The edge of the knife

Money market funds, an increasingly popular place to park cash, will
need to raise fees or close to new money to remain profitable as yields
hover at near-zero, according to industry managers…

Jim McDonald, who runs taxable money market funds for T Rowe Price,
said: “You can’t make money in this situation. If short-term interest
rates stay where they are, it’s virtually impossible to run a
government [bond] fund and make any money. You can close the fund,
that’s one option.”

Vanguard last week closed two of its money market funds to institutional investors, while Credit Suisse said it would quit managing money market funds in the US and liquidate $8bn in assets across its three funds.

Here is more.  Here is my earlier post on the Tsiang equilibrium.  That’s, sadly, my mantra for the coming year: the Tsiang equilibrium.  Some call it the liquidity trap, but in fact they have different microfoundations and different solutions.  The Tsiang equilibrium is in principle easy enough to spring out of, at least if the government stops guaranteeing everything, but no one knows how to get from here to there.