http://www.federalreserve.gov/releases/h3/Current/h3.pdf Look at the nonborrowed reserves of the monetary institutions in January 08 compared to the prior periods.
The nonborrowed reserves have gone negative! No money to lend?
Here is one interpretation of this--
http://elainemeinelsupkis.typepad.com/money_matters/We are in the negative. I have never seen this in my life. I know it happens in history. Rich people better watch out. They should not say, 'Let them eat...' ANYTHING. The easy loans can only happen when banks have savings and since their asset base in the form of previous loans are now being dragged heavily into negative territory and much of this is since Xmas, they CANNOT give loans of ANY SORT at any price. They are in a negative flow trap. The ONLY out is to RAISE INTEREST RATES. Volker is chomping at the bit on the sidelines with fury. He knows, like me, this is the only way out.
Since the US has chosen to run all things in the red, it doesn't surprise me much to see ALL things running in the red. Nor should it shock the Fed. Lowering interest rates so money flows in the red all the time will make this red ink sea worse, not better.