Season 1 · Episode 336
How does liquidity impact the economy?
We all depend on having enough money to cover our liabilities – whether we are an individual, a business or a bank. But is too much money tied up to meet our future obligations? And what role does liquidity play in economic downturns?
Debunking Economics - the podcast · Steve Keen & Phil Dobbie
February 1, 202344m 13s
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Show Notes
For most of us liquidity is an easy concept to understand. Have we got enough cash to pay our bills? For small businesses it is a simple case of managing your cashflow and ensuring your cash on hand exceeds your current liabilities. For banks it’s a mix of ensuring you have the capital to meet demands from depositors, as well as the reserves to meet interbank transfers. To ensure we have liquidity we ensure there is a buffer, to keep us out of trouble. But does that buffer keep us using money productively. Even though Paul Krugman is Steve Keen’s Professor Moriarty, can his babysitting voucher analogy help us to understand the impact of low levels of liquidity on a functioning economy where productivity capacity isn’t being fully utilised.
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