There are two kind of liquidity (or money) in the world: real money and leverage (debt). The real money is what counted by Fed’s M1 and better by Mish’ M-prime. The leverage is the difference between M3 and M-prime.

  • When real money are disappearing in one place they immediately re-appear in another place
  • When leverage disappears it does just that – disappears

I think we will learn it right now the hard way. How come both stocks and bonds decline sharply? Remember, back in February 27th, when stocks declined and bonds advanced? Where money are gone now?

That was not money, that was leverage. Leverage is not going anywhere. It disappears…