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Global liquidity (central bank money) is currently increasing very rapidly which is playing a significant role in keeping long-term interest rates low and the prices of financial and real estate assets high, and in making very high debt ratios acceptable, according to Patrick Artus, Research Analyst at Natixis.

Key Quotes

“A contraction in global liquidity would therefore have highly negative effects on the global economy. Further, such a contraction is a possibility:

  • The Federal Reserve is shrinking its balance sheet;
  • The ECB is going to end quantitative easing;
  • The Bank of Japan and the Bank of England are no longer increasing the size of their balance sheets;
  • China now has a trade deficit; n Emerging countries other than China are accumulating fewer foreign-exchange reserves due to smaller capital inflows;
  • There remains the accumulation of foreign-exchange reserves by oil-exporting countries as oil prices rise.”

“Altogether, global liquidity can be expected to increase by 3% per year at end-2018 as opposed to 13% in the year to March 2018.”