Interesting Observation...

The most updated key rates spread are as follows:

1-month libor: 301pts

3-month libor: 325pts

5-yr AAA: 468pts

10-yr AAA: 593pts

30-yr fixed mortgage: 447pts

15-yr fixed mortgage: 423pts

1-year ARM: 570pts

30-yr fixed JUMBO: 582pts

15-yr fixed JUMBO: 523pts

Two horrible observations:

1. 1-month libor now is higher than the prime rate, even though just by 1 basis point. It means that bank lends money to another bank is even "riskier", from the bank's point of view, then bank lends money to an individual.
2. 10-year AAA banking and finace rate is even higher than 1-year ARM (and no need to mention about 15 and 30 year fixed rate) by 23 basis point. Bank is even not trusted by their colleagues than the trust on an individual who may just have nothing but a social insurance number to purchase a flat.

Another observation that may tell more stories:

M2 Money supply by Fed:

June 1st wk: -10.8b, June 2nd wk: -6.8b, June 3rd wk: 2.4b, June 4th wk: -23.6b

July 1st wk: 24.5b, July 2nd wk: 0.3b, July 3rd wk: 48.7b, July 4th wk: -14.2b

Aug 1st wk: -8.8b, Aug 2nd wk: 7.0b, Aug 3rd wk: -10.5b, Aug 4th wk: 3.9b

Sept 1st wk: -5.5b, Sept 2nd wk: -1.9b, Sept 3rd wk: 20.6b, Sept 4th wk: 165.5b

Oct 1st wk: -4.0b

From June to August only 12.1b USD was supplied to the market by FED, unlike the beginning of the year (almost 20-30b every week). This may partly explain why actually the capital market loses fuel to continue the rebound. Of course, once trust is lost; the money borrowed will not go to the market but back to bank's balance sheet. Nevertheless, the situation at the beginning of the year is less worse than the middle. Particularly when more banks find themselves eventually will face their judgement days, they will become more conservative and are willing to hold risk-free asset (for a low yield) and hence money flows back to US treasury and FED.

Same trend continues on September at a more extreme scale. Only by the last week (when special credit event happened) FED supplied a real substantial amount at 165.5b at once. But then on the last week, FED "received" money again ("-4.0b"). It is rather obvious that to keep the business running, banks and financial institutions have to feed money to the black-hole like balance sheet. And these money can only go nowhere but back to almost risk-free asset, i.e. government bonds, certificate of deposits, or plain cash.

Unappealing enough, there are something also notable:

USD->JPY: 98.66

EUR->USD: 1.3548

GBP->USD: 1.6966

USD->CAD: 0.861

USD->AUD: 0.6618

USD->RMB: 6.8318

Just a day JPY keeps climbing while other OECD currencies keep tanking. So is RMB. In a sense USD is "climbing" against other OECD currencies except JPY. But again, if USD flows back to US for balance sheet, the expansion of credit by FED indirectly to the market does nothing good at all. On the other hand, comparing with countries with sufficient reserve or with foreign currency control (Japan and China respectively), USD keeps dropping: it is an unwanted currency or has no channel to leave the country. Combining together, USD is contracting all the way back to its country at a big discount (as OECD countries' asset has lost value by 60-70%) and is not welcomed (or blocked). It means the losing influence of USD on the world.

Once such a trend/attitude is formed, soon enough the demand and supplies of USD will form a "super-conducting loop": USD from FED to bank and then back to FED and to bank, with little multiplier effects due to high distrust on market and low level of investment.

What does it mean? It means liquidity trap: see what Japan has been.