Certainly there are problems with both liquidity AND solvency – not just one or the other. In fact, can there be much doubt that we are headed into a cul-de-sac where a liquidity trap awaits?
I may be wrong but I just can’t imagine that the Fed will fail to continue to offer additional hundreds of billions of dollars more in loans – against mostly junk collateral – moving forward. And what will be the total of worldwide offerings when all is said and done? Several trillion, I would guess.
As for the FFR, I just don’t believe the Fed is even thinking of doing a 180 and tightening right now. I think they are going to take it down to 2.0 and maybe lower before they are done easing, and we are looking at a very low FFR for the next several years.
