Required Reading

Krugman in the NYT on the "very scary things" that are panicking the markets right now.

What’s been happening in financial markets over the past few days is something that truly scares monetary economists: liquidity has dried up. That is, markets in stuff that is normally traded all the time — in particular, financial instruments backed by home mortgages — have shut down because there are no buyers.

This could turn out to be nothing more than a brief scare. At worst, however, it could cause a chain reaction of debt defaults.... And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them.

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