Between Sept. 10 and Oct. 1, non-Treasury money market funds lost $440bln of their funds, or about 19%, according to AMG Data Services. That's why Sept. 17 was such a key date.. It was right at the start of a big liquidation that dumped billions of dollars in short-dated financial paper to be dumped on the market.
Bank of America's 1.5-year notes (BAC 7.800 02/15/2010) fell 3 points on Sept. 16.
The next day, its 10yr notes (BAC 5.650 05/01/2018) fell about the same amount. (Stocks also sold off.)
Once again, a potential danger is lurking in the in the credit market -- the capital market. This is where problems START.
This is why I support a system that would bypass the banks by having the government buy corporate bonds and asset-backed securities. This would allow credit to flow to the economy and take pressure off the banks to lend.
Policy needs to focus on the capital market rather than the banks.
And, it needs to think about the health of the economy, not the health of the banks. But then again, who owns the Fed, but the banks?
Interest rates cannot be low forever. It seems that stocks do best when interest rates decline. At some point they have to rise. We might as well increase them as soon as possible, unless we want to suffer Japan's fate.