Illiquid Scenario

"1929. It'll get worse now 'cause it'll go faster. Money markets will dry up round the world by the end of the week."
--Julie Steinhardt (Wall Street: Money Never Sleeps)

When people are not working, they lack income to pay their bills. If they don't have savings, then they have nothing to fall back on. If they are in debt, then things are worse because a portion of their bills are loan repayments. If they miss those payments, then they are in default.

This is the situation developing in corporate America right now. Because many businesses are no longer working--or working at fractions of capacity--due to coronavirus concerns, their incomes are drying up. Cash flows may be insufficient to meet current obligations. Moreover, nearly all firms are leveraged, meaning that the less they produce and sell in this environment, the closer they get to missing debt payments due to lack of cash.

Not surprisingly, short term money markets are showing signs of stress as businesses scramble to tap credit lines to make ends meet.

Investors are beginning to discount the illiquid scenario.