I don’t think 700 billion right now is the right thing to do but something has to be done.
I was at an accounting association meeting last night. We had two speakers from a nearby fortune 500 corporation speaking about cash management. They was responsible for the daily cash transactions that allowed the company to function daily.
They said that the day or so that the crisis on Wall Street blew up was one of the most stressful in their careers. They had one hell of a time getting banks to lend those days.
Now this is trade debt, it would be pocket change when compared to the assets of this corporation but if they don’t have assess to borrow that money then they may have to delay contracts or payments to suppliers.
Now this is a very conservative manufacturing company, bonds are always rated the highest. They won’t go bankrupt because the money markets has gone to pot but when it and thousands of other major corporations in America find they have a hard time borrowing cash then that affects thousands of smaller suppliers more harshly as sales to those larger corporations are delayed or cut back. Soon you start a cascade effect that causes a recession.
Yes, that’s why my only conclusion is that the “let’s the chips fall” people are in deep denial about how bad this thing is.
Good example of a severe liquidity problem.
So what do you think fixes this problem without a flood of money?
Lost in all this discussion is that US lenders have taken MASSIVE write-downs in very short order in 2008. Frankly, I think that is very healthy for the financial system. Japan did everything they could to delay those losses. The US financial institutions have been very aggressive in taking write-downs of late and while there is much left opaque, I think this debt destruction is moving us along very well. Now we just have to prevent catastrophic deflationary collapse of the financial system so we can keep these massive write-downs coming and push through this crisis in a reasonable timeframe. Japan refused to do that and you know what that lead to.