Key Takeaways


Global liquidity has peaked at $188.8 trillion but the growth rate is rolling over, and Howell's 5-6 year cycle suggests the downturn could last into 2027. A strong real economy fueled by AI capex, the One Big Beautiful Bill, and Treasury short-term issuance is absorbing cash that would otherwise flow into financial markets. Bitcoin's ~50% drawdown from its all-time high isn't a failure of the asset, it's the most liquidity-sensitive asset on the planet doing exactly what tightening conditions predict, with near-term risk skewing to further downside. Gold's rally isn't about debasement (Treasury term premium has flatlined for 15 months), it's being driven almost entirely by PBOC liquidity injections and Chinese private sector buying, with the Shanghai exchange now setting the marginal gold price. Two parallel monetary systems are emerging: China backing its system with gold, the US backing its system with stablecoins, and China's "Notice 42" banning all crypto is a defensive response. The debt maturity wall is unprecedented with US federal debt up 12x since 2000, $70 trillion in global debt needing annual refinancing, and zero interest rates during COVID creating a debt structure that has never existed in 5,000 years of recorded history. Policy is shifting from the Fed to the Treasury, with the Warsh nomination signaling QT continuation while SLR deregulation lets banks drive credit creation. The long-term case for Bitcoin remains intact because central banks will ultimately have no choice but to monetize deficits, and every financial crisis gets resolved with more QE. Watch the yield curve (expected to flatten by midyear as a risk-off signal) and repo spreads for early warnings, with the liquidity cycle trough expected in 2027.

Best Quotes

"All money that is anywhere must be somewhere. And if it's going into the real economy, it's not there to drive asset prices, Bitcoin or whatever, upwards."

"Bitcoin and crypto are the most liquidity-sensitive assets on the planet and they are a canary in the coal mine for tightening liquidity conditions."

"I'd still be a long-term buyer, even at these levels. But I still think that you can pick it up cheaper."

"Debasement? What debasement? The bond market is certainly not detecting any monetary inflation right now."

"US federal debt has increased 12-fold since the year 2000. Not 12%. 12 times."

"In 5,000 years of interest rate history, nowhere do you ever get any reference to zero interest rates. It's never happened before."

"You've got effectively two monetary systems running in parallel. The commodity-based one for China and a digitally-based one for the US."

"If you get a financial crisis, the only way you resolve it is by throwing more liquidity at the system. Central banks have got no choice but to do QE time and time again. So you want an asset that is likely to hedge monetary inflation. That's gold and Bitcoin."

Conclusion

Michael Howell's 35 years of tracking global liquidity cycles paint a picture that's uncomfortable in the near term but structurally bullish over the long horizon. The debt maturity wall bearing down on the global economy through the late 2020s is unprecedented, and when refinancing stress inevitably triggers the next crisis, central banks will have no option but to fire up the printing press again. Watch the yield curve and repo spreads, be patient through the cycle trough expected in 2027, and accumulate the assets that benefit from the inevitable monetary response.

Timestamps

0:00 - Intro

0:48 - Global Liquidity Cycle

3:55 - Countervailing Forces In The Liquidity Market

8:42 - Fed Policy Under Warsh

12:08 - Bitcoin As A Liquidity Alarm Bell

20:35 - 30K Or 90K For Bitcoin

25:25 - Why China Is Driving The Gold Market

37:27 - The Global Debt Maturity Wall

39:48 - Strong Economy Draining Financial Markets

42:02 - Political Consequences Of The Liquidity Downturn

46:22 - Fed And Treasury Moving In Lockstep

53:06 - Two Competing Monetary Systems

57:17 - Stablecoins And The Strategic Bitcoin Reserve

Transcript

(00:00) US federal debt has increased, I think I'm correct in saying 12fold since the year 2000. We haven't seen this amount of debt in the system. Bitcoin atal, they're the most liquidity sensitive assets on the planet and they are a canary in the coal mine for tightening liquidity conditions despite all the scorn thrown on the US dollar and the US Treasury market.

(00:19) Treasury T premier has flatlined almost for the last 15 months. Why is the gold market going up? I think that's a very specific reason which is all to do with China might still be a long-term buyer even at these levels. But I still think that you can pick it up cheaper. >> Sup freaks. Before we get into the show, I just want to send a heartfelt thank you.

(00:41) Thank you for joining us and ask for one quick thing. Could you like this episode, subscribe to the channel, and if you like the conversation, join us in the comment section. Michael Al, welcome back to the show. >> Thanks, Monty. Very good to be here. >> It's great to have you. And for those of you who have not joined an episode of TFTC with Michael, he's the founder of Crossber Capital, which is over 35 years of tracking global liquidity.

(01:04) Michael also also authors the Substack Capital Wars, which I highly recommend you subscribe to. We're going to talk about his latest piece that he dropped yesterday. Um, and he also built the GLI, the Global Liquidity Index, which is the most widely cited liquidity measure in macro. And I think it's uh very fitting that we're recording today because it seems like the liquidity cycle may be crescendoing, topping out and uh you wrote a newsletter and publish it yesterday um talking about what's next for Bitcoin 30K or 90K. Uh,

(01:41) and so I think jumping into just the state of global liquidity in general, where we are, where we may be going, and then we can jump into how it may affect Bitcoin as well. >> Sure. Okay. Let me uh let me kick off. Essentially, what we're doing is we're tracking money flow through markets. And the idea here is a very straightforward one that money moves markets.

(02:03) In other words, if there's a lot of cash coming in, asset prices are likely to go up. And if money is leaving, uh, asset prices are likely to come under pressure. And what we've seen, um, and you can probably see it on the graphic that we put up, is that liquidity has very recently peaked and is starting to edge down.

(02:23) Now, I'm going to stress that this is a momentum measure. So, it's a rate of change. The absolute level of liquidity is not falling yet. In actual fact, paradoxically, we're just creeping or inching up to highs, but the momentum has definitely slowed down. And at the margin, markets price off the margin. So, um, this inflection could be quite serious.

(02:45) Now, you'll see as well that that cycle tends to oscillate with around a 5 to six year frequency. Um, we've had a pretty decent upswing, which has lasted over 3 years. So kind of by rights we are likely to be going down for maybe a similar kind of period and that's uh clearly something to be concerned about if that actually transpires.

(03:07) But we've had a decent bull market in many cases. You know what we've been looking at uh or what one's been seeing over the last 3 years has been absolutely uh you know a blueprint for a normal market. Uh nothing is unusual. The only unusual thing has already been the tempo of the economy but otherwise asset performance has been absolutely on the nail.

(03:26) And so we just hit an all-time high of global liquidity. Correct. 188.8 trillion. >> Yeah. But the growth rate has been I mean it's been a tough you know this is the you know hauling yourself up to the peak is often the most difficult bit. I mean you're obviously challenged with the altitude and everything else. Uh lack of oxygen and we're beginning to roll over.

(03:46) I mean that's the the uh the signal that you see here is just showing that the growth rate has already peaked and we're beginning to come down. And as I say, it's that marginal change which is really important. >> And so we have these sort of countervalling forces in the liquidity market right now. Obviously um you've written has been boosted by strong PBOC injections, firmer collateral and US dollar weakness, but the Bank of Japan uh QT and lack of liquidity and uh ECB and Bank of England is probably driving us further down. Correct. Yeah,

(04:20) absolutely. I mean, I think the thing to, you know, start thinking about here is why is why are you getting this inflection when you've got what seems to be um actually some some decent news. I mean, one is, as you rightly say, the Chinese are actually pumping money in to their markets. Um, I mean, that's actually a normal thing ahead of the Luna New Year.

(04:42) They normally make markets very liquid, and they've done it again. Uh but actually kind of beyond that, they really need to pump a lot more cash to get the Chinese economy moving again. And China is really in the doldrums in terms of growth. Uh it's been adversely affected by a huge debt load.

(04:58) And what's more, tariffs or what were tariffs probably still are tariffs in China's case uh are impeding economic growth. So you've got a backdrop which is actually not great for the Chinese economy and they desperately need growth. they're uh you know their their model of society doesn't work if it's uh you know if it's stagnating and therefore that explains why they're actually going for it and actually putting a lot of cash to work.

(05:19) Now I think if you then say what has the Fed been doing? I mean hands up the Fed has actually done