Brazil Finance Minister Guido Mantega told the Brazilian Senate on Tuesday that the excess liquidity led to speculation in the emerging markets.
If not for the excess liquidity created, there would not have been sufficient fuel to distort the housing market and ultimately the financial system.
The already booming housing market was, in effect, shot up with steroids as lending standards were lowered to put all the excess liquidity to work.
In summary, I believe that these recent price increases are more attributable to the excess liquidity in the financial system than a sudden positive shift in global economic fundamentals.
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Instead, we expect rates to remain elevated for many quarters, perhaps years, as the excess liquidity provided by the U.S. and Japan works its way out of the global economy.
The strongest argument for a revaluation now is not that the yuan is undervalued, but that an adjustment would halt speculative capital inflows and so mop up the excess liquidity.
Such high spreads usually occur when the fear of defaults is high, but given the excess liquidity in the banking system, a default wave does not appear to be in the offing.
First, the Federal Reserve could drain bank reserves and reduce the excess liquidity at other institutions by arranging large-scale reverse repurchase agreements with financial market participants, including banks, government-sponsored enterprises and other institutions.
The White House could also urge Ben Bernanke and the Federal Reserve to get more serious about fighting inflation by mopping up some of the excess liquidity that he and predecessor Alan Greenspan spawned.
To affect a cure the Fed must reduce the excess monetary liquidity in the marketplace.
But unlike gold, the inflation track record on TIPS is short, ambiguous and heavily distorted by illiquidity, oil prices (which are included in their return), and the same excess liquidity "conundrum" that has been confusing yields across the bond spectrum.
It could bring about the dismissal of Bernanke, the taming of fiscal deficits, the painless elimination of excess liquidity from bloated central bank balance sheets and the restoration of robust economic growth.
Also pushing up neutral, the pipeline of excess liquidity is still filling despite rate hikes, most visibly in commodity speculation and record levels of corporate cash.
The Central Bank of Iraq recently broadened the range of tactics it uses to mop up excess liquidity in the system and maintain the dinar's de facto peg to the dollar, which, given the primitive state of Iraq's financial system, is the best mechanism the bank has to keep prices stable.
The primary indicators of excess dollar liquidity gold, commodities and the dollar itself are signaling doubts about the Fed.
In the other corner, global central banks are forcefully trying to counter these deflationary pressures by providing excess liquidity into the banking system via numerous forms of money printing.
The Fed has glued together the punch bowl of excess liquidity.
With oil prices high and excess liquidity in the world, there aren't reasons for massive worry.
In 2004 gold shot up well above its 12-year average, thus screaming that the Federal Reserve was creating excess liquidity.
High-yield short duration bonds and senior bank loans (also known as leveraged loans) are both attractive for excess liquidity in the current low-yield environment.
By contrast, by removing excess liquidity, the central bank can cause the sudden collapse of speculative excess, and it can also hurt healthy recovery or growth by constricting the money supply.
If that gap persists, the problem can be addressed by supplementing payment of interest on reserves with steps to reduce reserves and drain excess liquidity from markets the second means of tightening monetary policy.
Banks would have a greater incentive with higher rates and gain some comfort in lending more which would stimulate the flow of liquidity sitting as excess capital in banks today.
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Eventually, though, the Fed will get it right and start to soak up the economy's excess inflation-creating liquidity.
With QE2 nearing completion, should he raise interest rates and extract excess liquidity before inflation destroys the middle class?
As markets factor in a more optimistic growth outlook, excess liquidity has moved from the sidelines into risk assets, putting upward pressure on inflation.
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Inflation has remained low, but excess liquidity now flows into the prices of houses and shares rather than the prices of goods and services.
Whereas in the recent past, one currency may be reduced in value compared with other currencies, this time there is global competitive devaluation as excess liquidity is put into the system.
Over the past two years, some of the main drivers of Chinese inflation have been excess liquidity combined with strong domestic demand and supply shocks to food prices and commodity prices, according to Chang.
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