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Foreign suppliers now demand cash payment upfront, making liquidity even scarcer.In this section An economy crumbles The perils of prudence In praise of pessimists Can you hear me now?
Meanwhile, shell-shocked credit markets are making liquidity ever more scarce.
How many businesses could have been saved by the bank making liquidity available?
It will enhance trust and much needed market resiliency by reducing the dominant activity of certain leveraged speculators whose market making liquidity can be temporary and whose trend following trades contribute to near term volatility.
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The basic point is that a higher baseline for inflation would make liquidity traps, in which conventional monetary policy is up against the zero lower bound, less likely and less costly when they happen.
Academics such as Mr Pedersen, Lubos Pastor at Chicago's Booth School of Business and others were doing solid work on liquidity shocks, but practitioners barely noticed.What makes liquidity so important is its binary quality: one moment it is there in abundance, the next it is gone.
"I really believe that the drop in housing is actually on net going to make liquidity available for other sectors rather than being a drain going forward, and that will also get the growth rate more positive," Ms. Bies told colleagues at the committee's June meeting.
The Federal Reserve can make liquidity available but it cannot lend to end users, and in fact, through stress testing and reserve requirements, seems to encourage restraint.
But they can also make liquidity vanish in an instant, making it harder for the few remaining human beings in the stock market to keep order when things go haywire, as happened on Tuesday.
Firms complain that the government is slow to pay value-added-tax (VAT) rebates, making the liquidity shortage worse.
And sometimes this leads to insights that I don't think would have come from either approach alone, like the crucial role of monetary credibility in making a liquidity trap possible.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com