Where Is All This Money Coming From?

My Triad contains three main inputs: earnings (E), interest rates (I), and liquidity (L). Liquidity, as applied in my Triad, means investment liquidity—as distinct from real economy liquidity.

Now, here’s an intriguing way to look at investment liquidity.

Barry Eichengreen’s recent commentary on the risks surrounding AI financing contains an important insight that goes beyond his main argument.

Much of the AI buildout is being financed through private credit. The capital comes heavily from pension funds, insurance companies and endowments. Private-credit firms can then borrow against their loan portfolios, while those loans can also be securitized and sold to other investors. Eichengreen also notes that some private-credit firms have acquired insurance companies, whose asset portfolios can then be used to hold private-credit loans. In effect, the insurer becomes another balance sheet through which the original capital can be redeployed and amplified.

That suggests a financial multiplier at work:

Institutional capital → private credit → bank borrowing → securitization → additional investors.

The significance may be broader than AI.

Investment liquidity is not simply the amount of cash available. Modern finance can amplify the financing capacity of that underlying capital. That may help explain how enormous AI capital spending, heavy government borrowing and strong equity markets can coexist.

In other words, the money need not flow directly into stocks to matter. The financial system may be multiplying the effective investment power of the capital already there.

Additionally, all this may help explain why asset prices can remain strongly supported even when interest rates are not especially low. The system may have more investment capacity than a simple “cash on the sidelines” measure would suggest.

Like AI, whether this is a good thing or not remains to be seen.