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What does “excess liquidity sloshing around the financial system” mean?

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Re: What does “excess liquidity sloshing around the financial system” mean?

#71

Post by shostack »

madaxe_again wrote: post #22
imtringued wrote: post #17

Earlier quoted context omitted.

Keynes divided liquidity preference into transaction demand, precautionary demand and speculative demand. Transaction demand refers to earning money with a job or business and then spending it. Precautionary demand refers to demand for money based around uncertainty in the future, you keep some money around because you want to insure against losing your job (rainy day fund) and finally, once you have so much money yo…

Historically, times where there have been excess liquidity and new technical development along with a labour shortage result in an Industrial Revolution. We have all of these things right now. Consider that newcomen’s engine was based on prior engines, and itself wasn’t that much of a success - but everything that followed was explosive in terms of the changes wrought on society and industry. The technology was inter…

What options for those looking to place their chips on AI in a more specific sense than Google or Microsoft?

Re: What does “excess liquidity sloshing around the financial system” mean?

#73

Post by passion__desire »

s1artibartfast wrote: post #63
spicyusername wrote: post #57

I interpret "excess liquidity" to mean that there is a larger than average share of people, businesses, or governments that have enough excess wealth to want, need, or be required to invest that excess wealth. i.e. There are more people with money that needs to be spent. I interpret "sloshing around" to be a metaphor for the damage that can be caused to various markets (real estate, stock, etc) by a sudden increase i…

The part that I don't get is why the money is sloshing. Edit: That is to say, why is the liquidity moving from place to place. To follow the analogy, If I put water in a bucket, it levels relatively quickly. Why does the liquidity "slosh" around for years.

In shipping industry, to avoid sloshing which could destablize the oil containers, you compartmentalize.

Re: What does “excess liquidity sloshing around the financial system” mean?

#74

Post by bannedbybros »

college_physics wrote: post #40

Until there is a widely available open source model of how the economic system works (here and now) people will go on beating about the bush in eternal cycles. The elements for this to happen are actually there. We are not talking about a detailed replica with real time data, but a reasonably accurate model that includes all the public data from central banks, private bank statements, public market valuations etc. Wi…

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Re: What does “excess liquidity sloshing around the financial system” mean?

#75

Post by heisenbit »

I strongly believe there is not one but there are two monetary systems today. One is for assets and the other for daily life consumption. They are only weakly coupled less than maybe in the past. This allowed raging inflation in the asset system for decades while daily life saw deflation or low inflation. And now we have exactly the opposite. There are a lot of reasons - many related to decision body captures - why transmission between the two sides slowed down. Any analysis looking at only one side and trying to explain the whole is bound to fail. Traditional methods work as long as they focus on one side only - influence from the other can be neglected.

Re: What does “excess liquidity sloshing around the financial system” mean?

#76

Post by enraged_camel »

groestl wrote: post #34
andrepd wrote: post #31

Earlier quoted context omitted.

> which favors distributed decisionmaking: [...] price Seeing as the top 10% hold over 60% of the wealth (in the US, globally we have a dozen people with as much wealth as the bottom 50%), I don't see how this follows.

We still arrive at concensus based on a (more or less free) market. Weights on this market are heavily skewed to the top, that's true. And as I said, democratic votes also don't exactly live up to the cultural standard that we at least say we have. But in general, we're very far away from a planned economy.

The market may be more or less free, but the distribution of information is not equal or even. That is one of the most important factors that prevent actors from making efficient decisions.

Re: What does “excess liquidity sloshing around the financial system” mean?

#77

Post by NhanH »

syntaxing wrote: post #62
vishnugupta wrote: post #53

For one concrete data point refer to this[1] chart which tracks the mortgage backed securities (MBS) held by the fed. This is fed creating money (for the lack of a better word) to indirectly fund home ownership. What started out as a short term measure to avoid a Great Depression post 2008[2] crisis ended up being a more permanent policy fixture. That is about $2.7T of new money created since 2008. Let that sink in.…

Is 2.3T a lot? Since the US GDP is about 23T, is there a situation where printing that much money is a net positive thing?

Money supply needs to couple with velocity for the comparison with GDP to make sense (think of the degenerate case, you theoretically could use like a single dollar to handle the entire economy, if it moves fast enough).

The easier comparison would be to compare the money supply growth against the GDP growth and see if they differ by much. I have neither number on hands, so someone else might be able to provide them.

Re: What does “excess liquidity sloshing around the financial system” mean?

#78

Post by spicyusername »

s1artibartfast wrote: post #63
spicyusername wrote: post #57

I interpret "excess liquidity" to mean that there is a larger than average share of people, businesses, or governments that have enough excess wealth to want, need, or be required to invest that excess wealth. i.e. There are more people with money that needs to be spent. I interpret "sloshing around" to be a metaphor for the damage that can be caused to various markets (real estate, stock, etc) by a sudden increase i…

The part that I don't get is why the money is sloshing. Edit: That is to say, why is the liquidity moving from place to place. To follow the analogy, If I put water in a bucket, it levels relatively quickly. Why does the liquidity "slosh" around for years.

The rationale that seems most reasonable to me is decades of low interest rates.

Interest rates are essentially an indication of how expensive money is. When interest rates are low, money is "cheap".

Outside of the FED purchasing bonds, Banks giving loans is another way to "print money". So when interest rates are low, more people and businesses take out loans, and as a consequence there is more money circulating, "sloshing around", in the economy.

There are other factors at work though, outside of interest rates, that can cause wealth to pool.

Various forces since the mid-1990s in the United States, mostly related to the tax and regulatory environment of corporate compensation packages (i.e. paying senior employees in stock, etc), have caused net wealth transfers to the upper classes. The wealth gains those classes have achieved also causes them to have excess wealth that wants to go somewhere.

Re: What does “excess liquidity sloshing around the financial system” mean?

#79

Post by mcntsh »

spicyusername wrote: post #57

I interpret "excess liquidity" to mean that there is a larger than average share of people, businesses, or governments that have enough excess wealth to want, need, or be required to invest that excess wealth. i.e. There are more people with money that needs to be spent. I interpret "sloshing around" to be a metaphor for the damage that can be caused to various markets (real estate, stock, etc) by a sudden increase i…

It really sparks optimism when the economic system you live in considers people and businesses having lots of wealth as a bad thing.

Re: What does “excess liquidity sloshing around the financial system” mean?

#80

Post by s1artibartfast »

spicyusername wrote: post #78
s1artibartfast wrote: post #63

Earlier quoted context omitted.

The part that I don't get is why the money is sloshing. Edit: That is to say, why is the liquidity moving from place to place. To follow the analogy, If I put water in a bucket, it levels relatively quickly. Why does the liquidity "slosh" around for years.

The rationale that seems most reasonable to me is decades of low interest rates. Interest rates are essentially an indication of how expensive money is. When interest rates are low, money is "cheap". Outside of the FED purchasing bonds, Banks giving loans is another way to "print money". So when interest rates are low, more people and businesses take out loans, and as a consequence there is more money circulating, "s…

That's the part I do get. The part I dont get is why it moves from place to place.
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