Library of Mistakes Ep 13: Capital Wars - The Rise Of Global Liquidity (with Michael Howell)
Feb 6, 2023
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Defining Global Liquidity
- Global liquidity, now at $170 trillion, represents cash and credit flowing through markets.
- It reflects balance sheet capacity crucial for refinancing debt, a dominant feature of modern finance.
Collateralized Lending and Instability
- Most lending since 2008 requires collateral, often government bonds.
- The value of this collateral impacts borrowing capacity, creating potential instability.
Collateral Shortage and Mispricing
- Falling bond prices reduce collateral, but other factors like austerity and QE also restrict supply.
- This shortage is reflected in low term premiums, indicating potential mispricing.