When there is very rapid money creation, portfolio rebalancing takes place in descending order of asset liquidity and price flexibility

A central bank policy-induced sharp increase in the money supply leads to a rebalancing of portfolios: money is reinvested in other asset classes and the prices of these assets rise until the weights of the various asset classes in wealth return to normal. A portion of this money may also be used to buy goods and services. We argue that this reinvestment (or spending) of the excess money takes place in descending order of asset liquidity and price flexibility. The use of the excess money should therefore be expected to affect successively: Interest rates on risk-free bonds and cryptocurrencies; Interest rates on risky bonds; Equities; Real estate; Private equity and infrastructure; Finally goods and services.