• Global Liquidity: The Invisible Tide Driving Markets

  • Dec 18 2024
  • Length: 19 mins
  • Podcast

Global Liquidity: The Invisible Tide Driving Markets

  • Summary

  • Understanding global liquidity, the amount of money circulating in the world economy, is crucial for navigating today's financial markets. Global liquidity significantly influences asset prices, including Bitcoin, traditional stocks, and bonds. One way to gauge global liquidity is by observing the global M2 money supply, which encompasses various forms of money, from cash to time deposits. Bitcoin's price has historically demonstrated a strong correlation with the global M2 money supply, suggesting its potential as an early indicator of liquidity trends. While short-term fluctuations in Bitcoin's price can be attributed to events within the cryptocurrency market, its long-term price movements often reflect broader shifts in global liquidity. Beyond Bitcoin, global liquidity impacts traditional markets as well. The BIS Global Liquidity Indicators highlight the significance of tracking foreign currency credit to assess liquidity trends. Furthermore, economist Michael Howell's analysis of the Global Liquidity Cycle offers valuable insights into the ebb and flow of global liquidity. He predicts a peak in global liquidity around September 2025, but concerns remain about potential declines due to the deleveraging of the European banking system. The impact of global liquidity extends beyond financial markets, influencing economic cycles and potentially exacerbating inequalities between economic winners and losers. Therefore, managing global liquidity effectively is paramount for ensuring a stable and sustainable financial future.

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