Liquidity Is a Behaviour, Not a Number

Overview

A critical tour of the liquidity indicators that circulate on financial social media — net liquidity, reserve balances, the TGA and RRP — and what each actually measures. The guest is not dismissive: the argument is that each is informative about a specific mechanism and useless as a general market predictor. The last twenty minutes build a more honest framework.

Key takeaways

• Net liquidity charts conflate three unrelated mechanisms and inherit the noisiest one.

• Reserve balances matter for funding markets and almost nothing for equity valuation.

• The TGA moves money between accounts; the transmission to risk assets is indirect and slow.

• A useful liquidity framework starts from who is forced to transact, not from a balance-sheet aggregate.

Topics

• Liquidity
• Central banking
• TGA
• Reserves
• Market plumbing