Broad Liquidity

The most inclusive set of instruments used to define the term “money supply.”

As a child, Janet Yellen had three little piggy banks. The first one, made of ceramic, only contained cash until, one day, her pet Pug, Fido, knocked it off the kitchen counter, causing it to break and spill its contents across the floor.

So, Janet picked up all of the cash and added it to her second little piggy bank (made of plastic) which contained CDs (financial, not musical). Unbeknownst to Janet, when gathering the cash, she accidentally picked up some dog biscuit crumbs that were on the floor as well. Smelling this treat, Fido chewed through the second little piggy bank to get at his snack, leaving both the cash and CDs strewn across the floor.

Frustrated, Janet once again gathered her financial assets and added them to her third little piggy bank (made of forged steel), where she also kept her institutional money market funds.

While Janet’s system for organizing her financial instruments was ruined, she felt confident that Fido would not be able to disrupt the broad liquidity that now existed in her final piggy bank.