Bruce Krasting yesterday explained the developing liquidity crisis in the money market:
Much more troubling than the currency moves is a developing problem in money markets. There are liquidity considerations that are impacting traditional funding sources including money market funds, the repo market (all asset classes), currency funding markets, Libor markets etc.
Morgan Stanley wrote about this today. I will use their charts to make a point.
Look at the spike in three-month money through the currency swaps. We are highs not seen in some time; it is happening fast.But this is the chart that scares me:
Money is very expensive via the swaps market. Note that one-week money is now inverted to one-month money. You don’t ever want to see an inverted curve in these markets. In street talk:
The short end is tight.
Depending on the severity and duration of this condition, we have a problem. This one trumps them all if it gets out of hand.
These three market conditions have one common denominator. They would all require a coordinated global response to reverse. (…)
We are not so far from a tipping point (again) where markets could get out of hand. (…)
What option is open and easy at this point? The only option is global coordinated intervention. (…)
However, the TED spread , though up recently, is nowhere near panic readings of 100-200 seen in 2008-2009.