Liquidity trap watch

NY Times ^ | 19 March 2008 | Krugman

[shrinkermd]

With all the furor over the possibility of a high-speed financial meltdown, it’s been easy to forget that we still have the problem of a weak real economy, and a Fed that is having a hard time getting traction.

And as I’ve pointed out before, we’re quite close to liquidity trap territory: the point at which open-market purchases of Treasury bills, the normal way monetary policy operates, don’t have any effect because the T-bill rate is near zero.

, today’s morning update: as of 8:49, the one-month T-bill rate is 0.539, the 3-month rate 0.728.

[shrinkermd]

Current figures: HERE.

[gpk9]

"The Fed will allow investment firms to borrow up to $200 billion in safe Treasury securities by using some of their more risky investments as collateral."

--Jeannine Aversa, AP Economics Writer, "Investment firms tap Fed for billions" 3-20-08

I think that about says it all. Banks are essentially trading their (junk) mortgage-backed securities for T-bills. No wonder T-bill rates have dropped through the floor.

[Be Free]

OMG!! This is terrible news!! Oh, wait a minute ... Paul Krugman is the author? Nevermind. He’s a liberal whack-job and liar (if that’s not redundant).

Carry on.