Thursday, December 20, 2007

[Latest Global Dollar Liquidity measure: +12.4% annual growth rate; latest Endogenous Liquidity Index: -32.3%]

Über-bear David Roche has just coined the term "New Monetarism". His aim is to "properly define" the notion of liquidity in order to highlight "the potentially disastrous outlook for the global economy and financial markets". "What is liquidity?", he asks rhetorically. Sadly, his answer does nothing to alleviate the confusion: "To redefine liquidity under what I call New Monetarism, one must add, to the traditional definition of broad money, all the credit being created and moved off banks' balance sheets and onto the balance sheets of nonbank financial intermediaries. This new form of liquidity changed the very nature of the credit beast". As the Lex Column would say, Mr. Roche's views provide yet another example of a "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". In Mr. Roche' usage, "liquidity is too, well, wishy-washy, to be useful". [David Roche: "The Global Money Machine", Yale Global Online]

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