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I think the danger lies in the way new types of "money" are being created outside the banking sector. The "complex" financial instruments are essentially was to create money through unregulated borrowing with infinitesimal margin requirements.

This leads to two problems. First, no one seems to know how much of this complex money exists and second, the Fed has no way to control it. Changing the reserve requirement for banks does nothing if the financing isn't going through banks.

In addition there is a bigger presence of foreign players in the US economy. We are now seeing the flip side of the days when Citibank could destabilize a South American country. Now China can do the same thing to the US.

The forgotten lesson from1929 is that highly leveraged deals always end badly.  

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sun Oct 7th, 2007 at 11:22:23 AM EST

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