I was on CNBC tonight talking about the market meltdown and the crisis in Europe. When I get the video I will post it. But I made the point earlier today in my post “Euroscepticism” that
this is a liquidity crisis and the way to deal with liquidity crises is by providing liquidity. The only player left on the ice that can credibly provide that liquidity is the ECB. Once the liquidity concerns are dealt with, the euro zone can move to deal with its structural deficits. But if the ECB doesn’t step in, the euro zone won’t have the opportunity.
This is a classic liquidity crisis. Bond markets in Europe are selling off. Commercial paper markets in the US are seizing up. Retail investors in Asia are already running for safety in overnight trading. What we are experiencing is a market panic and that means liquidity is the first order of the day.
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