The Liquidity Crisis: Understanding the Role of Money and Repo Markets

The podcast episode discusses the importance of understanding the role of money and repo markets in the global financial system. The guest, Professor Perry Merling, explains the concept of the money view, which emphasizes the essential role of money as a means of settlement and the interlocking balance sheets in the economy. He highlights that the 2007-2009 financial crisis was primarily a liquidity crisis caused by the freeze-up of global funding markets, rather than just a solvency problem. The discussion also touches upon the dominance of the US dollar in the global financial system and the challenges it poses, as well as the need for central banks to act as dealers of last resort to prevent financial crises. The episode concludes with insights into the recent repo market blow-up in September and potential solutions to address vulnerabilities in the repo market.