Since February 2025, the U.S. Federal Reserve has quietly increased its net liquidity by around $500 billion. This rise is due to the Treasury General Account (TGA) drawdown, as the government cannot issue new debt because of the debt ceiling. Instead, it is using TGA funds to finance spending, injecting liquidity into the financial system similar to quantitative easing.
Despite this significant liquidity push, risk assets like stocks and cryptocurrencies have not shown a strong response. Crypto Analyst Tomas mentioned that while the influx of cash should theoretically boost bank reserves and support asset prices, other factors such as geopolitical tensions, inflation concerns, and uncertainty around U.S. fiscal policy are making investors cautious.
We are currently experiencing a phase where more money is entering the financial system, known as a “liquidity upswing.” However, there may be some bumps along the way. For example, in April, when people paid their taxes, the money went back into the government’s account (TGA), temporarily reducing the cash in circulation.
Another dip in liquidity is anticipated around mid to late June due to companies paying their quarterly taxes, which fills up the government’s account, and banks adjusting their balance sheets through “Reverse Repo,” which temporarily removes cash from circulation.
Overall, the government’s continuous spending from its savings without issuing new debt due to the debt ceiling is likely to keep increasing the cash in the system until a new debt deal is reached.
Once a new debt ceiling agreement is in place, the Treasury will need to replenish the TGA quickly, leading to a surge in new debt in the market. This could reduce liquidity in the financial system and put pressure on asset prices.
Treasury Secretary Scott Bessent warned that the U.S. government is expected to run out of cash around August 2025, with a debt ceiling raise required by mid-July to prevent a funding crisis, especially since lawmakers are scheduled for a recess.
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