Global Liquidity Collapses To 2008 Crisis Levels

Georgi Stankov, March 11, 2016

I have just published an article on the second glitch (flash-crash) of the Japanese government bond market today, where I explained this repeated “once in a lifetime event” with the rapidly declining liquidity in the global financial markets. I did this on the basis of my theoretical assumption as to how the bursting of the debt bubble will unfold – namely by causing a massive cash and credit crunch and a sudden drop in the global liquidity, in the availability of free money to invest.

One must bear in mind that since the 2008 crisis and much earlier every putative growth of the economy was created entirely by expanding the global debt through virtual financial products and presenting this gargantuan debt as organic growth to the gullible masses by misusing rigged statistics. Since the bankruptcy of Enron a new term has been introduced – “creative accounting” which is an euphemism for accounting gimmicks or simply accounting hoax.

As has always been the case in the past, I did not need to wait very long to find a brand new confirmation of my assumption. ZeroHedge has just published a short article that the global liquidity has collapsed to 2008 levels when the Greatest and Longest Depression of all time began:

“The last time that global liquidity conditions contracted at this pace was March 2008 (right as stocks dead-cat-bounced on the back of The Fed’s guarantee of Bear Stearns’ sale to JPMorgan)… and things escalated rather quickly thereafter.

Liquidity conditions also contracted (though not as severely as the current conditions) in Dec 2011… which prompted Bernanke to unleash QE2…

Bloomberg defines BofAML’s Global Liquidity Tracker as follows:

 Our real-time Global Liquidity Tracker (GLT) is a composite indicator of liquidity conditions in emerging and developed economies. To estimate our GLT indicator, we employ a dynamic factor model used by global central banks. Our Liquidity Tracker extracts a common unobserved factor reflecting the greatest common variation among market spreads, asset prices, monetary and credit data across different frequencies. We combine our US, Euro area, Japan and EM Liquidity trackers into a global composite using financial weights reflecting the average relevance of an economy in terms of market capitalization and private sector credit. 

All of this allows us to produce timely estimates of liquidity conditions in an effort to asses the state of the global economy. A reading of zero indicates liquidity at its long-run average while activity between -3 and +3 represents the standard deviation from this average.

Most worryingly – if it wasn’t already obvious, given the world’s stock markets’ total and utter devotion and dependence on central bank-provided liquidity – we have seen this pattern before…”

These two superimposed charts of S&P 500 tell us that the stock markets are now on the cusp of a sudden crash – chart apoptosis – due to a collapse of the global liquidity as this uppermost mother planet has no time to wait for a prolonged bear market that lasts as a rule more than a year (see above the crisis 2008 when the crash of S&P 500 of more than 50% lasted an year and a half). This time, due to the magnitude of the gargantuan debt that is now being unwinding on a global scale, which leads to a massive and unprecedented “liquidation of liquidity“, the markets will not be able to enter a prolonged bear market pumped by another QE. Instead the stock markets will die from a sudden financial death as all liquidity has now been eradicated by the NIRP and the war on cash of the major central banks which is a unique financial situation in the whole history of the Orion monetary system and the opposite to all fundamentals of capitalism.

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