Two Liquidity Crises

UPDATE 2-China economy strong, but must beat inflation -PBOC
China's trade surplus and investment were still growing too quickly, fuelling liquidity that, together with higher food costs, lay at the root of inflation, the report said.

Fuelling liquidity? Dare I opt to emphasize the pun?

The central bank said it would continue to issue bonds and raise banks' reserve requirements to absorb the cash sloshing around the economy, but these measures were of limited power.

Cash is sloshing around the economy and they are worried about inflation? Go figure.

Meanwhile, back on Planet Earth...

"Worst banks crisis" says Deutsche CEO
"(This) is psychologically the worst crisis that I have seen in my 30 years," he told journalists at the Reuters Finance Summit.

"What is really new and unexpected is that we had a phase of excessive liquidity. It is not a shortage of liquidity. It is a shortage of demand. The liquidity was hoarded under the pillow."

Anatomy of a credit crisis
Investors used to quite high rates of return found it hard to reconcile themselves to lower ones, driving liquidity into ever more high-risk endeavours. Financial markets were only too willing to help. All kinds of high-yielding exotic instruments were invented, and one of the most active markets was in sub-prime mortgage lending in the US. Low-income earners previously denied mort-gages were suddenly able to buy their own homes. The same financial engineering also drove the abundance of cheap mortgages in the UK.