Not worth a Continental? Coming soon?

Recent liquidity problems are associated with the dramatic rise in debt levels topping $300 trillion worldwide. This huge stock has a maturity of around five years, which means about $60 trillion needs to be rolled over each year, which requires liquidity and a large financial sector balance sheet.

However, government policies of low interest rates combined with austerity measures have combined to encourage the take-up of more debt and, at the same time, discourage liquidity growth through the scarcity of ‘safe’ asset government debt.

The result is a financial system that is vulnerable to shocks which force up precautionary cash demands and creates an even greater squeeze on liquidity, thereby raising systemic default risks. However, policymakers are now more familiar with the ‘fire drill’ after the 2008 financial crisis. Consequently, and led by the Fed, they have reacted quickly to the latest crisis by pouring vast flows of liquidity back into markets.

This means a 20% pace even for nominal M2 monetary growth in 2020, surely points to an inflation rate climbing into the 5-10% range from about mid-2021. These massive jumps in funding liquidity, with large parts of continuing spending programmes likely linked to infrastructure, and the prospective threat of higher inflation, could be important spurs to future real asset investing.