Noland:

“The mystique of “Moneyness” is achieved when the marketplace perceives a financial claim’s superior liquidity and “store of nominal value” attributes. “Moneyness” is special because it basically fosters insatiable demand – which ensures powerful forces will evolve to issue it in increasing excess. If “moneyness” is confined to the narrow monetary aggregates – say, government-issued currency and bank created deposits – that’s one (generally manageable) thing. Conversely, if “moneyness” evolves right along with a runaway Credit boom to encompass the financial claims issued by an expansive Credit system financing speculation, asset and economic Bubbles - well, it becomes one hell of an unwieldy problem.

…the greater the degree of Credit excess… the further the “Moneyness” attribute gravitates out [along] the risk spectrum…

…I would like readers to recall the 1999/early-2000 environment… It was common back then for the major technology companies to write put options on their own stocks.

…In the end, the technology Bubble became so extended that when it eventually reversed, the crowd rushed to establish hedges and liquidity almost immediately disappeared. Put sellers and derivative speculators, including tech companies, completely backed away from selling new “insurance” and the price of protection skyrocketed. Selling stock essentially became the only mechanism to “offload” risk – and the market collapsed.

These days, the market distorting dislocation resides in Credit derivatives… The proliferation of speculators seeking to sell Credit protection has profoundly reduced its price and increased its availability.


…the mania in Credit “insurance” ensures a collapse. It today feeds a self-reinforcing boom, but when this cycle inevitably reverses, the scope of Credit losses will quickly overwhelm the thinly capitalized speculators that have been more than happy to book premiums directly to profits.

…the longer this destabilizing period of transforming risky Credits into perceived “money” is allowed to run unchecked, the more impotent [Bernanke’s] little “mop-up” operations will appear in the face of widespread financial and economic dislocation – on a global scale.”