Apocalypse Now - Part 23

“The Fed’s failure to expand the set of institutions it deals with reflects failure to adapt to the new world of financial intermediation. Previously, lending was dominated by banks, which meant the Fed could address liquidity shortages threatening the supply of credit by providing liquidity directly to banks. Today, lending is increasingly separated from banks. First, banks sell many of the loans they originate so that the ultimate lender is not a bank. Second, many originating lenders are non-bank firms. That means the credit supply is vulnerable to disruptions among these other lenders.” Preventing a Financial Crash

The columnists in the AsiaTimes are an unending source of analysis and most often criticism of the American financial system. Sometimes you can’t help get the impression that it’s a wonder our polity has managed to survive without the guidance of these ever so prescient journalists.

Hopefully, the Fed, and other Central Bankers when needed, will keep liquidity at the top of the priority list. Inflation and a battered dollar will no doubt result but those evils as bad as they can be are not fatal.