Excess Liquidity And The Formation Mechanism Of The U.S. Financial Crisis

A prominent phenomenon before the financial crisis in the United States is the global excess liquidity. After the outbreak of financial crisis, the liquidity change from excess to austerity overnight, governments injected an unprecedented amount of additional capital to save the market. It is worth paying attention to the relationship between the financial crisis and excess liquidity.Literature on the subject of the financial crisis which is from the perspective of excess liquidity is rare. There are basically two kinds of research ideas, one is believes that the excess liquidity is a key component in financial crisis; another idea is that the excess liquidity is the direct cause of financial crisis. Due to the unclear definition of the concept of excess liquidity, the research perspectives and conclusions may be vastly different. Both of them put the excess liquidity as an assumption to study the excess liquidity how to affect financial crisis, but they are not concerned about the research of excess liquidity itself. Therefore, I define the concept of excess liquidity as a starting point for this paper, and point out that the excess liquidity of this paper is within the scope of macroeconomics and which is money supply beyond the amount of money required in the real economy. And then determine that there is excess liquidity situation in the United States before the outbreak of the financial crisis by the vertical comparison M2/GDP and horizontal comparison (M2-M1). This is the first innovations of this article. Second, Domestic and foreign scholars believe that the excess liquidity has the risk of leading to financial crisis, while this analysis focus on the results of the role, but ignore the process of the role. Therefore, this article analysis the three phases of the process which the excess liquidity affect the financial crisis:excess liquidity provide a basis for the virtual capital expansion; excess liquidity to maintain and accelerate the expansion of the asset bubbles; and tightening of liquidity contributed to the financial crisis outbreak. Third, U.S. current account is long-term and a massive deficit, but capital account is persistent surplus, the international balance of payments situation is the inevitable result of dollar standard system. Some scholars believe that the U.S. irrational international balance of payments is a major cause of the financial crisis. But the research data on how the international capital flows affect the U.S. financial crisis are so rare, so this paper put the excess liquidity as a starting point, and the U.S. special international balance of payments situation become an important way of excess liquidity flows to its virtual economy sectors, so as the virtual capital expansion, and then a hidden danger of the outbreak of the financial crisis.Reaching the process and the deep-seated reasons for the outbreak of the U.S. financial crisis from the perspective of excess liquidity,I believe that virtual economy exists relying on the real economy, the virtual economic prosperity not only to promote the development of the real economy, Once out of basic, the virtual economic prosperity will also bring the financial crisis which will impact the real economy. Before the outbreak of the financial crisis, excessive dollars that issued by the United States flow to the U.S. virtual economic sector in the way of international capital flows, that led to the prosperity of the United States virtual economy, thus foreshadowed the outbreak of the financial crisis. State intervention in the economy has become the consensus of the majority of countries. Without denying that state intervention, we can also find the shadow of state intervention behind every financial crisis. If we think that the outbreak of the U.S. financial crisis is the result of America's long loose monetary policy, then we need to reflect on the reasonable of the state economic intervention. The era of globalization is irreversible, a country's fiscal and monetary policy both affect international economic environment and also affected by it. How to maximize the opportunities of globalization and to reduce the risks of globalization is a country important long-term economic policy. We reach the process and the deep-seated reasons for the outbreak of the U.S. financial crisis from the perspective of excess liquidity, on the one hand this reveal the formation mechanism of the financial crisis, the other hand is to consider our country's international balance of payments situation and the economic and financial environment from another perspective, which is the main purpose of this article.Part I, Introduction. We put the background and significance as the begging of the topic, then introduced the domestic and foreign-related research results, proposed ideas and methods of this research, and this article seeks to achieve innovation, laid the foundation for the full discussion.The second part, analyze the background of excess liquidity in the U.S. before the financial crisis outbreaks. I clearly defined the concept of excess liquidity and the criterion in the macroeconomic context. Based on these standards through history and country-contrast vertical comparison we found there is excess liquidity situation in the United States before the outbreak of financial crisis. This is an entry point for this analysis.The third part, analyze the effect that the excess liquidity on the U.S. financial crisis. As a main part of this article, this chapter pointed out that the process of the financial crisis outbreak is the process of the virtual economy bubble bursting from expansion. Next, the article analyzes the excess liquidity moving abroad through the U.S. current account deficit, and flow back into the virtual economic sectors in the United States through capital account surplus, so as to provide the basis for a virtual economic bubble inflated. Finally the article summed up the three phases that excess liquidity affects the financial crisis:excess liquidity provides a basis for the virtual capital expansion; excess liquidity to maintain and accelerate the expansion of the asset bubbles; and tightening of liquidity contributed to the financial crisis outbreak.The fourth part, analyze the underlying causes of the U.S. financial crisis from the perspective of excess liquidity. We analyze the direct cause of the U.S. financial crisis in combination with excess liquidity. And then analyze the deep-seated reasons of the current financial crisis by the found of which causes the excess liquidity, namely:dollar standard system, imbalances in international economic and trade system, and the negative impact of globalization, is the three deep-seated reasons the current U.S. financial crisis.The fifth part, analyze the inspiration of the U.S. financial crisis through the excess liquidity that for us. A simple analysis of the liquidity position that China is currently facing, pointing out that steady develop the virtual economy, steady develop the capital account, to accelerate industrial upgrading and reasonably adjust the balance of payments is our major policy that dealing with excess liquidity currently.