Global liquidity indicators & flows
Short-form analysis of TGA, RRP, money aggregates, credit growth and cross-border USD flows that drive risk assets.
i explained how weaker US dollar increases cross-border USD liquidity in this thread: https://illya.sh/threads/@1755216337-1.html
weaker USD, means appreciation of FX currencies and since many cross-border bank loans are collateralized with a local currency - solvency ratios improve, thus increasing balance sheet capacity for more USD credit
this means an increase in broad money
weaker USD, means appreciation of FX currencies and since many cross-border bank loans are collateralized with a local currency - solvency ratios improve, thus increasing balance sheet capacity for more USD credit
this means an increase in broad money
i covered more this aspect of QE in my thread about how to use yield spreads to reason about future Bitcoin price and cycles
you can read it here: https://illya.sh/threads/@1755595543-1.html
once Fed does QE, reserve account balances increase, thus directly increasing base money
broad money either increases indirectly or directly if the Fed credits a non-bank institution
once Fed cuts interest rates, more borrowing will occur, thus expanding broad money
it will also lower T-bill yields short-term, as the prices are bid up due to a lower risk-free rate
once Fed cuts interest rates, more borrowing will occur, thus expanding broad money
it will also lower T-bill yields short-term, as the prices are bid up due to a lower risk-free rate
a lot of these US treasury purchases will be financed with short-term rolling debt (e.g. repo)
the newly issued Treasuries themselves will be used as collateral to borrow cash, many times over via rehypothecation
it's NOT yet the top of the cycle for equities, cryptocurrencies and other risk assets. here’s why
1️⃣ US Treasury is issuing more debt
2️⃣ in the next months I expect the Fed to cut rates and/or introduce some form of QE
3️⃣ weaker USD means more cross-border USD credit
even if it doesn't happen directly at the start - eventually QE also increases broad money, due to reduced balance sheet constraints and an increase in cash reserves, which needs to be invested ASAP. this leads to more lending and asset purchases
initially QE may only increase base money supply - as commercial banks reserve balances get credited by the Central Bank
if the Central Bank purchases assets from non-bank financial institutions, then broad money increases directly as well, as deposits increase