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What is money and who says so?

Author(s): Peter R Fisher

Date published: Sep 2015

SUERF Policy Note, Issue No 1
by Peter R. Fisher, Senior Fellow, Center for Global Business and Government Tuck School of Business at Dartmouth

JEL-codes: E31, E43, E51, E58.
Keywords: Liquidity illusion, market efficiency, financial intermediation, interest rate policy, inflation, Gresham’s Law, quantitative easing, hoarding and sovereign debt.

Are liquidity and market efficiency alive and well? No, I don’t think so. But why do you ask? Why are central bankers and policy makers the world over so concerned with this thing called liquidity? Is this an outpouring of sympathy for the plight of the hard working bond trader? More likely you are wondering whether current valuations can be sustained or if prices of financial assets might go down. This seems a reasonable concern.First, for the market as whole, there is no such thing as liquidity. Finance capitalism is premised on a profound liquidity illusion. Central bankers, in particular, should not be confused about this.

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