Research Summary
- The report discusses the Stealth Liquidity Squeeze that has emerged, not by the Federal Reserve, but by the U.S. Treasury. It highlights the Federal Reserve’s undertaking of unwinding its $9 trillion balance sheet at the start of 2022, leading to sharp rate hikes that affected global markets.
- Despite a 45% decline in equities and the collapse of many crypto empires, the stability of the system persisted until September 2022. The near-failure of the U.K’s bond market marked a turning point for global liquidity, leading to a new policy known as “Stealth QE.”
- As 2023 arrived, the U.S. Treasury’s actions, such as drawing down its entire bank balance in the TGA (Treasury General Account), offset Quantitative Tightening (QT) and sustained liquidity. The report also mentions the U.S. government’s bailout of depositors and regional bank rescue programs, reinforcing the idea that monetary leaders were willing to do anything to ease financial conditions.
- With liquidity remaining abundant, the U.S. economy grew more resilient than expected. However, the tide is now turning, and the U.S. Treasury’s latest actions have begun to impair risk assets, activating Tighter Quantitative Tightening (TQT), a stealth tightening effect on markets.
Actionable Insights
- Monitoring the Impact: The report emphasizes the need to monitor the effects of the U.S. Treasury’s actions, including the Stealth Liquidity Squeeze and Tighter Quantitative Tightening (TQT), on global markets.
- Understanding the Shift: Understanding the shift from the Federal Reserve’s influence to the U.S. Treasury’s role in market dynamics is crucial for anticipating future market behavior.
- Assessing Economic Resilience: The resilience of the U.S. economy amidst these monetary changes should be assessed to gauge potential opportunities and risks in the financial landscape.
