petey : ...the lever has come off the one armed bandit money machine
at the VEGUS FED an now none of the buttons are workin...
zooneh : ...f**kin candyfloss...innit!
beulah : lookyhear atta bollox...
Insight: Shattered illusions of liquidity
..."The substantial build-up of foreign reserves in central banks of emerging markets and developing countries has puzzled economists. As identified by David Roche, of research boutique Independent Strategy, and others, the large build up of central bank reserves is really a liquidity creation scheme that relies on the dollar’s favoured position in trade and as a reserve currency.
Deterioration in the US economy and the issue of more government debt to support the financial sector may increase pressure on the US sovereign rating and the dollar. US government support for financial institutions is approaching 6 per cent of GDP compared to less than 4 per cent at the time of the Savings and Loans crisis. This may set off a further phase in the global de-leveraging as large losses on dollar investments slow down the international credit creation system.
Gillian Tett of the FT coined the phrase “candy floss money”. Financial technology spun available “real” money into an exaggerated bubble that, like its fairground equivalent, collapses ultimately. The emerging market reserves system is another dimension of this candy floss money.
The perceived abundance of liquidity was, in reality, merely an illusion created by high levels of debt and leverage as well as the structure of global capital flows. As the financial system de-leverages, it is becoming clear, unsurprisingly, that available capital is more limited than previously estimated.
In recent years, money was cheap and other assets were expensive. As each of the global economy’s credit creation engines breaks down and systemic leverage reduces, money becomes scarce and expensive triggering adjustments in asset prices in a reversal of the process.
Mark Twain once advised: “Don’t part with your illusions. When they are gone you may still exist, but you have ceased to live”. In the current financial crisis, many illusions have been shattered. The quantum of available capital and the munificent resources of central banks and sovereign wealth funds may be another of the accepted ”facts” that may be revealed to be an illusion." FT
Fed offers $540bn to prop up money funds
..."The Fed move highlights the extent to which policymakers are concerned about US money markets, even as conditions have improved, with interbank rates dropping. Policymakers are also worried that moves to prop up US banks may have undermined money funds, which compete with bank savings accounts. FTmarket ticker : ..."Horsecrap.
Bernanke is doing what Paulson tried and failed at in the "free" (coerced by arm-twisting by Paulson) market through executive fiat, and he is printing money to fund it. Exactly how much money he is printing (as opposed to lending) depends on the precise amount of overpayment that is being induced through these so-called "loans", but that it is happening is not open to question.
Why has this become necessary?
Ben and Hank produced a dislocation in this section of the marketplace by favoring other debt instruments with federal guarantees, thereby forcing money out of these instruments.
This in turn created major problems for money market funds who buy this paper as a routine matter of course in that when they needed to redeem deposits they suddenly found no buyers for the securities, as those people had fled to other instruments that Ben had guaranteed payment on!
As each new facility is rolled out by Ben and Hank a new area of debt becomes backstopped by the government in some fashion, thereby forcing money out of other instruments and causing those instruments to become distressed!
We are rapidly reaching the point where only The Fed and Treasury are providing any lending at all!...read the whole article
petey : Beware below, Bedlam above,
Halls of mirrors and tunnels of love.
Sensory shrapnel, bullets of bliss,
Hands that hold, lips that kiss.
Generate spells, create confusion,
Expectation, cruel illusion.
Money in slot, hand on lever,
Chills the soul, causes fever!
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