Guest
Michael Howell
#776: Yields Must Rise, Fed Must Hike with Michael Howell
- Fed rate decision and bond yield dynamics: The Fed is likely trapped by rising bond yields and nominal GDP growth (6–8%), forcing eventual rate hikes despite market expectations of a hold. Yield volatility control via short-end bill issuance and Treasury buybacks is deliberately suppressing the 10-year yield. - Hidden monetization and fiscal reality: The U.S. Treasury is funding deficits through short-dated bill issuance (80% of gross issuance under two years), effectively monetizing debt via bank balance-sheet expansion—a subtle form of money printing that masks what would otherwise require explicit Federal Reserve purchasing. - AI capex bubble and nominal GDP surge: The AI infrastructure investment boom, combined with fiscal spending and energy export growth, is driving nominal GDP to 6–7% or higher. This capital-spending cycle is inherently inflationary near-term, yet it's driving money supply (M2) growth toward 10% annualized rates. - Global capital wars and state-led capitalism: The U.S., China, and Japan are now competing through direct equity stakes in national champions and critical industries. This regime shift demands larger, more active states and guarantees higher government spending, debt issuance, and—by extension—monetary inflation. - Crypto and gold as monetary inflation hedges: Global liquidity changes predict crypto price movements with 30% correlation (R²). Crypto shows 8x sensitivity to liquidity swings versus precious metals' 2x. China's PBOC liquidity drives gold; Western global liquidity drives Bitcoin. A portfolio need only 5% crypto allocation to hedge monetary debasement substantially. - Trough timing for crypto: Bitcoin likely bottoms in late 2026 to mid-2027, tracking the global liquidity cycle downswing; substantial upside follows once monetary inflation hedges are re-priced in response to expected debt expansion and money printing.
Global Liquidity Has Peaked: What Happens to Bitcoin? | Michael Howell
- Global liquidity cycles drive financial markets more than traditional economics. Money flows between financial and real economies determine asset prices; liquidity is fungible and follows highest returns. Central banks manage these cycles by adding or draining liquidity in response to debt refinancing crises. - Five-to-six-year debt maturity cycle explains Bitcoin and asset volatility, not Bitcoin's alleged four-year cycle. Howell's Fourier analysis, conducted in 2000 and validated by the Foundation for the Study of Cycles, shows liquidity peaks and troughs follow the average tenor of global debt maturity, not calendar events. - Liquidity peaked end of Q3 2024; next trough likely mid-to-late 2027. Bitcoin and gold are highly liquidity-sensitive; their recent weakness reflects liquidity contraction. The cycle is in early contraction, not bottoming yet. - China's People's Bank drives gold prices via retail demand and capital controls; US tight monetary conditions suppress Treasury yields and front-end rate pressure. Fed and Treasury intervene heavily in repo markets to hold down long-term yields (the "beach ball underwater" analogy). Japan's 2024 yield curve control unwinding caused 200+ basis point JGB spike—a cautionary tale. - Debt-to-liquidity ratio near stress levels; maturity wall looms 2025 onward. Existing debt refinancing needs rise sharply while new liquidity cycle contracts. $350–$400 trillion global debt cannot default in credit-money systems; inflation and capital controls likely ahead. - Western governments face unsustainable fiscal paths; demographics and lack of growth preclude escape via GDP expansion. Only monetary debasement and possible capital controls remain viable policy tools.
The Everything Bubble Is Over: Michael Howell’s Warning for 2026
- Liquidity cycle peaked Sept–Oct 2024 and is weakening; cyclical top already in place, distinct from recent geopolitical shocks - Money flows downstream: economies depend on liquidity/money flow; $10 oil increase reduces global liquidity ~3%; geopolitical events are secondary to monetary cycles - Debt-to-liquidity matters more than debt-to-GDP because debt must be refinanced; a 2x debt-to-liquidity ratio is equilibrium; breaches trigger crises - Two refinancing legs: (1) collateral markets turning debt into liquidity via repo; (2) direct debt refinancing—both stressed by rising MOVE index, widening spreads, declining term premia - Debt maturity wall approaching: ~$45 trillion of advanced-economy debt needs refinancing by 2030; AI capex and government spending are sucking liquidity from financial markets into real economy - Fed will eventually return to support bond markets (timing unclear, likely 2027+); private sector cannot absorb scale of refinancing alone
Global Liquidity Update with Michael Howell: The Case for a U.S. Gold Revaluation Is Building
- M2 is outdated as a liquidity metric because it measures only retail bank deposit liabilities, missing the bulk of financial system flows that now occur between institutions through money markets and repo facilities. - Asset-based liquidity (credit) drives financial asset prices more accurately than money supply, as it reflects actual credit creation and deployment in financialized markets. - Risk appetite, not liquidity, is currently pulling crypto lower, with a sharp reversal visible in 2025 as investors shift from risk assets into safe havens like government bonds. - The U.S. faces a critical funding problem requiring Treasury yields to fall; Besant must refinance 30% of outstanding debt this year, creating medium-term pressure on bond markets. - Bank reserves are approaching critical scarcity thresholds around mid-2025, forcing the Federal Reserve to resume QE unless policymakers are deliberately tightening to slow the economy and lower rates. - Gold revaluation could inject ~$1 trillion into the Treasury, starving coupon markets and pushing yields lower without explicit QE, mirroring Nixon-era monetary restructuring.
Global Liquidity with Michael Howell: Trump 2.0, US Dollar Influence, and the Next Economic Era
- Trump 2.0 policy framework centers on a strong US dollar to contain domestic inflation and support negotiating leverage on tariffs, with capital inflows into US assets expected to persist. - Global liquidity is expanding but unevenly, concentrated in the US while foreign central banks face constraints from a strengthening dollar, tightening their monetary flexibility. - A maturity wall of refinancing debt emerges from mid-2025, as trillions issued at low rates during COVID come due, putting increased demands on global liquidity pools. - Europe faces severe debt divergence and structural headwinds, with southern European debt-to-GDP ratios around 130% versus 50–60% in the core, straining the monetary union. - China's economy is dollarized and faces an impossible choice: devalue the yuan (which would show pressure against the dollar) or accept ongoing deflation and capital flight. - Bitcoin and gold are superior monetary inflation hedges compared to stocks and bonds, and their performance should be evaluated against liquidity cycles rather than equity correlations.
Explaining Michael Howell's Global Liquidity Framework
- Michael Howell's Global Liquidity Index measures the quantity of money flowing through the financial system, defined as the size of central bank and commercial bank balance sheets globally (currently ~$175 trillion), not traditional asset liquidity. - Collateral—government securities owned by banks—can be converted to cash via the repo market (the "pawn shop for Treasury bonds"), enabling banks to spend that cash on financial assets and drive prices higher. - T-bill monetization by commercial banks expands the money supply when banks purchase bills in the secondary market and create deposits, directly growing global liquidity and asset prices. - The Treasury relies on T-bill issuance as the "plug" to fund fiscal deficits; bills avoid the "duration hit" that longer-term bond issuance would impose on collateral prices and market yields. - Duration—the sensitivity of fixed-income assets to interest rate changes—is shortening as Treasury bills increase relative to longer-term bonds, reducing risk in the banking sector but eventually requiring expansion if deficits continue. - Central banks are transitioning from rate tightening to easing, expected to expand balance sheets and increase global liquidity, which historically correlates strongly with rising asset prices, including Bitcoin.
Global Liquidity Update with Michael Howell
- Global liquidity framework: Howell argues liquidity—not interest rates—is the primary driver of asset prices; Bitcoin responds to liquidity shifts with a 6–8 week lag, much faster than traditional assets. - Fed balance sheet mechanics: The orange line (Fed liquidity) differs from the red line (reported balance sheet size) because certain liabilities drain liquidity; reverse repo rundown and Treasury General Account (TGA) movements are critical signals. - Bill vs. coupon issuance: An implicit accord between the Fed and Treasury favors bill financing over coupon debt; commercial banks monetize bills by expanding their balance sheets, directly boosting liquidity without duration risk. - Asian currency wars: The Shanghai Accord (2016–2022) artificially stabilized Asian currencies; Japan's rapid yen depreciation since early 2022 deliberately weakened the Chinese yuan and destroyed that accord, protecting dollar dominance. - Fiscal dominance over monetary policy: With US public debt at 125% GDP and interest payments exceeding $1 trillion annually, the Fed cannot raise rates aggressively; monetization of debt through asset purchases is inevitable. - Refinancing crisis risk: With $350 trillion in global debt at 5-year average maturity, $70 trillion must be rolled annually; bank reserves near constraint thresholds could trigger dysfunction if liquidity dries up.