<p>This is because in order for many business to stay liquid they often have to issue short term debt. Many financial firms need liquidity so much that they literally make loans that are for duration of only one day.</p>

<p>However, the more people invest their savings in bonds which are usually long term debt (most bonds have maturity over 5-10y), the less money is there available to borrow short term. That means that even profitable business that has healthy profit ratios could get itself into bankruptcy just because of not being able to get short term loan to cover some important immediate financial obligation.</p>

CC BY-SA 4.0
2020-03-16T06:08:50.523Z
I could ask separately, but is there an established term for this preference for longer-term loans?
fantastic peace and prosperity
CC BY-SA 4.0
2020-03-16T09:59:12.247Z
@Fizz in case of purchase of long term government bonds it would be flight to safety as OP mentioned.
1muflon1
CC BY-SA 4.0
2020-03-19T17:56:02.790Z
I think the term I was looking for was "unsophisticated saver" tough, i.e. the "little guys" who don't go out to lend their money directly to corporations (other than banks) etc.
fantastic peace and prosperity
CC BY-SA 4.0
2020-03-15T10:25:48.213Z
2020-03-15T10:25:48.213Z
1muflon1
<p>A few weeks ago I noticed that several blogs and such were adamantly proposing that the Fed lower rates immediately by 50 bps. They said that the flight to safety -- to long-term government bonds -- had created a liquidity crisis.</p>

<p>I understand what a liquidity crisis is on a personal level and in a business, but I don't understand it in this case.</p>

<p>How did the massive flight to long-term bonds create a liquidity crisis?</p>

CC BY-SA 4.0
2020-03-16T06:14:47.063Z
You could look at http://siteresources.worldbank.org/INTGDF2000/Resources/CH4--76-95.pdf for more historical perspective on short-term lending crises.
fantastic peace and prosperity
<government-debt><federal-reserve><liquidity>
How did the massive flight to long-term bonds create a liquidity crisis?
rwjones
# How did the massive flight to long-term bonds create a liquidity crisis?

(Asked by: username_0 on 2020-03-15)

A few weeks ago I noticed that several blogs and such were adamantly proposing that the Fed lower rates immediately by 50 bps. They said that the flight to safety -- to long-term government bonds -- had created a liquidity crisis.

I understand what a liquidity crisis is on a personal level and in a business, but I don't understand it in this case.

How did the massive flight to long-term bonds create a liquidity crisis?

**Tags:** government-debt, federal-reserve, liquidity

> **Comments:**
> **username_1**: You could look at http://siteresources.worldbank.org/INTGDF2000/Resources/CH4--76-95.pdf for more historical perspective on short-term lending crises.  

---

## 1 answers

### Answer by username_2 on 2020-03-15. Score: 2

This is because in order for many business to stay liquid they often have to issue short term debt. Many financial firms need liquidity so much that they literally make loans that are for duration of only one day.

However, the more people invest their savings in bonds which are usually long term debt (most bonds have maturity over 5-10y), the less money is there available to borrow short term. That means that even profitable business that has healthy profit ratios could get itself into bankruptcy just because of not being able to get short term loan to cover some important immediate financial obligation.

> **Comments:**
> **username_1**: I could ask separately, but is there an established term for this preference for longer-term loans?  
> **username_2**: @Fizz in case of purchase of long term government bonds it would be flight to safety as OP mentioned.  
> **username_1**: I think the term I was looking for was "unsophisticated saver" tough, i.e. the "little guys" who don't go out to lend their money directly to corporations (other than banks) etc.  

---

