I'm just saying let's keep an eye on Deutsche Bank, the rest of the conversation is hypothetical until something happens.
The central banks can't intervene until a problem with Deutsche's (or any other financial institutions) balance sheet has been identified. By that time the news is out and the contagion has already start to spread to other financial organisations and the market. As we saw during the GFC it wasn't until interbank lending almost ground to a complete halt that governments acted at the very last minute. There might be plenty of money in the world due to all the money that has been printed since the GFC but liquidity is a different thing IMO. Liquidity in the financial system relies on the pricing of collateral. For argument sake take Japanese bonds. I doubt there is any actual shortage of supply of Japanese bonds as the Japanese government has been creating debt at an astounding rate. The shortage comes because the BOJ owns almost all of that debt and the prices of Japanese bonds are bid up due to the resultant lack of liquidity. A liquidity crisis comes when counter parties figure out that the method they are using to value/price a particular form of collateral in the system can no longer be relied upon, so for example in the case of Japanese and European bonds that their values are artificially high because of the mispricing of risk that has come with unconventional monetary policy and the central banks being the only real bidder in the market. How can the ratings agencies or anyone else price these bonds when there is a buyer always willing to step up to the plate. That is not a free market. That is an engineered system and the ratings agencies should admit this, tell everyone that risk can no longer be measured in this engineered system and they should do the right thing and shut their doors and pack up shop until a decent liquidation event washes through the system and restores risk and the pricing of that risk back to levels where capital can again be properly allocated in society. I gave the example once before of marginal farm land that is only productive once every 3 or 4 years on average because that's on average how long it takes for the rains to come. Now consider who might buy this land. The answer is nobody in a world of normal interest rates as the risk is far to high of not making a return on your capital. Now fast forward to a world where money is free. You can buy the land, buy the equipment and wait for the rain to come. It might come in the first year or the forth but you don't care as a return is to be made and it sure beats the negative return you'd get from keeping your money in the bank (with NIRP). You see how can you price risk and effectively allocate capital under this system. The world is already broken. Take the recent rise in iron ore prices that's occurred off the back of the money printing that happened in China during March (at an annualised rate equivalent to 40% of China's GDP) and speculation. The world is already drowning in steel making capacity and China is flooding the steel market. How on earth is making more steel of the back off more money printing going to solve the problem. I actually thought that China was taking a measured approach to balancing their economy but it seems like they have given up and are resorting to desperate measures (creating $1 of GDP growth by printing $6).
When the liquidation event comes along I don't think the central banks will have any power to stop it next time. More money is not the answer. Real money is. Money that can be priced. Risks that can be priced are the answer. Who wouldn't want to go sky diving without a parachute if every time you can miraculously land softly on your feet.
