a very real, non contrived way.
Playing with interest rates will not solve the problem.
And if OPEC raises oil prices this will further fuel the world wide depression.
The federal reserve is playing word games refusing to say "Recession".
I'll say it RECESSION, AND ITS GOING TO BE VERY BAD.
So far the Federal reserve has not addressed the problems causing the credit crunch,
MONEY MARKET IL LIQUIDITY.
PLEASE COMMENT AND DISCUSS IN COMMENTS/BLOW BACK.
Series 7 and 13.
What does the Feds think
increasing the GND from 7 Trillion dollars to 11 trillion dollars in a year
do to devaluation and inflationary pressures? G.