[lbo-talk] TED Spread: Stabilization Ahead

[dredmond at efn.org]

The TED spread, one of the best indicators of credit stress, has finally
returned to the lowest levels since before everything blew up in mid-2007,
that is to say, something approaching normalcy:

http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AIND

Looks like the Euro bank bailouts, US quantitative easing and global
stimulus packages are finally putting a floor under the downturn (which
isn't the same thing as a recovery, but catastrophe is not to be wished
for).

What's odd about this is that the lessening of stress isn't due to the
rest of the world finding new reasons to park their savings in T-bills. In
fact, Brad Setser and others have shown foreign central banks are buying
less US debt these days. Liquidity is indeed starting to flow through the
world-system, but it's not being routed through US-centric channels.

All of the BRICs have launched big spending and stabilization packages,
shifted out of risky Agencies and into safer T-bills, and displayed
considerable savvy in avoiding currency/credit meltdowns. What I suspect
-- but don't have the statistics to prove -- is that the BRIC
stabilizations are radiating out into their transnational regions (Brazil
-> Latin America, Russia -> Eurasia, SE Asia -> China, India -> India).

-- DRR