- time to consider how to start tightening credit
- large amounts of reserves -> less liquidity in fed funds rate; it's become a less reliable indicatior of the short-term money markets
- reverse repo: US central bank borrows from short-term lending markets, removing liquidity, using its own securities for collateral
- Could also increase the interest rate paid on reserves; banks would be less likely to lend
Berlin Bail out
- Germany, others prepared to lend to Greece or buy sovereign debt
- Greece has 28bn in loans due in April,May
- PIGS: Portugal, Ireland, Greece, Spain: for the past years, they have incurred debts in a currency that was far stronger, and at much lower borrowing costs, than their old national currency. Now the bill is due.
- Ireland: cut public spending dramatically, keep corporate taxes down: long-term gain from short-term pain
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