Improvising Jazz Piano

Economic cycles are driven by financial flows, namely quantities of savings and credits, and not by high street inflation or interest rates. Their sweeping destructive powers are expressed through Global Liquidity, a $130 trillion pool of footloose cash. Global Liquidity describes the gross flows of credit and international capital feeding through the world's banking systems and wholesale money markets. The huge jump in the volume of international financial markets since the mid-1980s has been boosted by deregulation, innovation and easy money, with financial globalisation now surpassing the peaks of integration reached before the First World War. Global Liquidity drives these markets: it is often determinant, frequently disruptive and always fast-moving. Barely one fifth of Wall Street's huge gains over recent decades have come from earnings: rising liquidity and investors' appetite for riskier financial assets have propelled stock prices higher. Similar experiences are shared worldwide and even in emerging markets, such as India, flat earnings have not deterred waves of foreign money and domestic mutual funds from driving-up stock prices. Now with central banks actively pursuing quantitative easing policies, industrial corporations flush with cash and rising wealth levels among emerging market investors, the liquidity theory of investment has never been more important. International spill-overs of these rapacious cross-border flows sets off capital wars and exposes the unattractive face of liquidity called 'risk.' As the world grows bigger, it becomes ever more volatile. From the early 1960s onwards, the world economy and its financial markets have suffered from three broad types of shocks - labour costs, oil and commodities, and global liquidity. Financial markets spin on fragile axes and the absence of liquidity often provides a warning of upcoming troubles. Global Liquidity is a much-discussed, but narrowly-researched and vaguely-defined topic. This book deeply explores the subject by clearly defining and measuring liquidity worldwide and by showing its importance for investors. The roles of central banks, shadow banking, the rise of Repo and growth of wholesale money are discussed. Additionally, covering the latest developments in China's increasingly dominant financial economy, this book will appeal to practitioners, policy-makers, economists and academics, as well as those with a general interest in how financial markets work.-- Provided by publisher Preface Contents List of Figures List of Tables 1 Introduction: Capital Wars Capital Wars: The New Trade Wars Cross-Border Capital Flaws? The First Sightings: Salomon Brothers Inc. Global Liquidity: Endless River or High-Water Mark? Reference 2 Global Money How Big Is the Pool of Global Liquidity? What Is Global Liquidity? Are Policy-Makers Behind the Curve? ‘New’ Global Liquidity Shocks How Do the Academics See It? The Key: Flow of Funds Analysis More Capital Ideas? References 3 Synopsis: A Bigger, More Volatile World The Economic Earthquake The Financial Accelerator The Wrong Policy Response? 4 The Liquidity Model The Flow of Funds Framework An Alternative Decomposition 5 Real Exchange Adjustment The Industrial and Financial Circuits of Money The Exchange Rate Channel Testing the Model with Data: US Dollar and EM Currencies References 6 Private Sector (Funding) Liquidity Funding Liquidity Intermediation Chains and the Growth of Wholesale Money Collateral and the Rise of the Repo The Liquidity Multiplier Refinancing Risks? References 7 The Central Banks: Don’t Fight the Fed, Don’t Upset the ECB and Don’t Mess with the PBoC What Do Central Banks Do? World Central Bank Money Digging Deeper into US Federal Reserve Actions The People’s Bank of China The European Central Bank (ECB) References 8 Cross-Border Capital Flows Dollar Supremacy Global Value Chains The Dollar Cycle Gross Capital Flows Policy Concerns Global Financial Centres The Offshore Swap and Eurodollar Markets Dollar Risks—A New Triffin Dilemma? Warning Signs of Future Crises References 9 China and the Emerging Markets The Chinese Monetary and Financial System China’s Financial Immaturity The Impact of Capital Flows on Emerging Markets Reference 10 The Liquidity Transmission Mechanism: Understanding Future Macro-valuation Shifts The Financial Economy Versus the Real Economy The General Transmission of Liquidity Shocks The Transmission of Liquidity Shocks to Bonds and Forex Markets Exchange Rates Risk Assets Risk Assets 1: Real Estate Risk Assets 2: Equities Asset Allocation References 11 Financial Crises and Safe Assets The Financial Cycle Is Stability Destabilising? A Worldwide Shortage of ‘Safe’ Assets? References 12 The Financial Silk Road: Globalisation and the Eastwards Shift of Capital The Financial Silk Road Germany Lurches Eastwards Geopolitical Implications of Shifting Capital 13 Measuring Liquidity: The Global Liquidity Indexes (GLI) The CrossBorder Capital Global Liquidity Indexes (GLITM) 14 Conclusion: A High-Water Mark? Peak Liquidity: Will Globalisation Be the First Victim of the Capital Wars? The Financial Silk Road The Rise of the Repo Refinancing Versus New Financing Systems Coming Decades: The Internationalisation of the Yuan Reference Appendix: Inflation, Deflation and Valuations A Note on Data Sources Further Reading References Index