Econonmic Times

I am listening to a podcast This American Life about the mortgage crisis and they do a pretty good job of explaining the situation, especially the global causes. Basically, the global pool of money doubled from 36 trillion dollars to over 70 trillion in just 6 years as China, India, oil exporters etc. started taking off. This money has to be parked somewhere, and it was going into US Treasuries until Greenspan cut interest rates to 1% which caused a wild scramble to find other investments that would yield higher than 1%. Apparently the mortgage backed securities were very popular. "Safe as houses" and with a nice, juicy yield.

Now that bubble has popped and I have to wonder if maybe this same huge surge of money is still wandering around the globe searching for new places to be parked. Say, in commodities?

I'd also say that a lot of that money was invested within China in the form of the kazillion factories that went up, and that are now going down.

Let me re-post a quote from a June 2007 post.

Chinese billionaire Yin Mingshan (尹明善) on liquidity:

"We live in a world of over-abundant liquidity. We live in a China of over-abundant liquidity. Even relatively backward Chongqing is blessed with over-abundant liquidity."

Now, if we have too much liquidity, does that mean the inflation we are seeing is because of that, as inflation is "always monetary" or is that pool of money hard money, i.e. not printed, and thus wouldn't necessarily cause the inflation, but because its seemed to move on from housing to commodities (just a theory) it caused raw material prices to go up beyond "normal" demand, making the appearance of inflation? Note that "normal" demand is rising with China, India, etc., so I am talking about the pool of money acting as starter fluid being dumped on an already raging fire. IANAE, and this is speculation so don't get all up on me here.

So, what should we be investing in? If you could ride the tide of money and time your departures that would make you a lot of money. So what's next after commodities come down?