Thanks again ML for taking the time to highlight the important shifts that are taking place within the financial world! Some of the authors comments resonated strongly with me such as his reference to unintended consequences with ANY major regulatory change (gov’t “fixing” the problem). Often an important key to us if we can find it or to borrow an insight here from George Soros:

“Misconceptions play a prominent role in my view of the world!”

This topic is a great opportunity then for us to consider. Why? Cause we get to watch it play out in real time! If we regard this from the lens of its effects on capital flows in their attempt to stabilize, to secure, against a future liquidity crisis we already see it is having the effect of driving capital from the private sector money funds into gov’t securities. The ripple effects from this will likely be observable to us IF we know to be watching!

A superficial look at the matter received only from the talking heads of mainstream television will never do if we wish to properly understand a matter so if I may let me offer some further material that was written on this topic in late August by Martin Armstrong as he also observed the shift in capital that was taking place IN ANTICIPATION OF this event. As to the true “crisis” of ’08 he observed:

“The critical factor is always liquidity. Liquidity is the lifeblood of the financial system. When confidence is lost, people hoard money …”

In the interest of full disclosure here, this subject meant very little to me (I lacked understanding of it) until I viewed it from the perspective of 1) looking at the whole and, 2) doing so thru the lens of history. It then quickly gained context and became alive to me!
Here are two brief quotes with links to the full blogs (from about 6 weeks ago) where Armstrong expounded on this important SEC change. I offer these in hopes that the serious student might also benefit and if some of the language seems ominous try to remember that we are simply, thus far anyway, repeating history. Nothing more…
Blessings to all, Memphis

“The October SEC rule will change the valuation of money market funds by eliminating this presumption that what you put in is always there. The funds will be marked-to-market and the SEC thinks this will prevent another run during a crisis. The rule, of course, exempts funds who invest ONLY in government paper. So everything else is perceived to be “risky” so it must be marked-to-market for transparency, but if it is a pure government fund, hey, the rules do not apply.”

“Already, the weak minded are moving to government-only funds that will be just like the Japanese funds were who hid any losses. The accounting will assume you have lost nothing as long as it is government paper. Investors are already being told that their money market funds restricted to government paper are 100% safe and will always return their money. The floating NAV values for all other funds are risky.”

“What is happening is very clear, almost $500 billion has moved from money market funds into government funds. Total assets in money market funds have now dropped below $1 trillion for the first time in 17 years. This is very bad for it will enhance the economic decline when banks are already not supporting the economy and hoarding cash deposited at the Fed in its Excess Reserves facility.”

“Despite the hoopla that [has been circulating stating that] the end is near signaled by the sales of US Treasuries, to the contrary, the landscape is changing already [in the reverse] and the new rule has not yet [even] gone into effect. As always, you have to pick up the rug to see the real trend. Analyzing just the surface never reveals the truth. You have to pay closer attention.”

New SEC Money Market Rule Will Send Cash into Treasuries

“Funds only investing in government paper are now PRESUMED 100% safe so there is no marked-to-market. Consequently, there are two primary types of funds. One is marked-to-market, so there will be no guarantee you get back 100%. The other will be fully invested in government bonds they claim is risk-less but historically [this does not hold true for it is that] no AA+ corporation fails (non-bank) where [as in a sovereign] government default and you get nothing. There, you will be told you lost nothing, but in reality, you may not be able to sell. When the crisis comes, the only buyer will be the central banks and if they stop buying, look out below. Only the “stupid” money will be going into government paper money market funds and they deserve what they will get. Their losses will help to create the coming Phase Transition where everyone starts to panic out of government paper globally as in 1931.”

Heads They Win, Tails You Lose



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