Money Printing Presses Running Full Speed Ahead

February 28, 2005
Money Printing Presses Running Full Speed Ahead

By PC
Source

According to an Economist article titled Global Liquidity, global liquidity has been expanding at its fastest pace for at least 30 years. In both 2003 and 2004, the Economist's measure of "global liquidity" rose at annual rates of 20%. In no other two year period since 1975 has liquidity increased by so much.

The following is from the Economist article:

America's easy-money policy of recent years has spilled abroad. Low American interest rates have encouraged large inflows of capital into emerging economies, especially in Asia, as investors have sought higher returns. Central banks have then tried to resist the consequent upward pressure on their currencies by buying foreign exchange, mainly dollars. When a central bank does this, it credits domestic commercial banks with deposits (i.e., the monetary base expands) encouraging banks to lend more. Central banks are supposedly the guardians of money. Yet between them they may have created the biggest liquidity bubble in history.

This global liquidity bubble has in turn fueled a bubble in equity markets, real estate, and, in particular, an over investment bubble in China. All credit bubbles eventually burst and this one will be no exception. The ramifications will be global in scope.