US Treasury Set to Control Liquidity in Fiscal Dominance Shift
Real Vision founder Raoul Pal warns that liquidity control may move from the Federal Reserve to the U.S. Treasury. He argues that the Treasury will oversee debt financing and rollover, using bank conduits and issuing bills to inject cash. This shift marks a rise in fiscal dominance and a decline in traditional central bank independence. Crypto traders should note how fiscal dominance could reshape funding costs, collateral flows, and crypto liquidity channels. Monitoring policy signals and macro liquidity metrics will be vital. Investors must track official statements for insights into risk management and potential funding squeezes in digital assets.
Bearish
The prospect of fiscal dominance implies that traditional monetary policy may lose effectiveness. If the Treasury drives liquidity, central banks may struggle to offset fiscal-driven supply moves. This could increase funding costs and reduce crypto liquidity. Historically, tighter policy coordination between fiscal authorities and markets led to higher yields and market volatility, as seen in 2023 debt ceiling talks. In the short term, traders may face funding squeezes and wider spreads. Over the long term, structural shifts in liquidity channels could undermine crypto asset valuations and risk appetite.