This type of discrepancy has been a recurring theme over the past few years, raising a question: Where has all the money gone?
Some analysts say capital has left the country in anticipation of the U.S. Federal Reserve ending its policy of so-called quantitative easing, while others say interest rates have risen as reform deepens. Still others say the money that has been released was looped in a cycle formed by the property sector and the financial market instead of flowing into the real economy.
Perhaps all of these factors are at play. But capital outflows cannot be the primary reason because the data does not support this argument. Nor it is likely because the money did not flow into the real economy.
In fact, the most obvious reason for similar liquidity crunches is that huge amounts of money flew into the real economy and ended up dead there.
An investor friend of mine says credit was being swallowed up by numerous speculators and Ponzi scheme operators like a mythical creature that keeps eating and never needs to, well, visit the restroom.
Another friend who runs a business puts it in more concrete terms. In his line of business, there are some super players with extremely high leverage rates who have been steadily losing money. Despite this, they can always get the support of banks.
My friend said he thought he could hang on until they collapse and business returns to normal. But several years have passed and they remained strong. In fact, many more have followed in their tracks. "I could not afford to wait until they lost, so I gave up," he said.
No one is naïve enough to think banks' balance sheets are as healthy as they are made to look. But the repeated bouts of tight liquidity seem to be a signal that they could be worse than we imagined.
Many toxic assets have not yet shown up on banks' balance sheets but they have already started eroding their ability to lend. This is the ugly truth of the liquidity crunches.-- Richard O'Connell +34 666 24 1104