The Crest of a Wave

Financial markets do not create ‘efficiency’ in the economic sense of always being corrected priced, rather they provide ‘liquidity’ in an uncertain World and because of this they are inherently cyclical. The liquidity view argues that asset prices are determined by the capacity of financial sector balance sheets, Central Bank injections of cash an

A wholesale bank’s liabilities are repo borrowings, not deposits. This places US Treasury notes and bonds at the very centre of the modern monetary system. Lately, bank regulators have been attempting to further reduce and even remove Treasuries from capital ratio requirements. This should allow banks to significantly expand wholesale bank lending

This is the so-called deposit multiplier model much-loved by textbooks, but it is incorrect in practice because loans create deposits and not vice versa

This framework gives important insights in a debt-driven World. First-and-foremost, financial markets increasingly operate as vast debt refinancing mechanisms not new capital-raising vehicles . Second, domestic and international capital flows represent key drivers of the economic system. Increasingly cross-border flows determine trade balances, not