Devin Baker

To sum it up in very basic terms, USD liquidity increases and decreases under the following circumstances:

USD Liquidity — Number Go Up:

Fed Balance Sheet — Increases

RRP Balances — Decreases

TGA — Decreases

USD Liquidity — Number Go Down:

Fed Balance Sheet — Decreases

RRP Balances — Increases

TGA — Increases

Right on schedule, just like almost every other year, it will be time to sell in the late stages of the first quarter and chill on the beach, at the clerb, or on a ski resort in the southern hemisphere and wait for positive fiat liquidity conditions to re-emerge in the third quarter.

If factors affecting TGA balances were the only things that determined crypto prices, then I would expect a local market top right at the end of the first quarter. In 2024, Bitcoin hit a local high of ~$73,000 in mid-March, then traded sideways, and began its multi-month decline on April 11th right before the 15th tax payment deadline.

The Treasury has two choices on how it pays the government’s bills. They can either issue debt (dollar liquidity negative) or spend money from its checking account at the Fed (dollar liquidity positive). Because the aggregate amount of debt cannot rise until the US Congress increases the debt ceiling, the Treasury can only spend funds from its chec... See more

Global liquidity levels have stabilized following the Q4 dip. Four factors are underpinning them: (1) Improving Central Bank liquidity, due to the PBoC and ECB. Fed liquidity remains a cause for concern. (2) Collateral values (bonds) which are picking up, in part helped by (3) the loss of momentum in the US dollar. And finally (4), bond market vola... See more

Looking ahead, the wealth divide will likely accelerate and today’s social tensions must inevitably rise. But, much like in 1920s Germany when hyper-inflation savaged the post-WW1 economy, there was also a widening split between young (stock speculators) and old (bond investors). In today’s monetary inflation World, many young (crypto investors) ar... See more

Both Boomers and GenX’ ers bought their homes for around 4.5 times their annual incomes. When Millennials entered the US workforce, they could buy houses for circa 5.5 times annual income. In the COVID emergency, the US Federal Reserve generously printed $6 trillion through QE policies, and since then house prices have jumped to some 7.5 times annu... See more

For example, if public debt is compounding higher at a 7-8% annual clip, then liquidity needs to keep pace to avoid financial crises. Think of it as the ‘cost’ of stability. This rate of monetary inflation represents a return hurdle for other assets because it measures the rate of debasement of paper money. Hence, investors need to figure which ass... See more

The hidden cost of this ‘monetary inflation’ turns on the relative rather than the absolute impoverishment of wage earners. Monetary inflation may not necessarily spill-over into faster high street inflation , but it almost certainly will mean faster asset price inflation . Portfolio investment choice is less about choosing ‘cheap’ stocks versus ea... See more