Eurozone crisis worsens as Money Market offers 0% interest

Two huge US-based financial institutions, JPMorgan and Goldman Sachs, have stopped investing in European money market funds following the European Central Bank’s decision to cut the deposit rate to 0%.

Bloomberg reports:

JPMorgan, the world’s biggest provider of money-market funds, won’t accept new cash in five euro-denominated money-market and liquidity funds because the rate cut may result in losses for investors, the company said in a notice to shareholders. Goldman Sachs won’t accept new money in its GS Euro Government Liquid Reserves Fund, and BlackRock, the world’s largest asset manager, is restricting deposits in two European funds.

JPMorgan’s five closed funds had 23.7 billion euros ($29.2 billion) in assets as of July 5, the bank said in an e-mail, about 22% of all euro-denominated money funds. [...]

The deposit rate cut “will almost certainly move cash bids in short-dated instruments into negative territory, and so we have taken the step to restrict subscriptions and switches into the funds in order to protect existing shareholders from yield dilution,” JPMorgan said on its website.

The company had $417 billion in money fund assets as of May 31, making it the world leader, according to Crane Data LLC, a research firm based in Westborough, Massachusetts. The entire euro-denominated money fund industry has about 108 billion euros [$132.71 billion], Crane Data’s statistics show.

Tyler Durden of ZeroHedge reports that the Goldman Fund Memo says the European market is now in “unchartered [sic] territory” (the word should be “uncharted”).

Effectively, the European money market industry is now closed and only redemptions will be allowed as nobody can make “money” in money markets in a zero deposit rate environment.

The European Central Bank’s decision is sure to affect its liquid reserves fund, as depositors will want to withdraw from and liquidate their money market accounts since their money is making ZERO in interest.

That, in turn, will only worsen the bank runs that we’ve already seen in Greece and Spain, which now will spread to other European countries.

H/t FOTM’s beloved Joseph.

~Eowyn

7 responses to “Eurozone crisis worsens as Money Market offers 0% interest

  1. lowtechgrannie

    This is all tied to the LIBOR financial scandal based in London that has criminal implications for the institutions involved, including Bank of America. I listened to a great explanation by Francis Cianfrocca on Coffee & Markets yesterday. http://coffeeandmarkets.com/2012/07/09/the-libor-scandal/

  2. The US$ will now rise for a while. In today’s pre-market trading the big players dumped their short positions and were gone heavily long when the opening bell rang. I loathe the advantages held by pre-market traders over us sheeple, but it’s one of the new facts of life for all.

    My holdings are mostly G&S juniors, commodities, and small energy companies, most of which take a beating whenever the US$ rises, as many commodities are priced in US$. They then have smaller profits, and the companies themselves may be more vulnerable to a takeover.

    Jeff Clark’s popular newsletter today is optimistic: “Stocks are poised for another quick selloff. And if history repeats, any sharp decline in July could lead to a late-summer rally.” Maybe, just maybe. On the other hand, the same chart to me suggests we’re at the tipping point to plummet below 1300 S&P, very bad juju!

    The same market guru goes on to say that “Even though the market appears poised for a sharp decline over the next week or two, now is the time to get ready for an imminent rally phase.

    “Don’t buy anything yet, just get your list together. I’ll let you know when I think the time is right to go shopping.”

    “Best regards and good trading,” Jeff Clark
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    I say “Good luck!” and never forget that cash IS a market position!

  3. Thank you Joseph and Dr. Eowyn for this post. It is frightening to see what is happening economnically in Europe and in this country: we must not follow suit – we must vote against Obama and the Democrats in November! We must take back our country!

  4. Awrighty then… things are some bad financially in Europe that not losing any money on your deposits is a draw.

    • Heck, that gold-foil wrapped chocolate Kindergeld may be worth more than some European nations’ currencies if the Eurozone goes bust.

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