> It is interesting. I wonder if the appearance of this new form of
> circulating money that's only used to buy financial assets, never consumer
> goods, is part of the reason why the past 25 years has seen so much
> asset-price inflation and so little consumer-price inflation. I remember
> articles in the Economist puzzling over this in the 90's.
Yeah - I think we've circled around this point before and it is a really interesting hypothesis. I think to look into it we need to think not only of the supply of liquidity but also demand for it, which is related to the size of accumulated asset portfolios, i.e. savings, and not only current flows of income-expenditure. So we need a theory of financial (in the broad sense including real estate) accumulation. We also need to recognise different levels of liquidity, e.g., that something a bank can hold as a liquid instrument may not be available or liquid in the same way to other units, because the bank participates in special markets and has a relationship with the central bank. So 'liquidity' or 'money' is not a homogenous quantity.
Mike Beggs