Howell Capital Wars

The Rise of Global Liquidity
1. Auflage 2020
ISBN: 978-3-030-39288-8
Verlag: Springer Nature Switzerland
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 316 Seiten

Reihe: Progress in Mathematics

Economic cycles are driven by financial flows, namely quantities of savings and credits, and not by high street inflation or interest rates. Their sweeping destructive powers are expressed through Global Liquidity, a $130 trillion pool of footloose cash. Global Liquidity describes the gross flows of credit and international capital feeding through the world's banking systems and wholesale money markets. The huge jump in the volume of international financial markets since the mid-1980s has been boosted by deregulation, innovation and easy money, with financial globalisation now surpassing the peaks of integration reached before the First World War. Global Liquidity drives these markets: it is often determinant, frequently disruptive and always fast-moving. Barely one fifth of Wall Street's huge gains over recent decades have come from earnings: rising liquidity and investors' appetite for riskier financial assets have propelled stock prices higher. Similar experiences are shared worldwide and even in emerging markets, such as India, flat earnings have not deterred waves of foreign money and domestic mutual funds from driving-up stock prices. Now with central banks actively pursuing quantitative easing policies, industrial corporations flush with cash and rising wealth levels among emerging market investors, the liquidity theory of investment has never been more important.International spill-overs of these rapacious cross-border flows sets off capital wars and exposes the unattractive face of liquidity called 'risk.' As the world grows bigger, it becomes ever more volatile. From the early 1960s onwards, the world economy and its financial markets have suffered from three broad types of shocks - labour costs, oil and commodities, and global liquidity. Financial markets spin on fragile axes and the absence of liquidity often provides a warning of upcoming troubles. Global Liquidity is a much-discussed, but narrowly-researched and vaguely-defined topic. This book deeply explores the subject by clearly defining and measuring liquidity worldwide and by showing its importance for investors. The roles of central banks, shadow banking, the rise of Repo and growth of wholesale money are discussed. Additionally, covering the latest developments in China's increasingly dominant financial economy, this book will appeal to practitioners, policy-makers, economists and academics, as well as those with a general interest in how financial markets work.


Michael J. Howell is a Managing Director at CrossBorder Capital Ltd. He founded CrossBorder Capital in 1996. Michael developed the quantitative liquidity research methodology while he was Research Director at Salomon Bros. from 1986. He was subsequently appointed Head of Research at Baring Securities in 1992, and was top-ranked 'Emerging Market Strategist' by institutional investors for the three years prior to setting up CrossBorder Capital. Michael has worked in financial markets for more than thirty years and is a regular international conference speaker. He is a qualified US Supervisory Analyst and has a Doctorate in Economics.

Autoren/Hrsg.

Howell, Michael J.

Inhaltsverzeichnis

1;Preface;6
2;Contents;9
3;List of Figures;11
4;List of Tables;18
5;1 Introduction: Capital Wars;20
5.1;Capital Wars: The New Trade Wars;20
5.2;Cross-Border Capital Flaws?;27
5.3;The First Sightings: Salomon Brothers Inc.;29
5.4;Global Liquidity: Endless River or High-Water Mark?;31
5.5;Reference;35
6;2 Global Money;36
6.1;How Big Is the Pool of Global Liquidity?;36
6.2;What Is Global Liquidity?;42
6.3;Are Policy-Makers Behind the Curve?;47
6.4;‘New’ Global Liquidity Shocks;49
6.5;How Do the Academics See It?;52
6.6;The Key: Flow of Funds Analysis;57
6.7;More Capital Ideas?;59
6.8;References;61
7;3 Synopsis: A Bigger, More Volatile World;64
7.1;The Economic Earthquake;64
7.2;The Financial Accelerator;67
7.3;The Wrong Policy Response?;69
8;4 The Liquidity Model;73
8.1;The Flow of Funds Framework;73
8.2;An Alternative Decomposition;75
9;5 Real Exchange Adjustment;77
9.1;The Industrial and Financial Circuits of Money;77
9.2;The Exchange Rate Channel;81
9.3;Testing the Model with Data: US Dollar and EM Currencies;87
9.4;References;92
10;6 Private Sector (Funding) Liquidity;93
10.1;Funding Liquidity;93
10.2;Intermediation Chains and the Growth of Wholesale Money;103
10.3;Collateral and the Rise of the Repo;107
10.4;The Liquidity Multiplier;111
10.5;Refinancing Risks?;115
10.6;References;117
11;7 The Central Banks: Don’t Fight the Fed, Don’t Upset the ECB and Don’t Mess with the PBoC;118
11.1;What Do Central Banks Do?;118
11.2;World Central Bank Money;132
11.3;Digging Deeper into US Federal Reserve Actions;136
11.4;The People’s Bank of China;146
11.5;The European Central Bank (ECB);151
11.6;References;157
12;8 Cross-Border Capital Flows;158
12.1;Dollar Supremacy;158
12.2;Global Value Chains;163
12.3;The Dollar Cycle;165
12.4;Gross Capital Flows;167
12.5;Policy Concerns;173
12.6;Global Financial Centres;175
12.7;The Offshore Swap and Eurodollar Markets;177
12.8;Dollar Risks—A New Triffin Dilemma?;181
12.9;Warning Signs of Future Crises;183
12.10;References;193
13;9 China and the Emerging Markets;194
13.1;The Chinese Monetary and Financial System;194
13.2;China’s Financial Immaturity;196
13.3;The Impact of Capital Flows on Emerging Markets;204
13.4;Reference;213
14;10 The Liquidity Transmission Mechanism: Understanding Future Macro-valuation Shifts;214
14.1;The Financial Economy Versus the Real Economy;214
14.2;The General Transmission of Liquidity Shocks;218
14.3;The Transmission of Liquidity Shocks to Bonds and Forex Markets;223
14.4;Exchange Rates;234
14.5;Risk Assets;234
14.5.1;Risk Assets 1: Real Estate;236
14.5.2;Risk Assets 2: Equities;236
14.6;Asset Allocation;245
14.7;References;248
15;11 Financial Crises and Safe Assets;250
15.1;The Financial Cycle;250
15.2;Is Stability Destabilising?;252
15.3;A Worldwide Shortage of ‘Safe’ Assets?;257
15.4;References;264
16;12 The Financial Silk Road: Globalisation and the Eastwards Shift of Capital;265
16.1;The Financial Silk Road;265
16.2;Germany Lurches Eastwards;268
16.3;Geopolitical Implications of Shifting Capital;272
17;13 Measuring Liquidity: The Global Liquidity Indexes (GLI);275
17.1;The CrossBorder Capital Global Liquidity Indexes (GLI™);275
18;14 Conclusion: A High-Water Mark?;282
18.1;Peak Liquidity: Will Globalisation Be the First Victim of the Capital Wars?;282
18.2;The Financial Silk Road;284
18.3;The Rise of the Repo;286
18.4;Refinancing Versus New Financing Systems;289
18.5;Coming Decades: The Internationalisation of the Yuan;290
18.6;Reference;294
19;Appendix: Inflation, Deflation and Valuations;295
20;A Note on Data Sources;298
21;Further Reading;299
22;References;301
23;Index;309