Home » Society and Culture

Liquidity: Why So Important in the Real Estate Market?

Mar 7, 2008
In recent days, the Federal Reserve, the European Central Bank, the Bank of Canada, the Bank of England, and the Swiss National Bank have teamed up to auction $110 billion off to world money markets in order to ease the recent liquidity crisis. But what is liquidity? Why should banks auction off money to deal with it? And how does inflation play into this phenomenon?

Well, for starters, liquidity refers to the amount of money available in a given market that can be loaned from one entity to another. If an economy is looked at as a machine, with thousands of interconnected parts, then liquidity functions like oil, keeping all the moving components lubricated. If there is not enough liquidity in the market, loans become more expensive and time-consuming, and economic growth is inherently restricted because banks are less willing to lend to each other, in case they are unable to cover their deposits.

The Northern Rock bank runs in England are a perfect example of what happens when a bank cannot make good on their deposits. In today's globalized economy, banks depend on lighting-fast transactions of large sums through all parts of the world. If they are wary of lending to each other, as recent events have shown, currency supplies start drying up.

With this in mind, the sub-prime crisis of recent months seems poised to further restrict growth, especially in the US. The central bank's decision to add money into the economy is designed to keep cash-flow consistent in markets, which will also hopefully help boost investor confidence. Unfortunately, the sub-prime debt still exists, and banks are unlikely to lower the inter-bank borrowing rates much until all the debt is declared on balance sheets. And with 2 million more defaults likely to occur within the next year, the crisis is far from over.

This injection of cash implies that central banks are trying to stem a problem they recognize to be quite severe, as they have never taken such concerted, coordinated action before.

But their course will certainly impact the other primary concern, that which central banks must balance liquidity with: inflation. This refers to price increases, which make currencies less valuable. If it takes $10 tomorrow to buy a Big Mac, then the US dollar has lost about 40 all at once, likely the outcome would be different. Only time will tell whether the huge cash injection will be enough to help banks lower their rates back to more growth-friendly levels.
About the Author
Working as a realtor in Austin Texas Ki runs a site about Austin Texas real estate which provides users a map based Austin MLS search. Also if you are looking for in depth commentary on real estate market Ki has a blog covering Austin real estate.
Rating:
Please Rate:
(Average: Not rated)
Views: 102
Print Email Report Share
Article Categories
    • Artists
    • Gambling
    • Humanities
    • Humor
    • Movies
    • Music
    • Photography
    • Tattoos
    • Television
    • Classic Cars
    • Motorcycles
    • Recreational Vehicles
    • SUVs
    • Trucks
    • Vans
    • Branding
    • Business Opportunities
    • Careers and Jobs
    • Corporate
    • Customer Service
    • Direct Mail
    • Entrepreneurship
    • Ethics
    • Financing
    • Franchising
    • Home-Based Business
    • Human Resources
    • Import and Export
    • Leadership
    • Management
    • Market Research
    • Marketing and Advertising
    • Negotiation
    • Network Marketing
    • Networking
    • Organizational
    • Presentation
    • Project Management
    • Public Relations
    • Small Business
    • Strategic Planning
    • Team Building
    • Telemarketing
    • Training
    • Data Recovery
    • Databases
    • Games
    • Hardware
    • Networks
    • Operating Systems
    • Programming
    • Security
    • Software
    • Spyware and Viruses
    • Ask an Expert
    • College and University
    • Home Schooling
    • K-12
    • Languages
    • Online Education
    • Psychology
    • Accounting
    • Credit
    • Currency Trading
    • Debt Consolidation
    • Insurance
    • Investing
    • Leasing
    • Loans
    • Mortgage
    • Mutual Funds
    • Personal Finance
    • Stock Market
    • Structured Settlements
    • Taxes
    • Wealth Building
    • Coffee
    • Cooking
    • Gourmet
    • Recipes
    • Wine and Spirits
    • Acne
    • Aerobics
    • Alternative Medicine
    • Beauty
    • Cancer
    • Cosmetics
    • Depression
    • Diabetes
    • Diseases and Conditions
    • Fitness Equipment
    • Fitness
    • Hair Loss
    • Heart Disease
    • Medicine
    • Men's Health
    • Muscle Building
    • Nutrition
    • Skin Care
    • Supplements and Vitamins
    • Weight Loss
    • Women's Health
    • Yoga
    • Arts and Crafts
    • Babies
    • Collecting
    • Elderly Care
    • Genealogy
    • Hobbies
    • Parenting
    • Pets
    • Pregnancy
    • Woodworking
    • Feng Shui
    • Gardening
    • Home Appliances
    • Home Security
    • Interior Design
    • Landscaping
    • Affiliate Programs
    • Article Marketing
    • Auctions
    • Audio
    • Banner Advertising
    • Blogging
    • Broadband
    • Domain Names
    • E-Books
    • E-Commerce
    • Email Marketing
    • Ezines and Newsletters
    • Forums
    • Internet Marketing
    • Link Popularity
    • Pay-Per-Click
    • Podcasting
    • RSS
    • Search Engine Marketing
    • Search Engine Optimization
    • Security
    • Social Media
    • Spam
    • Video
    • Viral Marketing
    • Web Design
    • Web Development
    • Web Hosting
    • Copyright
    • Cyber Law
    • Intellectual Property
    • National, State, Local
    • Patents
    • Regulatory Compliance
    • Trademarks
    • Buying
    • Selling
    • Baseball
    • Basketball
    • Boating
    • Cycling
    • Extreme Sports
    • Fishing
    • Football
    • Golf
    • Hockey
    • Hunting
    • Martial Arts
    • Running
    • Scuba Diving
    • Soccer
    • Swimming
    • Tennis
    • Dating
    • Divorce
    • Marriage
    • Weddings
    • Astrology
    • Buddhism
    • Christianity
    • Faith
    • Hinduism
    • Islam
    • Judaism
    • Meditation
    • Metaphysical
    • New Age
    • Cable and Satellite TV
    • Cell Phones
    • Communication
    • Gadgets and Gizmos
    • GPS
    • Satellite Radio
    • Video Conferencing
    • VoIP
    • Addictions
    • Coaching
    • Goal Setting
    • Motivational
    • Stress Management
    • Time Management
    • Clothing
    • Electronics
    • Fashion
    • Gifts
    • Jewelry
    • Air Travel
    • Camping
    • Cruises
    • Destinations
    • Outdoors
    • Article Writing
    • Book Reviews
    • Copywriting
    • Fiction
    • Non-Fiction
    • Poetry
    • Quotes
    • Screenplay
    • Tools and Resources