I think one of the big deltas in perceptions around liquidity is that when it’s added, it’s permanent.

My sense is this is what inflation concerns are about: liquidity is seen as a permanent net add to a ‘container.’

I don’t think it works like that.
1/
A better mental model might be that the container more like one of those kids’ playhouses with the fan that keeps them inflated.

“Liquidity,” IMO, is a bit more like “how powerful the fan is” in that scenario.
2/
So if more kids get in the playhouse and it gets a bit saggy, you can turn up that fan some more to make the fabric more taut under the load.

I’m a playhouse that load is kids, in an economy it’s debt.
3/
The more debt we take on the more we need to turn up the fan and actively blow more liquidity into the system.

Liquidity is not “net cash” that’s what people misunderstand. It’s “free cash” which is different.
4/
Free cash is just the amount of money that’s like “around and able to transact” instead of being theoretical value trapped in an asset like a house or a bond.

Buying assets increased free cash, but not net cash.

Net cash is like the market value of all assets + free cash.
5/
So people *think* the Fed adding liquidity is them increasing net cash (and hence structurally inflationary) when it’s *really* only them increasing free cash in a meaningful way.

Free cash does have its impact.
6/
It’s ‘hot money’ since it’s ready-to-transact money, so as people start to spend this readily available money the fact that they all do it at once *looks* like an increase in aggregate demand.

But it’s not. It’s just temporal concentration of demand.
7/
Still, in that moment and on charts there is real data to support “demand go up” conclusions.

But it is not aggregate demand. It’s just *temporally coincident* demand.

So it always leads to a hangover.
/8
Oh, last one: net adds to government debt increases the size/volume of the playhouse.

This is the bit the MMT crew is always talking about.
9/

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More from @coloradotravis

25 May
By now everyone knows my favorite chart.

It's a chart of the yield curve (above) and then a bunch of macro stuff below, that shows how last cycle we also had a wild run up in commodities before a huge rinse.

Let's look at it in a bit more detail.
1/ Image
Here's copper. You can see that it made a big, rolling top in 2008 before rolling over.

As far as today, it's a little hard to call. Perhaps we're on track for the same sort of thing, culminating this fall. Or just up forever, who knows.

Inconclusive signal here.
2/ ImageImage
Here's silver. Little more interesting in that both display a sort of sustained plateau (each variants on a Wyckoff distribution) - curious to see if silver rolls.

Definitely one to watch.
3/ ImageImage
Read 10 tweets
18 May
Bitcoin and its potential to impact CPI (this is not a BTC bull or bear thread, just chill).

Okay so one of the things that's fascinating about crypto is that it has been a retail-led phenomenon.

Lots of people early into the trade have seen their NW increase by a lot.
1/
So the idea that BTC's rise could be creating a pretty intense 'wealth effect' sort of makes sense.

And while many are dedicated HODLers, certainly not everyone is - people do sell a bit and buy things.

So this BTC bull run could well be a *driver* of recent spending...
2/
But of course given the high volatility, the inverse is also true.

If you're mostly a crypto investor and you've just taken a huge haircut on your portfolio (I know you're still crushing or whatever don't @ me), you're less inclined to spend here and more inclined to wait.
3/
Read 5 tweets
16 May
It's tempting to think of the entire tech sector as groundbreaking stuff. And it is, often, but that's not really the meat and potatoes of tech.

We, like Wall St., are mostly in the repackaging business.
1/
Tech companies tend to start as awesome new stuff and then as they grow larger the marginal return on innovation decreases.

As companies grow, the profit incentive becomes *efficiency* (picking up pennies across the already massive user base) vs. early stage's *attraction*
2/
And so this unfortunately leads them to become increasingly user-hostile. When attraction is what you need to be good at to grow, you invest in UX.

When extraction is how you grow, you invest more in UX but like... the dark patterns & "staff of psychologists" version.
3/
Read 5 tweets
14 May
Bitcoin: a technical primer

Okay so in my role as a wet blanket, I often see claims being made about the revolutionary nature of BTC tech.

Let’s talk about that for a minute.
1/
Because the actual software is relatively simple.

In fact the whole contraption is not unlike a giant collaborative word document, when it comes to the tech - the data structures are even similar.

So let’s imagine it as one.
2/
Let’s imagine Bitcoin is a word doc. And it’s a document that we all write down who owns what, and we all have our own little copy of it.

And then periodically we unify these into a canonical version.

So what’s fun is that this software pattern exists everywhere.
3/
Read 13 tweets
13 May
This tweet had a 20% return in 14 mins.

Still climbing. Image
5% return in 15 mins. Image
22% in 2hrs. Image
Read 4 tweets
9 May
Heard the following story from a manager at a car dealership:

When they buy cars, they have a certain time period to sell them otherwise they start getting charged fees by the parent company (who makes the cars).

So taking a bunch of inventory is a risk.
1/
When covid hit, nobody really knew what would happen so the vast majority of the dealerships cut their orders back by a lot (not wanting to get caught holding a lot of stock & the associated carry cost of that inventory).

This particular dealership didn't.
2/
They took a more bullish stance and figured they'd be able to move the cars, so they upped their order and are now slaying it.

Remember that tweet about the dealership trying to charge me above MSRP because the car was 'rare'?

Well it probably was. Like, for them.
3/
Read 7 tweets

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