Liquidity Tsunami Update
Posted March 12, 2021
|Last week, Macro Watch published a video called “Liquidity Tsunami May Drive Asset Prices Much Higher”. It suggested that as the Treasury Department spends down the funds in the Treasury General Account (i.e., its bank account at the Fed) and as the Fed carries out its $120 billion a month asset purchase program, the resulting surge in Liquidity, as reflected in Bank Reserves, could fuel the speculative frenzy in the stock market during the months ahead.|
The data used in that video was from February 24th. Since then, the Fed has published two more H.4.1 Reports showing the Factors Affecting Reserve Balances. Those reports show that between February 24th and March 10th, the Treasury ran down its TGA account by $130 billion to $1.3 trillion and that Bank Reserves jumped by $263 billion, or by nearly 8%.
Little wonder the Dow and the S&P ended at new record highs on Thursday.
The tide has much further to rise. With the $1.9 trillion American Rescue Plan Act now signed into law, the Treasury Department will quickly spend down the $1.3 trillion in its TGA account at the Fed. As it does, that money will drive Bank Reserves sharply higher, as will the Fed’s ongoing Quantitative Easing program.
During the weeks ahead, it may be wise to keep in mind the saying, “A rising tide lifts all boats.”
Here is the link to last week’s blog post describing that video:
Liquidity Tsunami May Drive Asset Prices Much Higher
Macro Watch subscribers who have not yet watched the video from last week should log in and watch it now.
The video is 13-minutes long and contains 25 downloadable slides.
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