Searching For The Truth

If The Usual Shills Are Saying "Sell"....

If you have money invested in a stock or mutual fund, your brokerage/bank can't use that money to maintain its liquidity.  It is a security that you own.

However, if you have it sitting in cash in a bank or a brokerage account, the institution can now take 100% of that money (because reserve requirements have been eliminated) and use it for its own ends to keep itself afloat.  A bank deposit is no more than an unsecured loan from the depositor to the bank.

Accordingly, a Dow scare that causes investors to pull their money out of stocks and into their cash accounts will help the liquidity problems of the banks and brokerages. A drop of 1000 points in the Dow could be equivalent to a multi-trillion dollar bailout package for Wall Street.

So if Cramer and the talking heads on CNBC stop calling a bottom and begin encouraging investors to sell, there may be deeper motives.

Dollar Monetary Base Increases 8% in Past Two Weeks

According to the most recent H.3 release from the Federal Reserve, the monetary Base has increased 8% between September 10- September 24, 2008.  The year over year increase in the monetary base is about 11%, meaning that there has been considerable acceleration recently.

While this in itself would appear to be inflationary, the rate of deleveraging also appears to be increasing, meaning that credit may be being removed from the economy faster than the money supply is being  goosed.  Whether the net effect is currently inflationary or deflationary is accordingly unclear.