Monday, March 26, 2007

. Federal Reserve

Bloggers, Fed officials, economists, journalists, investors: everybody is talking about global liquidity! And not only in the US: the French central bank and a Dutch business magazine are joining in. Here are some of the more relevant pieces — I will be discussing some of them in detail during the week:

- The Cleveland Fed & liquidity. "Liquidity ... Lately, I’ve been hearing people say that the world is awash in liquidity", writes Mark Sniderman in comments published in the Cleveland Fed's Economic Trends newsletter. Sniderman is the third Fed official to discuss the L-Word in March (see Kroszner and Warsh on global liquidity).

- Liberté, égalité, liquidité. The French central bank (not the ECB) is worried about the impact of excessive liquidité on asset prices. There is no mention either of the so-called Asian savings glut, nor of "petro-dollars": Banque de France sees the problem only from the perspective of central bank liquidity.

- An entrepreneur-blogger on global liquidity. Blogger/entrepreneur Fabrice Grinda discusses global liquidity, the yield curve, and the prospects for a US recession. Petro-dollars, according to Grinda, have become the key source of global liquidity (for a similar perspective, see this PIMCO study).

- Global liquidity: a myth? Economist John Hussman debunks the "global liquidity myth". Hussman makes an important point: foreign central banks' purchases of US bonds represent "money that has already been spent – goods and services that have already been deployed". Thus, they do not represent "money in the sidelines". Excellent! (However, IMHO, they do have an impact on US interest rates — more on that during the week).

- Standard Life on global liquidity. The UK insurance company derives its investment outlook from "global liquidity" indicators provided by an "independent research consultancy". Interesting! At present, monetary conditions are "their tightest since 2002, but not yet unduly tight". Good point: in late 2004, a number of central banks decided to let their currencies appreciate in order to fight domestic inflationary pressures, thus accumulating less US bonds.

- A Dutch business magazine discusses global liquidity. Citing the above-mentioned piece by the French central bank, Peter Hendriks wonders whether "excessive liquidity in the market" means that "too much money is a dangerous thing" ("Veel goedkoop geld gevaarlijk", FEM Business).

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