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Liquidity Cycle
Posted on July 29, 2008
The Fed has tightened the growth of monetary liquidity for severalyears. With the advent of the subprime mortgage and housingdebacle last year, the commercial paper market crashed to the tuneof $700 billion, sharply reducing the rate of credit driven liquiditygrowth. Profit shrinkage generally follows hits to liquidity, and weare seeing that, although the damage is primarily in the financialsector. Economic slack has increased in the US and this usually setsup a contraction of inflation. However, a strong global economy anda weak US dollar stemming from cuts to the Fed Funds rate, didkeep the ...
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