Yesterday, a strong warning was issued about fiscal responsibility, as concerns about excessive government spending linger. For years, the U.S. Treasury printed money at an alarming rate, triggering fears of unsustainable debt and inflation. However, this is not the first time such concerns have surfaced.
In 2017, former Federal Reserve Chair Janet Yellen attempted to shrink the Fed’s balance sheet, an effort that was quickly reversed by the new administration. But after the massive monetary expansion during the COVID-19 pandemic, the policy was reintroduced in 2022.
This brings us to an intriguing perspective from Professor Jimbo of Down Under University, who raised some key points on December 8, 2024:
- The Continuous Variable Default (CVD) Game: According to Jimbo, the Federal Reserve’s actions have enabled the U.S. government to “continuously default” on its debt without the need for a formal default. The printing of money by the Fed has essentially masked the underlying debt problems.
- Gold’s 2024 Performance: Jimbo also pointed out that gold had a stellar year in 2024, rising by 27%, signaling that investors are seeking tangible assets amid economic uncertainty.
- Deficit as a Liquidity Drainer: Jimbo argues that the U.S. deficit is a liquidity drainer that shows no signs of improving.
However, I would disagree with this notion. Over the past year, I’ve extensively covered how the Treasury has used T-bills to finance much of the deficit. These T-bills, while not immediately money, act as collateral in the repo market, enabling money creation. This means the Treasury is effectively printing money, adding liquidity to the system, contrary to the common misconception that deficits drain liquidity. Note also that it means that the Treasury, not the Fed, is dictating monetary policy.
In fact, budget deficits are bullish for the economy because they create liquidity. When T-bills are used in the repo market, they become instantly convertible into cash, fueling further investment and driving up asset prices. This creates a cycle where more money is injected into the economy, boosting the stock market and other financial markets.
However, this “perpetual motion machine” is not without risks. Market participants, from banks to investors and dealers, rely on the animal spirits to keep this cycle going. If confidence wanes, the cycle could break, leading to potential market instability. This is why watching technical indicators, such as the daily ES and S&P futures, is critical in understanding potential market moves.
Currently, we are seeing some support and resistance levels that could dictate the future direction of the market. Stock cycles suggest an upward trend, but high levels are approaching, which may indicate a correction or a potential crash if the markets fail to maintain momentum.
Stock Cycles Point Upward but High Due Soon with S&P Near Projections – Technical Trader Report
For more insights into the markets and economic trends, check out these recent reports:
- Gold Chart Cycles Show Mixed Signals: Trading Range Continues as Long-Term Uptrend Remains Intact December 10, 2024
- Stock Cycles Point Upward but High Due Soon with S&P Near Projections – Technical Trader Report December 9, 2024
- Technical Stock Screens Reveal- 2 Buys and 2 Short Sale Picks This Week December 9, 2024
- Stock Market Outlook: Extreme Valuations, Liquidity Growth, and the Road to the Next Bear Market December 8, 2024
- Giant Gain in November Withholding Tax Collections
- Ponzi Much? Understanding Treasury Debt and Market Fragility November 20, 2024
In conclusion, while the role of the Fed and Treasury in money creation is complex, it remains clear that their actions have a profound impact on liquidity and market cycles. Stay informed and keep watching the signs for what could come next in 2024.
Original post edited by ChatGPT for SEO purposes.
