Liquidity Crisis

  

Categories: Trading, Metrics

You can't get cash. You have 14,000 acres of cattle ranch (and other ranchy stuff, like dressing). But that ranch just breaks even on a cash flow basis. And you really need cash for the water slide you wanted to put in your house. The slide company doesn't take cattle as payment. The uptight slogs want cash. Have cash = have liquidity.

But...you don't have either. If you try to sell half-fatted cows, instead of getting 5 grand apiece, you only get 2 grand. They're really not worth selling to get you out of this liquidity crisis. So you don't. And you live without the slide.

And this crisis happens on a macro level with nations as well. Think: post-WW2 Europe. The credit system exists for a reason. Credit card headroom = liquidity. You can do the rest of the math.

Related or Semi-related Video

Finance: What is a Liquid Market?17 Views

00:00

Finance allah shmoop What is liquid market Well it's one

00:07

that trades Ah lot High volume Lots of buyers Lots

00:11

of sellers Liquid lots of cash sloshing this way In

00:15

that way Go this way and that Did you ever

00:17

see a liquid market go this way and that That

00:20

little song Did you ever see a lassie Never mind

00:23

All right Weir Liquid markets Good Well because they implied

00:26

there's Lots of cash ready willing and able to be

00:29

put to work And that's usually a sign of a

00:31

healthy risk seeking active market versus risk averse one which

00:36

is you know hiding Ah liquid market means that investors

00:40

want to put their cash toe work that they have

00:43

actually saved cash along the way and or that they

00:46

have relatively easy access to credit And you can think

00:49

about it from the perspective of your kindly loving realtor

00:53

who wants a world where lots of people are buying

00:56

homes But in orderto have that happen you have to

00:58

have lots of people who are also selling homes at

01:01

the same time Otherwise prices just go higher and higher

01:04

with no supply to meet demand And at the end

01:06

of the day in real estate and it's in the

01:08

stock market while the most important thing yes that the

01:11

brokers get pays So that's a liquid market one that

01:15

trades a lot like it's Wet trading back and for

01:18

sloshing around not ice Where everything's you know all jammed 00:01:22.109 --> [endTime] up No needs heat or an animal or something

Up Next

Finance: What is Liquidity?
64 Views

What is liquidity? Think: water. It's liquid. It can be squeezed into little, tiny spaces and infused into large spaces. A defining trait of liquid...

Finance: What is liquidity preference?
27 Views

What is liquidity preference? When a company goes under, a company’s assets are liquidated to pay back creditors and then shareholders. The liqui...

Find other enlightening terms in Shmoop Finance Genius Bar(f)