Back at the end of July, I argued that the contraction of liquidity being experienced then would mark a high point in asset markets and the global economy.
The damage is now spreading to credit creation by the banks, as the various vehicles used to move debt off balance sheets are reinstated (reintermediation). This uses up bank capital and forces lending to be curtailed as risk-free capital ratios are re-established. Next will come the asset write-downs.
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