LIQUIDITY TALK. LIQUIDITY AS "A RISK-SEEKING STATE OF MIND"
. Paul McCulley on PIMCO's Cyclical Outlook and Investment Strategy.

PIMCO economist Paul McCulley discusses the world economy and casually defines liquidity in a way that combines "funding liquidity" and "market liquidity":

At the end of the day, liquidity isn’t about money stock growth, but a risk-seeking state of mind. In other words, liquidity isn’t about money on the sidelines per se, but rather about the risk appetite of those on the sidelines. And when risk appetite turns, no amount of liquidity on the sidelines matters, particularly when a crowd gathers there. This is the essence of modern day finance. The human condition is, in the end, momentum-driven, not value-driven.

This is exactly the reason why we pay attention not only to our own Global Liquidity Measure, but to CDS spreads, the VIX index, the Goldman Sachs share price, etc.