DEFINING LIQUIDITY
[Latest Global Dollar Liquidity Measure: +14.8% annual growth rate; latest Endogenous Liquidity Index: -30.3%]

Amid the confusion about global, funding, market, dark and endogenous liquidity, Lex is to be praised for a serious effort at providing some clarity. According to Lex, there are two important definitions: a "narrow" definition, provided by Lombard Street Research, and a "wishy-washy" bull market mélange that clarifies little. There is no way to avoid a lengthy quote:

[Liquidity is] the ease with which one can sell an asset at the expected price. The most liquid asset of all is cash ... A subsidiary part of this technical definition is that central banks can increase the liquidity of the banking system by lending more cash to it, as most did this week ... The real mess, however, lies with the rise of a second usage of "excess liquidity" as catch-all phrase to denote, variously, loose central bank policy rates, broad money supply growth, aggressive lending to private equity, yen borrowing and even the growth of debt derivative products.

At best, bunching these phenomena into a bull market mélange clarifies little. At worst, it inadvertedly ventures into controversy - for example, whether central bank policy rates should be set in reference to asset prices as well as inflation is a deeply contentious question. Liquidity in its first, narrow,definition is an important economic concept. But in its more fashionable second usage, liquidity is too, well, wishy-washy, to be useful.