Illiquidity, excess liquidity and the pain of readjustment

Noland:

"The genesis of the problem for the market during 1998 was one of illiquidity and the forced unwind of various Credit spreads, derivatives, and interest-rate arbitrages.

...The greatest problem for the global financial system currently is enormous and relentless dollar liquidity excess.

...Today’s inflationary backdrop nurtures destabilizing speculative leveraging in all the “un-dollar” markets – certainly including the emerging markets and commodities. This creates a highly unstable situation prone to myriad and recurring Bubbles, volatility and busts. Accordingly, the characteristics of the underlying debt instruments are problematic and increasingly susceptible to wild price gyrations.

...The combination of massive Current Account Deficits and outbound (investor and speculator) finance is inundating the financial world, and there is no way short of a major U.S. crisis to rein it in."

Noland's argument is very persuasive. If the global economy reduces its imbalances in a turbulent way - it's possible that much of the pain of adjustment will be felt outside of America. Consider, for example, Gave's discussion of platform companies and China's continued over-dependence on export driven growth.