On the Cusp of a Global Liquidity Crisis

1.4.23 - Gold surges to 6-month high

Gold last traded at $1,854 an ounce. Silver at $23.76 an ounce.

On the Cusp of a Global Liquidity Crisis -

Daily Reckoning--As we kick off 2023, one of the financial topics front and center is the looming global liquidity crisis. If there were ever two words that have a bad ring to them, "liquidity crisis" would definitely top my list. Here's why a recession might look like a blessing in comparison.

Is there a financial calamity worse than a severe recession in early 2023? Unfortunately, the answer is "yes" and it's coming quickly.

That greater calamity is a global liquidity crisis. Before considering the dynamics of a global liquidity crisis, it's critical to distinguish between a liquidity crisis and a recession. A recession is part of the business cycle.

It’s characterized by higher unemployment, declining GDP growth, inventory liquidation, business failures, reduced discretionary spending by consumers, reduced business investment, higher savings rates (for those still employed), larger loan losses, and declining asset prices in stocks and real estate.

The length and depth of a recession can vary widely. And although recessions have certain common characteristics, they also have diverse causes. Sometimes the Federal Reserve blunders in monetary policy and holds interest rates too high for too long (that seems to be happening now).