once again, page-9

Yep, tomorrow is the tester. For an "unlimited amount of liquidity", the world's central banks got a measly 4 basis point reduction in the near record LIBOR-OIS spread (a measure of tightness in lending between banks).

Sure, the equity markets got a boost, but when you promise free money (and unlimited amounts of free money), you'd expect some kind of reaction.

The problem so far has been that the Fed has to (and Treasury has chosen to) attempt their monetary medicine via the banking system, rather than via the real economy. Problem is, the banks now realize that they've not only screwed themselves, but they've screwed the real economy, as well.

So now, for all of the free money already passed around the system (and there's been plenty of it), whenever the banks get hold of it, they hoard it. "Well, hey", say the central banks, "Maybe a trillion here and there ain't enough - maybe we make it unlimited. That should do the trick!"

However, the problem is that they're trying to do something completely unsustainable. They're trying to get companies and Joe 6 Pack to start borrowing again, like it was 2006.

Well, it ain't 2006 and the corporates and Joe ain't falling for that hoary old chestnut again. By waiting for over a year to prescribe this medicine, people out in the real world have come to see just how dangerous their predicament was. They've been taken to the brink and hung over the edge, so to speak, and they now have a very large fear of going near the cliff again.

Free money to the banks? Sod off! They can have their free money! It just means more debt for me and my family.

It might take a week or two for it to dawn on the equity markets that J6P isn't going back to the mall, but when that realization occurs, look out below!

There will still be all those US dollars lying around in the banks, waiting for a home. Inflationary? You bet. The Fed will try to sterilize the extra supply and they may succeed in getting rid of some of the excess, but they've printed so much "temporary" money that a huge chunk of it will stay in circulation. That's when The Big Inflation will hit. It's a little distance away, but it's coming.