Barney writes:
>... the question is, does anyone still hoard? There are plenty
>of virtually risk free, short term financial instruments. The municipal
>bond market seems pretty damn liquid these days. And for those of us of
>more modest means, there are interest bearing checking
>accounts. ....
I'd say that instead of hoarding, what can happen today is that the
illiquidity premium goes up (relative to cash), so that the illiquid assets
have to pay more for tying up one's assets (as people get wary about
capital losses on such assets). In this case, most people's portfolios
would shift toward more liquid assets (T-bills rather than corporate stock).
(It works out differently for those of us who have portfolios of debts
rather than portfolios of assets.)
I think it is Tobin who argues that in recent years (on occasion) there's
been flights to quality rather than to cash. During the 1930s, people fled
to cash, because the whole banking system was going belly-up. In the S&L
and related crises, there was a flight to more conservative banks from the
S&Ls. This change of course is due to deposit insurance.
>More to the point, does the concept of liquidity preference still make any
>sense. Consumers certainly don't have to worry about liquidity - we have
>credit cards.
But even though it's possible (with cash advances and the like) to pay
Mastercard with Visa, eventually you have to pay with cash. The longer you
avoid paying, the more interest & fees you have to pay.
Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine
