ZIRP....

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/18/ccambrose118.xml

Read the headline (and tagline) a couple of times. For the US Treasury Bill to go to Zero that basically means that the demand for US Govt Debt is so high that the US does not have to pay any interest to the investor.

Now look at it this way for the investor to refuse interest it basically means he does not care about Return "on" Investment, in fact the only thing he is concerned about now is Return "of" Investment. So if he thinks that the only safe place that guarantees return of principal is US Govt Debt - then this implies that all other categories of debt is unsafe. This includes the debt of other countries and the debt of large corporations. At the extreme even a company like Shell will thus not be able to finance it's debt.

So what happens when Shell can't re-finance its debt? It has a liquidity crisis. OK so it generates liquidity by liquidating its illiquid assets i.e. property, oil rigs, plant and machinery, exploration rights etc. Now think of it on a global scale what if other corporations also face the same crisis - and all of them at the same time must sell their illiquid assets. There will be a buyer's strike. A global asset deflation of the scale that we have never witnessed before.

Corporations that have the most illiquid balance sheets and have the most amount of leverage will be the first to collapse as things turn bad the deflationary fire will reach up to the more stable, better capitalized corporation.