I think you’re right. Why bother with the Interbank market at all when the Central Banks of the world are throwing money around?

But does this mean that the Fed is actually screwing up the Interbank market by doing this, and thereby hurting banks since now they can’t offload their excess liquidity at a reasonable rate?

RETIREMENT INCENTIVES.

Two points on retirees vs. investors:

1) In the longer run it is not the unemployment rate that is critical but, rather, the total labor force participation rate. If at some point we are going to grow our way back out of this mess, then labor force participation must increase — for 18 to 67 year olds it has been flat to declining for some time. Retirees (like me) consume wealth, we don’t create it.

2) DP suggestes people will work longer because they “can’t afford to retire.” If S Barry is right about deflation and depression the INCENTIVES TO RETIRE INCREASE. Inflation kills fixed incomers, while deflation advantages fixed incomers. In a high unemployment, low wage environment, the prospect of even meager Social Security benefits may be strongly preferred to low or no income..

You raise interesting things to consider. Even boomers with pesions likely have 401k’s as well…and pension plans invest in stocks also, so as the boomers come off payroll, there is less to invest in stocks for pension plans. New workers will earn much less to start than retirees did, so even as they replace the older workers, the amount of money to be invested will shrink.

1. Many more boomers retire than new people entering the job market = Unemployment doesn’t increase. Wage inflation could be a problem though.

2. Many of the boomers retiring still have old style pensions. New people entering the market place will need to use 401ks or similar to plan for retirement = no huge sucking black hole in the market.

The worse scenario seems to be if boomers don’t retire:

Pure speculation and could be way off. Interested to hear why if so…

When you go to the “Leave Reply” box, your user ID will be a link…click on “batmando” in your case and you will go to your account profile.

Mac: Only way out I see is massive defaults and a deflationary Depression.

I now have 3 major reasons why we are screwed vs. any other past recession:

1) Credit/GDP much higher than ever before.
2) Demographic shift of baby boomer retirements.
3) This time it is GLOBAL in scope.

Why should we assume that LIBOR is relevant anylonger? Seems like the FED and the Bank of England have become the “interbank.”

On your credit/GDP ratio argument: what is the way out?

In my simple mind there are only three ways to significantly reduce debt:

1) renegotiate terms — but with whom, how and would it matter?

2) outright default — right now there is a growing global competition for capital to finance bailouts but it is highly unlikely to have positive long-term effects. There used to be competitions in currency devaluations in such circumstances but could this not become competitions in debt default?

3) inflate your way out — this is the implicit if not the explicit objective of the FED. It would take a whopping inflation; it would severely injure the elderly and the poor generally; but, then, we wouldn’t have to raise taxes on the rich to pay down debt.

I’m trying to figure that out myself…the overnight LIBOR has jumped around a lot lately. Just as it wasn’t a good thing that the rate was high and banks didn’t want to lend, now it is so low, it indicates there is no demand for the money…or maybe banks can get all they need from the Chinese Menu of Fed facilities.