Tuesday, October 07, 2008

Strategies for a liquidity crisis. | Banking & Finance > Financial Markets & Investing from AllBusiness.com

Wow.....great article. Published 10 months ago, but as relevant now as then.

Strategies for a liquidity crisis. | Banking & Finance > Financial Markets & Investing from AllBusiness.com:
"The longer-term danger from a liquidity crisis is a prolonged deleveraging or debt-deflation process such as the U.S. experienced in the 1929-1933 Depression, or that Japan experienced for more than a decade from 1990. Federal Reserve Board Chairman Ben Bernanke has studied these episodes as much as anyone on the planet and regards them as the result of monetary policy failures."
and later
"Deleveraging's impact Debt deflation means trying to deleverage--"trying" because everybody cannot sell their positions at the same time without causing asset values to fall faster than borrowings, which implies imploding net worth and thus higher leverage ratios. It is analogous to the famous "paradox of the thrift" where everyone tries to save more but the deficiency of aggregate demand that results causes a drop in income and savings despite the higher savings rate."
On that upbeat note I am going to go to sleep. Wake me when this is over. lol...

BTW if you are local, I am part of a forum of finance and economics professors as well as bankers and others that will be doing a round table on Wednesday at 12:30 in the Dresser Auditorium in the Murphy Building on SBU's campus (Far west side of campus). It is free and open to the public.

No comments: