The New ‘Re-Financing’ World

Understanding Why Our Investment Future Looks So Different

We live in a World where both the stability and the tempo of business activity are increasingly governed by the supply of liquidity. Liquidity, or more accurately Global Liquidity because of its international dimension, trends higher through time, but more importantly it moves in clear 5-6 year cycles. We argue that these cycles attune most closely to the periodicity of debt refinancing, similar to how earlier industrial cycles fluctuated in harmony with the 9-10 year depreciation period of physical capital.

Global Liquidity faces two competing claims: (1) the needs to refinance the huge pile of domestic and international debt, and (2) the rapacious appetite of China, a major US dollar user. Clashes and tensions between these sources and rival uses explain the often violent swings in World financial markets.