A Voluntary Contraction of the Credit Market resulting in the Involuntary Liquidation of Physical & Derivative Assets at a Material Loss Causing a Severe Recession or even possibly a systemic financial meltdown
Gurk. The TED spread is up again. So is the LIBOR-OIS spread. (One is the spread between Libor and Treasuries, the other the spread between Libor and the futures price of the Fed funds rate; I tend to prefer TED spread, because fears of bank defaults should affect Fed funds as well as Libor; but I know that Fed officials prefer OIS. Anyway, both pointing in the same direction.) And the flight to safety is back, with the interest rate on one-month Treasuries — which should be about the same as Fed funds — back down to 1%.
All of this involves fear of defaults by banks — despite what look from here (central New Jersey) like utterly clear signals from the Fed that bank debts will be socialized if necessary. I’m puzzled, and worried.
Not Over Yet by Paul Krugman (Princeton)
Gurk. The TED spread is up again. So is the LIBOR-OIS spread. (One is the spread between Libor and Treasuries, the other the spread between Libor and the futures price of the Fed funds rate; I tend to prefer TED spread, because fears of bank defaults should affect Fed funds as well as Libor; but I know that Fed officials prefer OIS. Anyway, both pointing in the same direction.) And the flight to safety is back, with the interest rate on one-month Treasuries — which should be about the same as Fed funds — back down to 1%.
All of this involves fear of defaults by banks — despite what look from here (central New Jersey) like utterly clear signals from the Fed that bank debts will be socialized if necessary. I’m puzzled, and worried.
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