Liquidity Represents Access, Not Flow

Liquidity refers to the availability of cash or near-cash assets in the financial system. An economy might have $10 trillion sitting idle in bank reserves. However, if credit tightens — lending standards rise, spreads widen, and capital becomes expensive — that liquidity becomes functionally inert.

Without active credit flow, liquidity is simply a passive buffer. Markets require circulation, not storage. Without credit movement, rallies fail to sustain, and growth stagnates.