Tuesday, November 4, 2008
More evidence conditions are improving, but it has all been due to the Fed. Makes you wonder why we need an interbank market and CP market dependent on private institutions if it can stop functioning just like that and jeopardize the entire economy. True, the Fed's balance sheet would have to expand much more if it continues in this capacity, however, the financial sector's balance sheet would shrink by the same amount. The non-financial sector would keep on functioning as usual. I guess this also illustrates why the financial sector, in its current form, is redundant.