Early warning signs are emerging of the rising danger of another global credit crunch.
Analysts say recent moves by the US central bank to inject cash into the system could be a “canary in the coalmine”, indicating growing financial stresses.
An extreme example of a credit crunch was the global financial crisis, which led to the collapse of US-based Lehman Brothers in September 2008.
In the days and weeks that followed, few banks would lend to one another for fear they would not get their money back.
It created a credit crunch or credit freeze, and what we now know as the Global Financial Crisis or GFC.
On October 31 this year, the Federal Reserve, equivalent to Australia’s Reserve Bank, injected an impressive $US50.35 billion ($77 billion) into the US financial system.
It was done via repurchase agreements or “repos”.
It sounds complicated, but it is simple.
A major bank may be concerned that it does not have enough cash on hand to meet…
