It is not hugely surprising that this is substantially lower than in 2007, given weak stock markets (although these have rallied more recently) and the death of some securitised markets. It also clearly supports the idea that while interest rates are very low, monetary policy is perhaps not that loose given its not creating any additional leverage.
For those that are even more wonkish, the Bank of International Settlements, or BIS (kind of the central bank of central bankers) have just released a paper on global liquidity called..... "Understanding Global Liquidity", which can be found here.
Without going into the brain exploding econometrics of panel regressions, the result is that the authors boil global liquidity down to three factors; the global monetary policy factor, global credit demand and global credit supply factors. These factors represent trends that are common to the set of 24 countries covered from a financial aspect, with the macroeconomic influences "purged" from the results.
Whats interesting about their results in the current context is that while the global monetary factor would be considered supportive of liquidity, both credit demand and credit supply is still very tight. These data suggest that at a global level, we are potentially stuck in liquidity trap conditions.
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| Credit supply is bad... |
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| ...despite very loose global monetary policy... |
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| ...credit demand is even worse! |
The caveat here is that this analysis maybe missing one of the most important pieces of liquidity in the global economy coming from the Chinese shadow banking system. Off-balance sheet lending has been very big in China in recent years and has helped fuel Chinese growth, which has been the cornerstone of global economic activity. So perhaps the idea of a global liquidity trap is a stretch.
