Another common theme of the financial media is to claim that Japan is a source of liquidity to the world Low interest rates actually reduce liquidity as interest payments are not being made on loans and thus money isn t available for financial intermediaries to recycle back into making new loans The money supply in Japan has been steadily declining for at least the past few years yet world stock markets have been reaching new highs and assets of all kinds have been bid to sky high valuations Thus it can be argued that the asset bubble is being driven by money supply expansion in Europe and the United States and not by the shrinking money supply in Japan The bottom line is that I don t feel this will have a happy ending for the United States The dollar has dropped 5 5 in the past week which for the world s largest economy is pretty much on the threshold of a currency crisis