TWO QUICK THOUGHTS ON THE FED AND ... CHINA
[Latest Global Dollar Liquidity Measure: +15.1% annual growth rate; latest Endogenous Liquidity Index: -34.6%]

Smart move from the Federal Reserve, lowering the discount rate from 6.25% to 5.75%. (See communiqué 1 and 2). Next Thursday, we'll pay close attention to the weekly balance sheet for signs of movements at the discount window. So far, very little is happening there: there are only $271 million outstanding in direct loans to banks. In other words: today's move looks largely symbolic, as the key Fed funds rate remains at 5.25%. Symbolic, but smart — very smart.

On a completely unrelated issue, namely the China-Bear Stearns link-up talk, it looks like China is destined to act as the new ... lender of last resort! Technically, I should say "owner" of last resort. However, if money markets were to calm down following a move in that direction, China would in effect be acting as the indirect lender of last resort. Just think about it.