During COVID pandemic, governments gave money to those citizens affected by the shutdowns, in general it was a good thing except for the fraud that was allowed to happen. One of the consequences was $4 trillion was put into the system, for many the money was a lifeline, for some it allowed consumer savings and spending higher. For the financial system, there is excess money in the system. What will the Federal Reserve do?

In an article written by Naomi Rovnick and Harry Robertson of Reuters, BNP Paribas estimates excess global liquidity has risen by $640 billion since the 3rd quarter of 2022 and is unsustainable by central banks as they do quantitative tightening.

BNP Paris says its base case is for global liquidity to fall 6% to 9% by end September and 7 and 11% by year-end.

The Federal Reserve in March loosened financial conditions with an emergency credit facility for cash starved banks, Japan’s central bank is buying government bonds to push money into the system, and Europe’s Central Bank is selling down the government bonds it holds at a relaxed pace.

Total global liquidity, a measure of cash and credit in the world economy has risen to almost $ 170 trillion in June, according to Crossborder Capital was $158 trillion in October.

The US Treasury is set to rebuild its general account by issuing $1 trillion or more of short-term bills, potentially at rates appealing from risker assets.

Linking to dividend paying stocks, the global money supply when there is excess capital tends to push stock markets higher because the money has to go somewhere. Eventually federal reserve banks print less money and the stock market has to move up and down based on more fundamental reasons. When the markets move on fundamental reasons, it is good to be a dividend investor because profitable companies that can pay dividends are worth more and as a long term investor you benefit.

There are more questions than answers, till the next time – to raising questions.