Financial system = Leverage * Economy
when is Financial system helpful or harmful for 'real economy'?
Interactions of complex systems means NO simple answer
Financial system = Leverage * Economy
how to deal with complexity?
- Liquidity
Liquidity is inversely related to volatility ( and tail risk of irreversible losses)
Liquidity spans from illiquid small business to very liquid financial markets (up to Treasuries). Liquidity is a map of feedback loops and complexity