Abstract
Important macro-factors determine liquidity conditions in micro-markets. Capitalism is essentially a financing system, or more correctly a re-financing system. The re-financing process is largely controlled by Central Banks via their influence on the wholesale money markets. Financial liquidity tends to move in a four- to five-year global cycle. Periods of tight liquidity trigger financial crises like 2007/08. The modern-day banking crisis no longer involves queues of retail depositors scrambling to remove their savings whenever their bank lacks reserves. Rather it is caused by asset-liability “mismatch” and an inability to re-finance short-term liabilities in the wholesale markets.
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