The theory behind supply and demand is a simple one needing no further explanation. Money market funds use short term yielding instruments. The more money people put in the higher demand there is for these. The more people take out the more that gets dumped out there. The below chart is evidence of electronic runs on the bank. The scary part is that there is a pattern of lower highs on this chart. The chart couldnt sink past zero. The question is will we see zero again? When that happens, then what happens to the 5 trillion dollar money market system? If we do see zero again on this chart, then total financial collapse is not too far away. This is scary and pessimistic I know. However, this is the reality we are faced with today. Imagine what happens when you hit the ATM and no money can come out? Imagine when the payroll at work cannot be met? This is reality...
Scaremongering. What will happen? What happened last time. The government showed it will take resolute action.
This apparently nearly happened last Sept. 18th .... "On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there. If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it." link: http://zerohedge.blogspot.com/2009/02/how-world-almost-came-to-end-at-2pm-on.html
I hate to be pessimistic, but this is reality. If the Titanic were sinking, is it really wise to look at the positive and listen to the band? Man the lifeboats! Throw on the preservers. Its every man for himself. Stop listening to the band.
I prefer Franklin .... "We must, indeed, all hang together, or most assuredly we shall all hang separately."
What you people need to understand is the horrendous liquidity mismatch that the money mkt funds run. When the Primary Reserve Fund broke the buck, investors suddenly came to their senses and ran for the door and that behavior makes total sense. That's why the Fed had to come out with the ill-designed MMIFF, which seems to pacify most people. However, the system is still very very broken, despite the Fed backstop, which, incidentally, had not been tapped by anyone yet.
I prefer this 1 comment fron lenin: the capitalists will sell us the rope with which we will hang them. i hope the illiterates on ET will not accuse me of being a communist because of this comment. the bankers sold the mortgages which will destroy the banking system.. of course they needed the help of the US congress to turn gold (mortgage business) into dross.