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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Paul Berliner who wrote (957)	10/29/1998 12:54:00 PM
From: Enigma	Read Replies (1) \| Respond to of 3536

Paul - I'd like to take issue with this statement of yours: " If people are withdrawing such a high vol. of cash, something has to give. Money Market funds will be slaughtered due to the withdrawals. You have thousands of MMFs in the U.S. If 5% - 10% of the money in the MMFs was suddenly called for withdrawal/redemption, the bond market will obviously crash. How can it not? Some commercial paper and T-bills in the MMFs will obviously have to be sold in order to meet the demand for redemptions. Bond prices will plummet and yields will rise" Surely MM funds will not be slaughtered? Many people have their savings in these funds and will withdraw some as an insurance, but the funds themselves will be one of the safest places to be. Surely there won't be a liquidity problem for the funds because they are invested in T.Bills and commercial paper -easy to sell. Now, I can't see the link between the sale of these short dated instruments and the statement "the bond market will obviously crash"? The MM funds are not investing in bonds - in fact are prohibited from doing so, so where is the connection?. If there is a drain on T.Bills, what can, and should, the Fed do as a corrective measure? E