global fall-out of the sub-prime crisis in the US is
a liquidity squeeze that central banks in the developed
countries are attempting to counter by pumping liquidity
into the system and reducing interest rates. This is
indeed paradoxical, since the crisis in the first place
was a result of an excessive build up of liquidity in
the international system, leading to a synchronized
boom in stock and real estate markets across the globe.
Explaining the paradox requires understanding how the
liquidity spiral occurs and how such liquidity is put
to use by a liberalized and globalized financial system.