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Over the past two weeks, an indicator called the "TED spread," used to determine how tight the credit markets are, has remained at historic highs.
This tells us that money is "not flowing very much at all between banks and from banks to businesses in the short-term markets," says Adam Davidson, NPR's international business and economics correspondent.
The TED spread is viewed as "the measure of global anxiety," Davidson says.
The spread measures the difference between the interest rate the U.S. government would give you to borrow money and what banks would give you. In the acronym, "T" stands for Treasury bills, specifically short-term bonds that are three months in duration. The "ED" stands for euro dollars, which is a fancy way of saying dollars traded internationally between banks.
The idea behind the spread is that if you have money that you're willing to lend and you want to get some interest back, then the safest thing you can do is lend it to the U.S. government, Davidson says. Historically, large banks have been seen as almost as safe as the U.S. government. And for much of this decade, that was reflected in an extremely low TED spread rate that remained around 0.2. At the end of 2007, it spiked to 2.
In the current crisis, the TED spread has jumped dramatically, to nearly 4 on Wednesday morning. The rise indicates just how hard it has been for banks to borrow money from each other and shows an erosion of trust in banks.