Chart Check (“This Is What It Takes To Keep Markets Stable”)

I seriously doubt there are too many people out there who aren’t fully aware of the fact that it’s the flow (so not the total stock of assets) of central bank liquidity that’s kept markets buoyant over the past, oh, I don’t know, let’s call it eight years.

Well, in case you needed a poignant reminder, consider the following charts and accompanying color from Citi.

Via Citi

Take a simple average of these series as a proxy for the common ‘macro factor’ in all of them – the red line. Now plot this red line against the 3-month expansion of central bank holdings of securities and you get an extremely good fit (Figure 3). Rather ominously, it suggests that central banks need to expand their balance sheets by about $400bn every quarter just to keep asset prices stable.  

liquiditycb

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