Troubled Waters

I'm not sure the worst is over yet.

Brad DeLong:

So, today the monetary base in the North Atlantic economies is 7% higher than it was yesterday--an annualized growth rate of 2100% per year.

This is indeed a significant liquidity event...

As Mish noted, more money is being injected into the international monetary system today, than any time in history including post 911.

Added:

The ECB said it would provide unlimited cash as the fastest increase in overnight Libor since June 2004 signaled banks are reducing the supply of money just as investors retreat because of losses from the U.S. real-estate slump. Paris-based BNP Paribas SA halted withdrawals from three investment funds today because the French bank couldn't value its holdings. Stocks in the U.S. and Europe fell, a turnaround from the past three days when investors concluded that credit market risks were abating.

``There seems to be a hole in the balance sheet of World Inc. that will have to be filled by government intervention,'' said Peter Lynch, chairman of private equity fund Prime Active Capital Plc in Dublin. ``The ECB is treating this like an emergency; it might make traders even more afraid.''

...

``This is an old-fashioned credit crunch,'' Chris Low, the chief economist at FTN Financial in New York, said in a report today. ``This is not a small thing. A credit crunch, when the short-term credit markets seize up, is extraordinarily serious, almost always the precursor of a significant recession.''

Besides happy talk by Bush/Paulson/Benanke et al., and printing more money quickly which they are doing, they don't have many bullets left