HowWealthWorks.com

[Suresh]

All well and good so long as the sovereign stays solvent.

Of course, a cynic might say that the new SEC rules are a way to guarantee a buyer of short-term Treasuries in the face of continued multi-hundred billion dollar government budget deficits.
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Financial Times: New curbs on money markets
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The SEC voted to require money market mutual funds, which hold $3,240bn in assets, to disclose fluctuations around their standard share price of $1, on a monthly basis with a 60-day lag.

The requirement to disclose fluctuating prices or a “shadow” net asset value is intended to inform investors as money market funds may not always maintain a stable $1 share value.
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The SEC is also to evaluate the merits of requiring a floating net asset value for money market funds rather than the stable $1 mark. Such action would involve substantial changes to the money market fund industry, Ms Schapiro said.

The SEC’s rules will also require money market funds to hold more liquid assets and to limit their investments to only the highest-quality securities. They would also have to reduce the average maturity of securities in their portfolios.

Retail or taxable money market funds will have to hold at least 10 per cent of assets in cash or highly liquid securities – such as Treasuries – that can be converted to cash within one day.

By the new rules, all money market funds are required to hold at least 30 per cent of their assets in cash or Treasuries with remaining maturities of 60 days or less, and be able to convert securities into cash within a week.

The rules will also restrict the ability of money market funds to purchase illiquid securities and place fresh limits on a fund’s ability to acquire lower quality or so-called second-tier securities.
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Suresh

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[Suresh]

FT Alphaville: How likely is financial repression?

First comes financial crisis; then comes sovereign debt crisis; then comes financial repression. This is the view of Carmen Reinhart, co-author of This Time is Different, the masterly study of financial crises through the ages....

First, governments encourage credit expansion by the financial sector. As a result, a mountain of bad debt is piled up. Then, at some point, comes panic. At this stage, governments nationalise the liabilities of their financial sector and, more important, find their revenues collapsing, along with the economy. Huge fiscal deficits then emerge and public debt starts to soar. ... an unsustainable fiscal position leads, sooner or later, to a sovereign debt crisis, particularly if governments borrow in foreign currencies, short term, or both (as often happens, in such situations).

What do governments do when it becomes expensive to borrow? They promise to mend their ways, of course. But, by now, it is often too late: nobody believes them. So they tell the central bank to buy their bonds, which starts a run on the currency. Pegged exchange rates collapse and floating exchange rates fall. Inflation becomes an imminent threat.

At this point, desperate governments look for ways to force institutions to hold their bonds, willy nilly. This is the point at which financial repression begins: banks are forced to hold government bonds, for “liquidity”; pension funds are forced to hold government bonds, for “safety”; interest rate ceilings are imposed on private lending; to prevent “usury”; and, if all else fails, exchange controls are imposed, to ensure nobody can easily escape from such regulations.
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Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.